2 min read
Definition
The gearing ratio compares a company's debt to its equity (or to total capital), expressing how reliant the business is on borrowed money. It's usually shown as debt divided by equity, as a percentage.
In plain terms
Low gearing means the owners fund most of the business; high gearing means borrowing does. Neither is inherently bad, but heavy gearing leaves less cushion when trading dips.
Why it matters for your company
Lenders study gearing to judge how much more debt a company can safely carry. A highly geared company may find further borrowing dearer or harder. Compare with debt service cover and read how lenders price a loan.
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