GENERAL KNOWLEDGE

Detailed explanation-1: -A company is said to have a high capital gearing if the company has a large debt as compared to its equity. For example, if a company is said to have a capital gearing of 3.0, it means that the company has debt thrice as much as its equity.

Detailed explanation-2: -Meaning of highly geared in English used to describe a company that has a large amount of debt compared to its share capital, (= money in shares) or the structure of such a company’s capital: Companies with high debts are ‘highly geared’, and face financial difficulties if their profits fall or interest rates rise.

Detailed explanation-3: -Gearing or debt to equity ratio = total debt / equity A high debt to equity ratio means a high leverage effect for a company. It is therefore more sensitive to any slowdown of the economy. In contrast, a company with a low debt to equity ratio is generally considered to be financially more sound.

Detailed explanation-4: -Broadly, Capital Gearing is nothing but Equity to Total Debt Ratio. This critical information about capital structure makes this ratio one of the most significant before investing. Through this ratio, investors can understand how geared the firm’s capital is. The firm’s capital can either be low geared or high geared.