Lesson Plan

• Describe what the gearing ratio measures and why it is important for assessing financial risk.
• Calculate the gearing ratio using both debt‑to‑equity and debt‑to‑capital formulas.
• Interpret low, moderate and high gearing levels and explain their implications for a company’s capital structure.
• Evaluate the limitations of the gearing ratio when analysing published accounts.

• Projector and screen
• Whiteboard and markers
• Calculators (one per student)
• Printed worksheet with balance‑sheet data (Company XYZ example)
• Formula cheat‑sheet handout
• Sample case‑study cards for pair work

Begin with a brief news clip about a company facing debt‑related difficulties to hook interest. Ask students to recall how debt and equity appear on a balance sheet. Explain that by the end of the lesson they will be able to calculate a gearing ratio and interpret what it tells us about financial risk.

1. Do‑Now (5’) – Quick quiz on identifying long‑term vs short‑term borrowings and shareholders’ equity.
2. Mini‑lecture (10’) – Define gearing, discuss its importance, and present the two common formulas.
3. Guided Calculation (15’) – Work through the Company XYZ example step‑by‑step, showing how to compute total debt and the ratio.
4. Pair Activity (10’) – Students use a new case‑study card to calculate the gearing ratio for a different firm.
5. Interpretation Discussion (10’) – Groups share their results and classify the gearing level (low, moderate, high), linking to risk and cost of capital.
6. Exam Tips Review (5’) – Highlight common pitfalls and a checklist for answering gearing questions in exams.

Summarise the key steps for calculating and interpreting the gearing ratio. For the exit ticket, ask each student to write one implication of a high gearing level for a business. Homework: locate a recent annual report, extract the necessary figures, and calculate the company’s gearing ratio.