can someone explain to me what a negative gross gearing means
say gross gearing -800%
thanks
Imagine you have borrowed money to buy a property and you rent that property out. Negative gross gearing is where the rental income is not enough to cover the repayments of the loan.
For a different perspective on "negative gross gearing" look at Crest Nicholson (LON:CRST).
Gross gearing at 31 October 2019 is shown as -4.47% which is arrived at by dividing Net Debt of £M-38.2 by the "Book Value" of £M854.4.
Negative net debt indicates at at that balance sheet date in time the company had more cash than debt. It is a snapsot on that date only.
Hope this helps.
Bonitabeach
https://www.stockopedia.com/ratios/gross-gearing-905/
Gross Gearing = Total Debt / Book Value of Equity
If total debt is negative (i.e. net cash) then gross gearing can be negative. Which is good.
Book Value = All Assets minus all Liabilities
If liabilities exceed assets then this can also give a negative result.Which is bad.
Conceivably you could have both and then end up with a positive gearing figure.
So negative gearing is either positive or negative and the inputs should also be examined. Same goes for positive gearing!
Alternatively in more normal times, use a measure that looks at the ability to repay debt. I believe a popular version is net debt < 5x operating profit. Or something like that.
As noted above, Gross Gearing is define as Gross Debt (ie not netted off with any cash on the balance) as a percentage of Total Net Asset Value. [TNAV]
The principle is that the lower this figure the safer the company is.
However, like some similar measures, the logic only holds true if the numbers are rational (ie above zero).
AFAIK Gross Debt can never correctly be a negative number. However, TNAV can (when total liabilities exceed total assets).
The closest I can find on the UK market currently to Gross gearing -800% is Domino's Pizza (LON:DOM).
Here the figures are :
Total Debt : £248.3m
Total Assets : £353.9m
Total Liabilities : £383.5m
TNAV : -£29.6m
So Gross Gearing = -839% (248.3 / - 29.6)
Whether the number itself has any meaning, I don’t really know, but that the fact that TNAV is negative is definitely not a good thing.
On the other hand, net gearing AKA Net debt to Equity or just Gearing. Compares Net debt (Gross debt less cash) with equity.
As Net Debt can logically be negative (if you have more cash than debt) then negative numbers here can be a good thing (so long as TNAV is actually positive and it is negative net debt that drives the result negative.)
Personally though I am always slightly cautious about companies with negative net debt (who also have actual gross debt) - if the cash of the balance sheet is really unencumbered and not effectively tied up in working capital, the why would you need to have debt?
