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Gearing ratio

Gearing ratio financial ratios that compare some form of owner’s equity (or capital) to debt, or funds borrowed by the company. Gearing is a measurement of the entity’s financial leverage, which demonstrates the degree to which a firm’s activities are funded by shareholders’ funds versus creditors’ funds.

The gearing ratio is a measure of financial leverage that demonstrates the degree to which a firm’s operations are funded by equity capital versus debt financing.

The formula for Gearing ratio is:

Gearing ratio = Total debt / Total equity