Financial Position Ratios

Interest Cover

Interest Cover is the ratio between a business' operating profit and finance costs, expressed as a number. It measures how many times a business could cover it's finance costs (i.e. interest payments) using it's operating profit.

\[ Interest\;Cover = \frac{Operating\;Profit}{Finance\;Costs} \]

Gearing

Gearing is the ratio between a business' total debt and total debt plus total equity, expressed as a percentage. It measures how much the business relies on debt. The higher the gearing ratio, the greater the reliance on debt.

\[ Gearing = \frac{Total\;Debt}{Total\;Debt + Total\;Equity} \]

Where:

• \(Total\;Debt = Non\text{-}current\;liabilities\)

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