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JAMB Principles of Accounts 1998 Question 44

Question 44

Interpretation of Accounts

To compute gearing ratio, divide

  1. A.profit by capital employed
  2. B.current assets by current liability
  3. C.profit by total assets
  4. D.long-term debt by equity capital.
Show the answer and explanation

Answer: D (long-term debt by equity capital.)

Explanation

Gearing compares fixed-interest long-term debt with equity capital.