Gearing ratio
Gearing ratio
Glossary of business
Definition of gearing ratio
The gearing ratio measures the percentage of capital employed that is financed by debt and long term finance. The higher the gearing ratio, the higher the dependence on borrowings and long term financing. A high gearing ratio will also mean that the firm incurs higher debt servicing costs and is much more exposed to changes in interest rates. The lower the gearing ratio, the higher the dependence on internal shareholder funds and the less exposed the firm may be to fluctuations in interest rates.
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Terminology about business
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Definition and meaning of gearing ratio
Meaning of gearing ratio
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