Investor's wiki

Gearing Ratio

Gearing Ratio

The gearing ratio, otherwise called net gearing ratio, is a comparative formula that compares capital to liabilities (or borrowed funds). Investors and business oversees utilize the gearing ratio to measure a company's level of risk and decide whether the company has strength to persevere through economic downturn or a negative business cycle.

Features

  • Gearing is a measure of the amount of a company's operations are funded involving debt versus the funding received from shareholders as equity.
  • Gearing ratios have more significance when they are compared against the gearing ratios of different companies in a similar industry.
  • Gearing ratios are a group of financial metrics that compare shareholders' equity to company debt in different ways to survey the company's amount of leverage and financial stability.