CIMA F2 Syllabus E. Analysing financial statements - Gearing - Notes ^{3 / 5}

This could also be calculated as:

The higher a company's degree of leverage, the more the company is considered risky.

Points to notice about LOW interest cover

low interest cover is a direct consequence of high gearing and . For example,

• It makes profits vulnerable to relatively small changes in operating activity

• So small reductions in sales / margins or small increases in expenses may mean interest can't be paid