Business – 10.2 Analysis of published accounts – Gearing ratio | e-Consult
10.2 Analysis of published accounts – Gearing ratio (1 questions)
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Gearing refers to the proportion of a company’s capital that is financed by debt rather than by shareholders’ equity. It indicates the level of financial risk associated with the use of borrowed funds.
The most common measure is the debt‑to‑equity ratio, calculated as:
Debt‑to‑Equity Ratio = Total Debt ÷ Shareholders’ Equity
A higher ratio means the business relies more on debt financing, increasing both potential returns and financial risk.