Gearing (borrowing ratio)

Gearing (borrowing ratio)

Bank o.d. + s.t. bond payments + other s.t. loans + total l.t. loans x 100

Shareholders’ Funds

 

Benchmark: 30%

Total long term debt plus short term borrowing as a percentage of shareholders’ funds.

Shows how indebted a company is in relation to its worth, hence its vulnerability to changes in interest rates or a drop in performance (see current ratio and quick ratio for ability to meet short term debt). The higher the ratio the greater the company’s borrowing level.