Gearing Ratios - Measures the liabilities of a business against its equity

OR

It can be worked out from a statement of financial position by using…

Benefits of being highly geared:

• If its high there is perhaps less shareholders in a business which could make it easier to control
• May be deliberate if a company is buying back its shares to reduce dividend payments
• Debt can be cheaper way to finance compared to issuing stocks

Benefits of having a low gearing Ratio:

• It is easier to borrow from the banks in the future
• There is few expenses as there is less debt to be repaid

Interest Cover - is a ratio used to measure whether a business can prepay the interest on its loans based on its profits.