How do I calculate the gearing?
It is important to understand how to calculate gearing in order to make informed financial decisions. Gearing is typically calculated using the debt-to-equity ratio, which is a general classification of a financial ratio. The debt ratio is also a gearing ratio. The net gearing ratio is calculated by netting long-term debt, short-term debt, and bank overdrafts and expressed as a percentage. The formula for calculating the net gearing ratio is
Net Gearing Ratio = (Total Debt − Cash & Cash Equivalents) ÷ Total Equity. Generally, debt-to-equity ratios above 25% are considered low-risk. Programs such as Sourcetable can be used to calculate the gearing ratio.