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1 markFinancial Statements Analysis

CAPE Management of Business Unit 1 · 2002 · Paper 1 · Question 15(a)

Afrique Soap Company Ltd is a public limited company producing bath soaps, needing to raise $50 million to finance the takeover of Gold Coast Soaps Ltd. The finance director reminded the managing director of the existing gearing ratio of the company.

What is meant by 'gearing ratio'?

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  1. 15(b)Explain how the gearing ratio could assist the management of Afrique Soap Company Ltd when deciding between using additional equity capital or loan capital.[2 marks]

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