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Definition of

gearing ratios


ratios linking firm's capital structure to business risks ratios that indicate the level of risk taken by a company as a result of its capital structure. A number of different ratios may be calculated, for example, debt ratio (total debt divided by total assets), debt-to-equity or leverage ratio (total debt divided by total equity), or interest cover (earnings before interest and tax divided by interest paid). Gearing is most frequently used to measure the return on stockholders' investment from assets, and is calculated as borrowed capital divided by equity capital. This ratio is one of the most difficult to manage because it needs to be kept in balance. If it is high then the return to equity stockholders will be, but the risk to stockholders and fixed interest lenders is greater.

Related definitions of "gearing ratios"

gearing ratios - Related Articles
  • Measuring Gearing


    The three most common examples of gearing ratios are:

  • Debt/Capital Ratio


    Whether called debt/capital ratio, debt-to-capital ratio, or simply debt ratio, this is a fundamental tool in analyzing how a company is funded. It is also known as the gearing ratio.

  • Steps for Obtaining Bank Financing


    Decision makers at the bank will judge the company on a number of factors, including the following ratios:

  • Merchant Banks: Their Structure and Function


    Merchant banks offer corporate advisory services to clients for their financial problems. Advice may be sought in such areas as determining the right debt-to-equity ratio, the gearing ratio, and the appropriate capital structure. Other areas of advice may be in areas of refinancing and seeking


Definitions of ’gearing ratios’ and meaning of ’gearing ratios’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’gearing ratios’ and other financial terms with our online QFINANCE Financial Dictionary.

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