Understanding Capital Structure Ratios and Their Analysis

The video tutorial covers capital structure ratios, focusing on capital gearing and proprietary ratios. It explains the formulas, provides examples, and discusses the implications of these ratios on a company's financial health. The tutorial emphasizes the importance of balancing equity and debt and concludes with a preview of the next session on coverage ratios.

Which of the following is NOT a capital structure ratio mentioned in the introduction?

• Equity Ratio

• Debt to Total Assets Ratio

• Debt to Capital Ratio

• Liquidity Ratio

What does the capital gearing ratio compare?

• Equity share capital with reserves and surplus

• Fixed interest or dividend bearing funds with common stockholders equity

• Total debt with total assets

• Short-term loans with long-term loans

In the example provided, what is the capital gearing ratio of Lucky Limited?

• 1.3

• 1.2

• 0.92

• 0.85

What does a low capital gearing ratio indicate about a company?

• The company has higher debt compared to equity

• The company has higher equity compared to debt

• The company is highly dependent on external sources

• The company pays high interest and dividends

How is the proprietary ratio calculated?

• By dividing total assets by proprietary funds

• By dividing equity share capital by total liabilities

• By dividing reserves and surplus by total assets

• By dividing proprietary funds by total assets

What does a higher proprietary ratio indicate?

• Lower contribution from stockholders

• Better long-term solvency position

• Greater dependence on external sources

• Higher risk to creditors

Why is it important to consider multiple ratios when evaluating a company's capital structure?

• Because one ratio can provide a complete picture

• Because different ratios measure different aspects of financial health

• Because ratios are not reliable indicators

• Because it is required by financial regulations