Gearing is a financial measure that shows how much debt a company uses compared to its own capital. It indicates the proportion of borrowed money in a company’s financing structure. A higher gearing ratio means the company relies more heavily on debt.

Gearing reflects how sensitive a company may be to changes in profits and interest rates.

Companies use debt to finance expansion, acquisitions, or investments. When profits are strong, borrowing can increase returns for shareholders because debt allows the company to grow faster without issuing new shares. However, higher gearing also increases financial risk.

If revenues decline, the company must still meet interest payments and repay loans. This can put pressure on cash flow and may lead to financial distress in difficult economic conditions. Investors analyze gearing to assess a company’s balance between growth potential and financial stability.

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