Gearing Ratio Calculator

The gearing ratio measures how much of a business is funded by debt versus equity. High gearing amplifies both returns and risk. Low gearing is safer but may signal the company is leaving cheap leverage on the table.

Gearing Ratio = (Total Debt / Shareholders Equity) x 100

A gearing ratio of 50% means for every dollar of equity, the company owes 50 cents of debt. At 200%, debt is twice the equity and the company is highly leveraged.

Net gearing subtracts cash from debt, giving a cleaner view of actual exposure:

Net Gearing = ((Total Debt - Cash) / Shareholders Equity) x 100

A company holding $200M in debt but $180M in cash has very different risk than one holding the same debt with $10M in cash. Net gearing captures that. It can also go negative, which means the company holds more cash than debt and is in a net cash position. That is not a rounding error to be floored at zero; it is a genuinely different balance sheet, and plenty of large technology companies sit there.

Debt-to-capital is a third useful cut:

Debt / Capital = Total Debt / (Total Debt + Equity)

This tells you what fraction of the company’s funding comes from creditors rather than owners. Note the name carefully. It is not debt-to-assets, which divides by total assets and therefore includes payables, accruals, deferred revenue and every other liability that is not borrowed money. Debt-to-capital is always the larger of the two, and the two get confused constantly.

Benchmarks vary heavily by industry. Utilities and telecoms commonly run gearing above 100% because their cash flows are predictable and their assets are easy to pledge as collateral. Technology companies often run near zero, because they have few hard assets and their earnings can evaporate quickly, so creditors demand equity buffers. Private equity-owned businesses routinely operate above 300% during the buyout period.

What counts as dangerous depends on the stability of operating cash flow. A company with lumpy, cyclical revenue at 100% gearing is far riskier than a regulated utility at 150%.