You have now understand debt ratio and debt-to-equity ratio but suddenly you hear people asking you, “what’s the gearing for your Company”. Would you go scratching your head & say “erm… I dunno leh”….

Well actually you know it, Gearing Ratio is actually a category (big umbrella). Since you have now understand the individual ratios, it is time you understand the categories they belong to & how the bankers/investors usually say it;

Solvency Ratio

1. Working Capital Ratio or Current Ratio

Liquidity Ratio

• Average Creditors Days
• Average Debtor Days:
• Cash Reserves

Gearing Ratio

1. Debt Ratio
2. Debt-To-Equity Ratio

Please take note that these are not the complete KPI we can have, this is just the tip of an iceberg. There are still plenty of KPI but I don’t want to bombard everything into you. These are some of the important KPI that all entreprenuers should know & track.

Next time we shall talk about cash flow.