SIDC Module 7 Financial statement analysis and ratios question: Alpha Bhd (RM million)

SIDC Module 7Financial statement analysis and ratios

Alpha Bhd (RM million): equity 700; non-current borrowings 300; current liabilities 200; total assets 1,200. Defining gearing as non-current borrowings ÷ (non-current borrowings + equity), what is Alpha's gearing?

A 25.0%
B 30.0%
C 42.9%
D 71.4%

Show the answer and explanation

Answer: B. 30.0%

Gearing on the stated definition = 300 ÷ (300 + 700) = 30.0%: lenders supply 30% of the long-term capital. 42.9% is the debt-to-equity ratio (300 ÷ 700), a different measure that is always higher than debt ÷ (debt + equity) for the same company. 25.0% divides debt by total assets, which includes the current liabilities. 71.4% divides all liabilities (300 + 200) by equity, a total liabilities-to-equity measure. Source: SIDC M7 Study Outline Topic 3.2 Techniques of Analysis; ACCA technical article 'Ratio analysis' (accaglobal.com): debt ÷ (debt + equity) (as at October 2026).

Common mistake

Mixing the two gearing formulas. Debt ÷ (debt + equity) and debt ÷ equity give different numbers for the same balance sheet.

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