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+--- Thread: a question related to capital adequacy (/showthread.php?tid=1432)
a question related to capital adequacy - Ice_Blue - 12-19-2004
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
- derivativetrader - 12-19-2004
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
- mhmirza - 12-20-2004
It should normally be 4060. But industry to industry std differs as discussed ny DT.