# What Is Gearing? A Simple Definition          (2 votes, average: 7.00 out of 10) Loading...

Gearing is a popular word in the financial world. It is a synonym of ‘financial leverage’ and both of these words can be used interchangeably. This is a ratio between the amount of own and the amount of borrowed capital in a business, personal budget or any other financial unit. To learn more about leverage in finance, you can read our example on this matter here.

## Gearing Ratio

As we said earlier, gearing ratio is the percentage of own funds from borrowed funds. An example of this is the debt to equity ratio from corporate finance. Let’s say that a company has \$12 000 of equity and has borrowed \$20 000 in debt. Such a company would have \$32 000 of total assets (\$12000 + \$20000). We can find its debt to equity ratio this way:

Equity / Total Debt = 12 000 / 20 000 = 3/5 .

In this example, we can say that this business has a leverage or gearing ratio of 3/5.

### More Gearing Ratios

Except for this one, there are some more gearing ratios. Some of them are:

Current Assets / Current Liabilities = Current Ratio

Total Debt / Total Assets