GEARING RATIOS

Gearing ratios measures a company’s financial leverage. It demonstrates the degree to which a
company’s activities are funded by equity (shareholders’ funds) and creditors’ funds. Gearing can also be
used to determine liquidity, but it focuses on long term financial stability as opposed to the short term
financial stability aforementioned.

1. Debt to equity ratio: this financial ratio indicates the proportion of debt and equity used to
finance the company’s activities. From the calculation above, the debt capital used to finance the
company only constitutes of just 42% of the total company finances.

2. Debt to asset ratio: the ratio of 1:0.3 shows that 30% of Dangote cement’s assets are financed
by creditors and 70% by shareholders.

INVESTORS RATIOS

These ratios are used by investors or potential investors to evaluate how well a company can maximize
returns on their investments. Although, some investors invest their resources in accordance to their risk
appetites, a good indication from the financial ratios can also influence their decision to invest in a
company.

1. Dividend cover: This ratio is also referred to as dividend coverage, it measures how convenient it
is for the company to pay out dividend and also how convenient it is for a company to make a plough
back or reinvestment. The dividend cover of Dangote cement is 0.96 which is not considered a safe
coverage and also indicates that the dividend is likely to fall this coming year.

2. Dividend payout ratio: this ratio shows how much of the share earnings the company is
returning to shareholders and how much is being retained for reinvestment. The calculation above
shows that Dangote cement is paying out 1.04 of share earnings to shareholders as dividend.