Gearing ratio represent a group of financial ratios that compare some form of owner’s equity (or capital) to debt, or funds borrowed by the company. Gearing is a measurement of the entity’s financial leverage, which demonstrates the degree to which a firm’s activities are funded by shareholders’ funds versus creditor’s funds.
What is the Gearing Ratio
Gearing ratio, with reference to a financial market, is a popular financial ratio that compare a company’s debt to other financial metrics such as business equity or company assets. Gearing ratio represent a measure of financial leverage that finds to what degree a company’s actions are funded by shareholder equity in comparison with creditors’ funds.
Gearing ratio formulas help provide clarity into the sourcing of a firm’s operating funds, which provides a greater insight into a company’s reliability and whether they are able to withstand periods of financial instability.
Gearing ratios are a measure of financial leverage that demonstrates the degree to which a firm’s operations are funded by equity capital versus debt financing.