HKSI Paper 8 Securities analysis question: debt-to-equity ratio based on total borrowings

HKSI Paper 8Securities analysis

A company has long-term borrowings of HK$300 million, short-term borrowings of HK$100 million and equity of HK$800 million. What is its debt-to-equity ratio based on total borrowings?

A 50.0%
B 12.5%
C 33.3%
D 37.5%

Show the answer and explanation

Answer: A. 50.0%

The stem defines the gearing measure as total borrowings divided by shareholders' equity. Working: total borrowings = HK$300m + HK$100m = HK$400m; HK$400m ÷ HK$800m = 50.0%. A result of 37.5% uses only long-term borrowings (HK$300m ÷ HK$800m). A result of 33.3% is debt to total capital, HK$400m ÷ (HK$400m + HK$800m), a different gearing measure from the one asked for. A result of 12.5% uses only short-term borrowings (HK$100m ÷ HK$800m). Source: Standard ratio analysis (debt-to-equity ratio = total borrowings ÷ shareholders' equity) (as at October 2026).

Common mistake

Using debt to total capital, or only long-term debt, when the question asks for total borrowings over equity.

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Original study material mapped to the public HKSI Paper 8 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.