What levels of gearing are most likely to be suitable for a food retailer and a steel producer?
A) Food retailer: High; Steel producer: High
B) Food retailer: Low; Steel producer: Low
C) Food retailer: High; Steel producer: Low
D) Food retailer: Low; Steel producer: High

Question

Quizplus · Accepted Answer

Food retailers typically have high inventory and low fixed assets, so they need high gearing to finance their inventory. Steel producers, on the other hand, typically have low inventory and high fixed assets, so they need low gearing to finance their fixed assets.

What Levels of Gearing Are Most Likely to Be Suitable