levo
Get notified

Assessing Competitiveness

Ratio analysis

  • 6 things to know
  • Paper 2 and Paper 3

Overview

Gearing and return on capital employed, how each is calculated, what a high or low value suggests, and the decisions the ratios inform.

What you need to know

Answer each one before you reveal it.

Your recallNot started
Numbers

What does the gearing ratio measure, and how is it calculated?

Numbers

What is return on capital employed, and what does low gearing show?

Evaluation

What decisions do gearing and ROCE inform?

Numbers

Give three examples of qualitative factors that ratios do not account for.

Numbers

State the gearing-ratio formula.

Numbers

State the ROCE formula.

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What does the gearing ratio measure?

    Model answer

    The proportion of a business's capital that is financed through long-term debt compared to equity.

  2. 2

    State the formula for calculating the gearing ratio.

    Model answer

    Gearing ratio = (Non-current liabilities ÷ (Total equity + Non-current liabilities)) × 100

  3. 3

    What two components make up the denominator in the gearing ratio formula?

    Model answer

    Total equity and non-current liabilities.

  4. 4

    Calculate the gearing ratio when non-current liabilities = £370,000, total equity = £660,000.

    Model answer

    Gearing ratio = (370 ÷ (660 + 370)) × 100 = 35.9 %.

  5. 5

    What does a high gearing ratio indicate about a business's financial position?

    Model answer

    It indicates greater reliance on debt financing and higher financial risk.

  6. 6

    Why might a highly geared business face greater financial risk?

    Model answer

    Because it has a greater reliance on debt financing, meaning it must meet interest payments regardless of profit levels, increasing vulnerability during downturns.

See the rest and revise

Other ways to work this

The same content, four other ways.

What is inside Levo

Six ways to work the same material.

1Closed book
2Open book
3Closed book

The 3-step method, run for you

Answer cold, learn it, then prove it stuck. Levo tracks the jump between your first attempt and your last.

Meeting Customer Needs
The Market
Marketing Mix and Strategy
Managing People

Cram a whole paper in one sitting

Sort every topic into what you know and what you do not, then drill only the weak ones.

Net gain = − initial cost.
EMVNPVARR

Blank Blitz makes facts automatic

Rapid timed gap-fills on the terms and numbers you need to recall without thinking.

AGross profit equals revenue minus cost of sales.
BOperating profit equals gross profit minus operating expenses.
CNet profit equals operating profit minus interest and taxation.

Build It gets the exam shape right

Assemble a full-mark answer from its marking points, in the order an examiner wants them.

Tariff means a tax imposed on imported goods.
TrueFalse

Test It catches misconceptions

Spot the fault in a statement. The traps are the mistakes students actually make.

721941163128510

Brain Breaks between sessions

Short focus games to reset attention, so the next set lands better than the last.

Every question in Assessing Competitiveness, on a schedule.

Attempt a question from memory, write the correct version, then attempt it again. Levo records the jump between your first attempt and your last, and brings each question back on the day you are due to forget it.

Start revising, £5 a monthSee how the method works

Or £46 a year, about £3.83 a month. Cancel anytime.