A gearing ratio is a metric that investors use to determine a company's financial leverage. In this context, leverage is defined as the proportion of funds obtained through creditor loans - or debt - to funds obtained through equity capital.
Assume a company has a total debt of $2 billion and currently has $1 billion in shareholder equity; the gearing ratio is 2, or 200%. This means that the company has $2 in debt for every $1 in shareholder equity. This is regarded as an extremely high gearing ratio.

The gearing ratio is a financial metric that compares a company's debt to its equity, reflecting the degree to which the company is financed by debt versus its own funds. It is calculated by dividing total debt by shareholders' equity. A high gearing ratio indicates a higher level of debt, which can signal greater financial risk, especially if the company struggles to meet its debt obligations. Conversely, a low gearing ratio suggests a more conservative approach with less reliance on borrowed funds. Investors and analysts use the gearing ratio to assess the financial health and stability of a company, its ability to weather economic downturns, and its potential for growth and return on investment.