Gearing Ratio
The gearing ratio measures the proportion of a company’s debt to its equity. It is an indicator of financial leverage and is used to assess a company's financial stability and risk profile. High gearing ratios suggest that a company is heavily reliant on debt to finance its operations, which can increase financial risk, especially in volatile markets. Conversely, a lower gearing ratio indicates a more conservative approach to debt and potentially greater financial stability.
Key Takeaways
- Measures the proportion of debt to equity.
- Indicates financial leverage.
- Assesses financial stability and risk.
- Important for understanding a company's capital structure.
