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Beyond The Zulu Principle: Extraordinary Profits from Growth Shares by Jim Slater

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10. Strong Financial Position

Cash flow per share is only one measure of a company’s financial strength. The level of gearing, cash balances and general liquidity are also very important indicators of its capacity to survive in difficult times.

The gearing ratio

The gearing ratio is the accepted short-hand way of indicating the extent of a company’s borrowings. Net gearing is calculated by taking overall borrowings, deducting cash, treasury bills and certificates of deposit and then expressing the resultant figure as a percentage of shareholders’ funds, including intangibles such as brand names, patents, copyrights and goodwill. Note that marketable securities are not deducted from borrowings as they may not be realisable in an emergency. ...

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