Gearing and International development agency: Difference between pages

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imported>Doug Williamson
(Add link to Long-term solvency ratio.)
 
imported>Doug Williamson
(Create page. Source: State university webpage https://education.stateuniversity.com/pages/2119/International-Development-Agencies-Education.html)
 
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'''1.''' <br />
(IDA).
<i>Financial gearing</i> measures the relative amount of debt in a firm's capital structure.<br />
Gearing is sometimes also known as <i>leverage</i>.


International development agencies, or aid agencies, are usually departments of a single national government.


Gearing and leverage ratios can be calculated in several different ways, so consistency of approach is important.
They generally aim to advance foreign policy goals, while contributing to economic and social development in the countries they support.




Two essential bases to define are:
Examples include the UK's Department for International Development (DFID) and the United States Agency for International Development (USAID).
 
i. The use of book or market values.<br />
ii. The use of Debt divided by Equity (D/E) or of Debt divided by Debt plus Equity = D / (D+E).
 
 
<span style="color:#4B0082">'''Example 1: Calculation of gearing'''</span>
 
<i>Gearing</i><br />
Assume the values of debt and equity are equal, say USD 1m each.<br />
D/E = 1/1 = 100%.<br />
This is usually known as 'gearing'.
 
 
<span style="color:#4B0082">'''Example 2: Calculation of leverage'''</span>
 
<i>Leverage</i><br />
Using the other calculation with the same inputs (D = 1 and E = 1):<br />
D / (D+E) = 1/2 = 50%.<br />
This is usually known as 'leverage'.
 
 
<b>Adjustments to D and E figures</b><br />
With respect to the Debt figure, practice varies in including or excluding certain items such as cash, short term borrowings, leases, pensions and other provisions.<br />
Practitioners may also adjust the Equity figure, for example to exclude intangible assets.
 
 
<b>Bank supervision</b><br />
In the banking context, the calculation of the regulatory [[Leverage Ratio]] is strictly specified, following [[Basel III]].
 
 
'''2.''' <br />
<i>Operational gearing</i> relates to the operating costs of a business, and measures the relative proportions of fixed and variable operating costs.
 
 
'''3.''' <br />
'Gearing up' refers to increasing the levels of financial or operation gearing - or both - within an organisation.<br />
The intention of gearing up is to improve expected net results.  <br />
A consequence of gearing up is normally to increase risk, and the cost of equity capital.
 
 
Many financial disasters have been a consequence of gearing up (or leveraging) excessively in this way in earlier periods.




==See also==
==See also==
* [[Balance sheet ratio]]
* [[Business & Sustainable Development Commission]]
* [[Basel III]]
* [[Corporate social responsibility]]
* [[Cost of equity]]
* [[Department for International Development]]  
* [[Debt equity ratio]]
* [[Forbearance]]
* [[Debt to equity ratio]]
* [[IDA countries]]
* [[Geared beta]]
* [[United States Agency for International Development]]
* [[Intangible assets]]
* [[Interest cover]]
* [[Leverage]]
* [[Leverage Ratio]]
* [[Leveraged]]
* [[Leveraged takeover]]
* [[Levered]]
* [[Levered beta]]
* [[Long-term solvency ratio]]
* [[MCT]]
* [[Off balance sheet finance]]
* [[Tax shield]]
* [[Ungeared]]
* [[Ungeared cash flow]]
 
 
===Other links===
[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, Will Spinney, The Treasurer]


[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Ethics]]

Latest revision as of 12:07, 31 March 2020

(IDA).

International development agencies, or aid agencies, are usually departments of a single national government.

They generally aim to advance foreign policy goals, while contributing to economic and social development in the countries they support.


Examples include the UK's Department for International Development (DFID) and the United States Agency for International Development (USAID).


See also

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