Lesson Plan

• Describe what gearing measures and why it matters for financial risk and capital structure.
• Calculate debt‑to‑equity and debt‑to‑capital gearing ratios from balance‑sheet data.
• Analyse how different gearing levels affect a firm’s risk, cost of capital and investor perception.
• Evaluate the limitations of gearing analysis and compare ratios with industry benchmarks.

• Projector or interactive whiteboard
• PowerPoint/slide deck on gearing concepts
• Sample balance‑sheet extracts (printed or digital)
• Calculator or spreadsheet software
• Worksheet with gearing calculation exercises
• Whiteboard and markers

Begin with a quick poll asking students whether debt or equity feels “safer” for a business. Link this to prior knowledge of capital structure and state that today they will discover how to measure that balance. Success criteria: students will be able to compute and interpret gearing ratios and discuss their strategic implications.

1. Do‑now (5 minutes): short quiz on debt vs. equity concepts.
2. Mini‑lecture (10 minutes): definition of gearing, formulas, and why it matters (slides).
3. Guided calculation (12 minutes): work through the XYZ Ltd example, students calculate both ratios.
4. Group analysis (10 minutes): teams interpret low, moderate, and high gearing and present implications for risk and cost of capital.
5. Limitations discussion (8 minutes): highlight what gearing does not reveal and link to other ratios.
6. Exit ticket (5 minutes): each student writes one key takeaway and one lingering question.

Recap the definition, calculation steps, and strategic relevance of gearing. Collect exit tickets to gauge understanding and assign a worksheet for homework where students analyse gearing for a different company and compare it to industry averages.