Gearing Ratio

The gearing ratio allows you to examine the capital structure of the company. It summarises the proportion of debt (loans etc.,) and equity (from shareholders).

A ratio that is greater than 100 percent this implies that the company has a high degree of leverage (high gearing). This can be interpreted as the company is taking risks through having a high level of debt compared to its equity.

• Gearing ratio = (loan capital + preference share capital) / (total capital (loan + preference + equity))