i have a question related to capital adequacy
what is the Gearing Ratio ?
is it the ratio of "Equity to Deposits" of a bank
or is the ratio of "Capital to Deposits" of a bank
how much should it be?
should it be 4060 or 6040 which one
may God bless everyone who clears my confusion or attempts to do so
Regards,
Ice Blue
Gearing = (Long Term Liabilities) / (Equity Shareholders' Funds)
Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance, with the shareholders' funds being significantly larger than the long term liabilities.
I think there is no perfect answer to your second query. Some organisation will have a higher gearing ratio whereas, for some having a higher ratio may cause long term financial problems.
DT
It should normally be 4060. But industry to industry std differs as discussed ny DT.