Gearing and Debt to Equity (1 Viewer)

[JosephW]

Is there a difference?

 

[Kirsty Xx]

Gearing (or leverage) is the rate of debt to equity capital. A high gearing ratio indicates high risks for the business in the financial market.

Leverage or gearing is the relationship between the debt of the business and the level of owner's equity. Commonly used leverage ratios include the debt to equity ratio and the proprietary ratio.

Debt to equity ratio = Liabilities/Owner's equity

It is generally considered for a small business to medium business that a debt ratio of 0.5:1, that is $50,000 of debts to $100,000 of owner's equity is an acceptable level.

Proprietary ratio = Owner's equity/Libilites

The debt to equity ratio measure the extent of external funding for the business, the propietary ratio shows the extent of internal funding. The ratio is the reverse of the debt to equity ratio.

 

[Roga]

Is there a difference?

no

 

[Juliaan]

Same thing mate,

Gearing Ratio = All liabilities / Owners Equity.

 

[mike__major]

does all liabilities include things like "accounts payable?"

 

[Brontecat]

yep, accounts payable is a liability as well as stuff like mortgage and overdraft