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.

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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 is the most widely used gearing ratio?

    Understand the most commonly used gearing, or leverage, ratio used to evaluate a company's financial condition, the debt ... Read Answer >>
  5. What is the relationship between degree of operating leverage and profits?

    Find out why a company's degree of operating leverage is an important consideration when predicting future operating income ... Read Answer >>
  6. Does working capital include short-term debt?

    Learn about a company's working capital and how short-term debt is considered part of current liabilities and is included ... Read Answer >>
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