12-19-2004, 09:19 AM
Gearing = (Long Term Liabilities) / (Equity Shareholders' Funds)
Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance, with the shareholders' funds being significantly larger than the long term liabilities.
I think there is no perfect answer to your second query. Some organisation will have a higher gearing ratio whereas, for some having a higher ratio may cause long term financial problems.
DT
Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance, with the shareholders' funds being significantly larger than the long term liabilities.
I think there is no perfect answer to your second query. Some organisation will have a higher gearing ratio whereas, for some having a higher ratio may cause long term financial problems.
DT
