What are the two main benefits of using the measure of Capital gearing = Long- term debt/Total market capitalisation?
A) It is generally closer to the market- value- based gearing measures.
B) It exaggerates the effect of financial distress.
C) It gives some indication of the relative share of the company's total value belonging to debtholders and shareholders.
D) It ignores the fact that many firms have no access to overdrafts or similar borrowing.

Question

Quizplus · Accepted Answer

A) Capital gearing ratio, by incorporating market capitalization, aligns more closely with market-value-based measures, reflecting current investor sentiment and market conditions. C) This ratio helps in understanding the proportion of the company's value that is financed through debt versus equity, offering insights into the financial structure and risk profile of the company.

What Are the Two Main Benefits of Using the Measure