Economics · Financial Ratios
A company borrows 10,000 as a long-term loan repayable in five years' time, and immediately uses the proceeds to repay its bank overdraft (a current liability). What will be the immediate effect of this transaction on the company's capital gearing ratio (Long-term Debt / Equity) and current ratio?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Capital gearing: Decrease, Current ratio: Decrease
- 2Capital gearing: Decrease, Current ratio: Increase
- 3Capital gearing: Increase, Current ratio: Decrease
- 4Capital gearing: Increase, Current ratio: Increase✓
Correct answer
Capital gearing: Increase, Current ratio: Increase
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