The gearing and debt ratios are key financial metrics used to assess a company’s leverage, but they differ in focus and calculation. The gearing ratio primarily measures the proportion of a company’s debt relative to its equity (e.g., Debt/Equity Ratio) or total capital (e.g., Debt/Capital Ratio), emphasizing long-term financial structure. It helps evaluate how much a firm relies on borrowed funds versus shareholders' equity. A high gearing ratio indicates greater financial risk but may also suggest aggressive growth strategies.

In contrast, the debt ratio (Total Debt/Total Assets) assesses the percentage of a company’s assets financed by debt, providing a broader view of solvency. It includes both short-term and long-term debt, making it a more comprehensive measure of overall leverage. While a high debt ratio signals higher liability dependence, it doesn’t distinguish between debt and equity financing as clearly as the gearing ratio.

The key difference lies in their interpretation: Gearing ratio highlights capital structure and investor risk, whereas the debt ratio focuses on asset coverage and liquidity risk. A company with a high debt ratio may struggle with obligations if asset values decline, while a high gearing ratio may deter equity investors due to amplified financial risk. Both ratios are crucial but serve distinct analytical purposes in financial decision-making.