Dee Ltd manufactures sweets and chocolates. Extracts from Dee Ltd's statement of financial position as at 30 September 2013 is given in Table 9.7.

REQUIRED:

a) Explain what you understand by the term ‘gearing.

b) Using the extracts from Dee Ltd's statement of financial position, determine Dee Ltd's gearing ratio.

c) What are the risks to a company of having a high level of gearing?

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Table 9.7 Dee Ltd Statement of financial position as at 30 September 2013 ASSETS Non-current assets Current assets Current liabilities Total assets EQUITY AND LIABILITIES Ordinary 1 shares Share premium Retained profits Total equity Non-current liabilities Long-term loan Current liabilities Total equity and liabilities '000 277 98 (95) 375 90 65 45 200 80 95 375