GEARING RATIOS
a) Debt ratio = Total debts
Total assets
Where total debt = fixed charge capital + liabilities.
The ratio indicate the proportion of total assets that has been financed using long term and current liabilities e.g a debt ratio of 0.45 mean 45% of total asset has been financed with debt while the remaining 55% was financed with owners equity/capital.
b) Times interest earned ratio = Operating profit (earning before interest and tax
Interest Charges