An accounting ratio which measures the level of debt finance a company has raised relative to its level of shareholders' funds, also known as the debt to equity ratio It is usually defined as debt divided by shareholders' funds, expressed as a percentage The precise definition will vary, however, from situation to situation The higher the percentage from the calculation, the more highly geared a company is It is possible to calculate the net gearing ratio, where cash balances are deducted from debt in the calculation See also Interest Cover and Gearing
The gearing ratio shows the proportion of the total capital of the firm that is loan capital It therefore measures the extent to which the company has borrowed The higher the gearing ratio, the greater the proportion of their capital the firm has borrowed and the higher the interest payments the firm faces will be