Gearing measures the extent to which a company's operations are funded by lenders, otherwise known as financial leverage.
What is Gearing?
Gearing is a measure of financial leverage and is also known as leverage. It is measured by various leverage ratios and is important because it affects a company's creditworthiness.
What is the formula for calculating Gearing?
The formula for calculating Gearing is: Total Liabilities / Total Assets
What is the importance of Gearing?
Gearing is important because it affects a company's creditworthiness. Lenders may consider a company's gearing ratio when deciding whether to provide credit.
Key Points
Net Gearing Ratio
The net gearing ratio is a measure of a company's financial leverage and is calculated by dividing total debt by total shareholders' equity.
Debt-to-Equity Ratio
The debt-to-equity ratio is used to measure how well a company is financing its operations and growth by comparing the total debt to total shareholders' equity.
Capital Gearing
Capital gearing is a measure of how much debt is being used to finance a company's assets and is calculated by dividing total debt by total assets.
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