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Gearing Ratio |
Also found in: Hutchinson | 0.04 sec. |
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Gearing Ratio A general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds. Notes: The higher a company's degree of leverage, the more the company is considered risky. As for most ratios, an acceptable level is determined by its comparison to ratios of companies in the same industry. The best known examples of gearing ratios include the debt-to-equity ratio (total debt / total equity), times interest earned (EBIT / total interest), equity ratio (equity / assets), and debt ratio (total debt / total assets).A company with high gearing (high leverage) is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are. A greater proportion of equity provides a cushion and is seen as a measure of financial strength. |
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? Mentioned in | ? References in periodicals archive | |
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Gearing ratios have become more conservative across the Americas, particularly at the corporate borrowing level. In particular there have been significant deteriorations in the profitability ratios and some of the gearing ratios. The gearing ratios of the Company, GP Industries and GP Batteries were 0. |
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