What is the 'Gearing Ratio'
The gearing ratio is a general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds.
Also known as the Net Gearing Ratio.
BREAKING DOWN 'Gearing Ratio'
The higher a company's degree of leverage, the more the company is considered risky. As for most ratios, an acceptable level is determined by its comparison to ratios of companies in the same industry. The best known examples of gearing ratios include the debttoequity ratio (total debt / total equity), times interest earned (EBIT / total interest), equity ratio (equity / assets), and debt ratio (total debt / total assets).
A company with high gearing (high leverage) is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are. A greater proportion of equity provides a cushion and is seen as a measure of financial strength.

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What is the difference between the gearing ratio and the debttoequity 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 >> 
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 >> 
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 >> 
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 >> 
Which financial ratio best reflects capital structure?
Learn about the debttoequity ratio and why this metric is widely considered the most useful reflection of a company's capital ... Read Answer >> 
What are financial risk ratios and how are they used to measure risk?
Explore some of the primary financial risk ratios that investors and analysts commonly use to evaluate a company's overall ... Read Answer >>