a question related to capital adequacy

[Ice_Blue]

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]

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]

It should normally be 4060. But industry to industry std differs as discussed ny DT.