{"id":31629,"date":"2023-10-16T12:57:50","date_gmt":"2023-10-16T12:57:50","guid":{"rendered":"https:\/\/swoopfunding.com\/au\/?post_type=business-glossary&#038;p=31629"},"modified":"2025-04-24T14:15:01","modified_gmt":"2025-04-24T14:15:01","slug":"gearing","status":"publish","type":"business-glossary","link":"https:\/\/swoopfunding.com\/au\/business-glossary\/gearing\/","title":{"rendered":"Gearing"},"content":{"rendered":"<h3>Definition<\/h3>\n<p><span style=\"font-weight: 400;\">Gearing, in financial terms, refers to the proportion of a company&#8217;s capital that is financed by debt compared to <a href=\"https:\/\/swoopfunding.com\/au\/business-glossary\/equity\/\">equity<\/a>. <\/span><\/p>\n<h3>What is gearing?<\/h3>\n<p><span style=\"font-weight: 400;\">Gearing is a measure of financial leverage and indicates the extent to which a company relies on borrowed funds for its operations and expansion. Gearing is expressed as a ratio and is used by investors, analysts, and lenders to assess a company&#8217;s financial risk and stability.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The formula for gearing ratio is:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Gearing ratio = (total debt \/ total capital) x 100%<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A high gearing ratio indicates a significant reliance on debt for financing, which can lead to higher financial risk due to interest payments and potential difficulties in meeting debt <a href=\"https:\/\/swoopfunding.com\/au\/business-glossary\/obligations\/\">obligations<\/a>. On the other hand, a low gearing ratio suggests a lower reliance on debt, which can lead to lower financial risk, but may also indicate underutilisation of financial leverage.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The optimal level of gearing depends on various factors, including the industry, <a href=\"https:\/\/swoopfunding.com\/au\/business-glossary\/business-model\/\">business model<\/a>, and risk tolerance of the company. Some industries naturally have higher levels of gearing due to their capital-intensive nature.<\/span><\/p>\n<h3>Example of gearing<\/h3>\n<p>Let&#8217;s consider an example for a company called Company XYZ<\/p>\n<ul>\n<li><strong>Total capital:<\/strong> $1,000,000\n<ul>\n<li>Equity: $600,000 (60% of total capital)<\/li>\n<li>Debt: $400,000 (40% of total capital))<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>In this example, Company XYZ has a gearing ratio of 40%. This means that 40% of the company&#8217;s total capital comes from debt, and the remaining 60% is equity.<\/p>\n","protected":false},"author":1,"template":"","class_list":["post-31629","business-glossary","type-business-glossary","status-publish","hentry"],"acf":[],"featured_image_urls_v2":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","image_blog":"","image_blog_full":"","image_podcast":"","image_banking":"","image_blog_internal":"","image_blog_medium":"","image_single_banking":""},"post_excerpt_stackable_v2":"<p>Definition Gearing, in financial terms, refers to the proportion of a company&#8217;s capital that is financed by debt compared to equity. What is gearing? Gearing is a measure of financial leverage and indicates the extent to which a company relies on borrowed funds for its operations and expansion. Gearing is expressed as a ratio and is used by investors, analysts, and lenders to assess a company&#8217;s financial risk and stability. The formula for gearing ratio is: Gearing ratio = (total debt \/ total capital) x 100% A high gearing ratio indicates a significant reliance on debt for financing, which can&hellip;<\/p>\n","category_list_v2":"","author_info_v2":{"name":"root","url":"https:\/\/swoopfunding.com\/au\/author\/root\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/business-glossary\/31629","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/business-glossary"}],"about":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/types\/business-glossary"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/users\/1"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/media?parent=31629"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}