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Capital Structure Ratio
Gearing/Leverage/Capital Structure Ratio
a) Debt/equity ratio = Fixed charge capital/Equity (net worth)
This ratio signify the amount of fixed charge capital in the capital structure of the firm for each one shilling of owners capital or equity as a ratio of 0.78 means for every Sh.1 of equity there is like Sh.0.78 fixed charge capital.
b) Fixed charge to total capital ratio = (Fixed charge capital x 100)/Total capital employed
Whereas net capital employed = Fixed charge capital + equity relative to net capital working via the firm as a ratio of 0.38 means such, 38% of the capital working is fixed charge capital.
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