What is a gearing ratio?
A gearing ratio is a measure used by investors to establish a company’s financial leverage. In this context, leverage is the amount of funds acquired through creditor loans – or debt – compared to the funds acquired through equity capital.
A gearing ratio is usually expressed as a percentage. A high gearing ratio is anything above 50%, while a low gearing ratio is anything below 25%. Between 25% and 50% is considered the optimal gearing ratio.