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The following capital structure his been extracted from the Balance Sheet of Ahuja Ltd.

Equity Share Capital30,00,000
10% Debentures40,00,000
12% Preference Shares Capital20,00,000
Capital employed1,00,00,000

Calculate gearing ratio if the company earns a profit of Rs. 20,00,000 before interest and tax and tax rate of 50%.

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The capital gearing ratio can be calculated as follows:

= (Funds bearing fixed interest/dividend) / Total capital employed

= (60,00,000 / 1,00,00,000)

= 0.6 or 60%

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