Capital gearing

Capital gearing is metric that shows company debt in relation to its equity. It is also known as financial leverage (in US). High capital gearing means that debt is high compared to equity. That indicates higher risk of investment.

It should be stated that capital gearing has different typical values depending on industry and company type. Therefore when comparing different companies it should be taken into account.

High capital gearing informs that company can have liquidity problems in future, the business is slowing down, capital investments are required. Capital gearing also increases dramatically when the company performs buyout.

References

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