What Does Gearing Mean?


1 Answers

Nisha Fernandes Profile
Nisha Fernandes answered
Gearing is an economic term commonly used in finance. It is used to describe the relationship between equity and debt. Gearing is generally calculated by dividing the company's total debt by the equity of the common shareholders. For example a company that is highly geared or a highly geared company is that is under a colossal debt. Therefore in other words High gearing means that the company's debts are very high in relation to the equity capital. Negative gearing is borrowing money to obtain assets where interest payments are greater than the income generated from the assets which will generate deduction in taxes.

Capital gearing ratio is the ratio of debt finance to equity. Operational gearing is the effect of the fixed costs on the relationship between operating profits and total sales.

Answer Question