Financial Ratio Analysis - Case Study Example

GEARING RATIOGearing is an essential element which helps in deciding upon the balance between equity and debt financing. The higher the level of gearing, the higher would be the return required from the loan provider/bank as they would be exposed to greater risk and the susceptibility that their money might go unpaid if the company goes bankrupt (Vandyck, 2006).Debt/Equity Ratio = Total Debts: Total EquityThis ratio gives the proportion of the Debt and Equity acquired by any company to finance its operations.

Operating MarginOperating margin is a measure of the profitability of a company. This ratio analyzes a company’s ability to pay off the operating expenses and the costs of goods sold by a company with respect to its revenue.Interest CoverInterest cover is a measure of financial risk i.e. it shows a company ability to pay off its interest obligation on any borrowings that it has made with the profit that it makes in that period (Morley, 1984).