Capital Gearing

What is 'Capital Gearing'

Capital gearing is the degree to which a company acquires assets or to which it funds its ongoing operations with long- or short-term debt. Capital gearing will differ between companies and industries, and will often change over time.

Capital gearing is also known as "financial leverage".

BREAKING DOWN 'Capital Gearing'

In the event of a leveraged buyout, the amount of capital gearing a company will employ will dramatically increase as the company increases its debt in order to finance the acquisition. When analyzing a firm undergoing a leveraged buyout, it is important to consider the firm's ability to service the additional interest payments on an after-tax basis, as well as the likelihood of the firm paying off the new debt as it matures.

RELATED TERMS
  1. Gearing

    The level of a company’s debt related to its equity capital, ...
  2. Gearing Ratio

    A general term describing a financial ratio that compares some ...
  3. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company ...
  5. Bust-Up Takeover

    A corporate buyout in which the acquirer sells off a piece of ...
  6. Long-Term Debt To Capitalization ...

    A ratio showing the financial leverage of a firm, calculated ...
Related Articles
  1. Fundamental Analysis

    What is Gearing?

    Gearing, also called leverage, is the degree to which a company’s operations are funded by lenders versus shareholders.
  2. Fundamental Analysis

    What Is A Good Gearing Ratio?

    Gearing ratios are useful for evaluating a company’s financial fitness through the figures found on its profit and loss statement.
  3. Fundamental Analysis

    What is the Gearing Ratio?

    Gearing ratios are financial ratios that measure a company’s leverage.
  4. Investing Basics

    How to Use the Gearing Ratio

    The gearing ratio is a figure that compares a company’s owners’ equity to the amount of money the company has borrowed.
  5. Investing Basics

    The Optimal Use Of Financial Leverage In A Corporate Capital Structure

    The amount of debt and equity that makes up a company's capital structure has many risk and return implications.
  6. Professionals

    Capital Structure

    This is an important concept in valuing a company.
  7. Credit & Loans

    Debt Ratios: Capitalization Ratio

    By Richard Loth (Contact | Biography)The capitalization ratio measures the debt component of a company's capital structure, or capitalization (i.e., the sum of long-term debt liabilities and ...
  8. Bonds & Fixed Income

    Evaluating A Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  9. Economics

    Financial Leverage In Corporate Capital Structure

    Corporate management uses financial leverage to increase earnings per share and return-on-equity.
  10. Credit & Loans

    Explaining Leveraged Loans

    Leveraged loans are loans extended to companies or people who already have large amounts of debt.
RELATED FAQS
  1. What is the difference between a capital gearing ratio and a net gearing ratio?

    Understand the definition of gearing in the finance industry, the difference between net gearing and capital gearing ratios ... Read Answer >>
  2. What is considered to be a bad gearing ratio?

    Understand the basics of gearing, including the net gearing ratio, what constitutes a bad gearing ratio and how this figure ... Read Answer >>
  3. What is the difference between the gearing ratio and the debt-to-equity ratio?

    Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular ... Read Answer >>
  4. What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing ... Read Answer >>
  5. What is a good gearing ratio?

    Understand the meaning of the gearing ratio, how it is calculated, the definition of high and low gearing, and how they reflect ... Read Answer >>
  6. How is a leveraged buyout different from a buyout?

    Learn about leveraged buyouts and circumstances under which an acquiring company wishes to pursue a buyout funded mostly ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center