Gearing

This refers to the extent to which a business is funded by debt.

There are several definitions of gearing, for example Debt divided by Shareholder Funds and Debt divided by Capital Employed; in this case Debt typically only includes borrowings, not including standard trade credit.  Gearing is a useful and simple measure, typically shown as a percentage, it requires careful analysis; for example higher levels of gearing may enable a business to take advantage of a booming market, while indicating a potential problem in a falling market.

Gearing is a term normally used in financial management and financial reporting.

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