Question 4

Operational gearing is of interest not only to managers, but also to investors, since it may affect their investment decisions. While they may have a view on an appropriate level of operational gearing for a company based on their understanding of its business, they cannot confirm that view, since its not possible to calculate a reliable gearing ratio from published accounts. (Steven, 2006) Required: In no more than 200 words, critically discuss the above statement.

Total 20 marks