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Gearing = debt ÷ equity. It shows how reliant the business is on borrowing versus owners' capital.
Step 1: total your debt
Add up your interest-bearing borrowing — loans, asset finance, overdraft and similar. This is the debt side of the ratio, the funding that comes from lenders rather than from the business itself.
Step 2: find your equity
Take shareholders' equity from the balance sheet — share capital plus retained profits. This is the funding the business owns outright. It is the equity side of the gearing calculation.
Step 3: divide
Divide debt by equity and express it as a percentage. That is your gearing ratio. Below about 50% is often seen as comfortable; above 100% means the business is highly geared, leaning more on debt than its own funds.
Why it matters for borrowing
High gearing makes lenders cautious, because a heavily indebted business has less cushion if trading dips. It sits alongside affordability in the decision — see also debt-to-equity.
Work out your gearing
Use the calculator to compute your ratio in seconds.
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Frequently asked questions
How do I calculate the gearing ratio?
Total your interest-bearing debt, take shareholders' equity from the balance sheet, divide debt by equity and express it as a percentage. That is your gearing ratio.
What is a good gearing ratio?
Below about 50% is often seen as comfortable, showing the business relies more on its own funds than debt. Above 100% is highly geared, which makes lenders more cautious about advancing more.
Why does gearing matter to a lender?
A highly geared business has less cushion if trading dips, because so much of its funding is debt. Lenders weigh gearing alongside affordability when deciding how much more the company can safely borrow.
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