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Meaning of gearing ratio

 

 

 

Gearing ratio

 

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Business glossary

 

Meaning of term 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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Gearing ratio

 

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