Gearing Book Value Formula

Appropriate classification of capital into debt and equity is important for the calculation of the gearing ratio.

Gearing book value formula. It uses the book value of equity not market value as it indicates what proportion of equity and debt the company has been using to finance its assets. Also known as gearing this is a measure of a company s financial leverage calculated by dividing its total liabilities by stockholders equity. The sum of interest bearing long term and short term debt such as bonds bank loans etc.

For the purpose of analysis the book value of equity is further divided by a total number of shares to make book value per share. The formula for calculating book value per share is the total common stockholders equity less the preferred stock divided by the number of common shares of the company. How to calculate the gearing ratio.

Book value us 375 32 billion us 241 27 billion us 134 05 billion. Book value per share. Classification of debt and equity.

The most comprehensive form of gearing ratio is one where all forms of debt long term short term and even overdrafts are divided by shareholders equity. Book value may also be. Where d is the total debt i e.

The gearing ratio calculated by dividing total debt by total capital which equals total debt plus shareholders equity is also called debt to capital ratio. The formula states that the numerator part is what the firm receives by the issuance of common equity and that figure increases or decreases depending upon the company is making profit or loss and then finally it decreases by issuing dividend and preference stock. The formula is.

Total debt book value of equity. Long term debt short term debt bank overdrafts shareholders equity. How to calculate book value.