Question

Capital gearing refers to __________________________.

• A. The proportion between net interest and non-fixed interest or dividend bearing funds in the capital employed
• B. The proportion between fixed interest or dividend bearing funds and non-fixed interest or dividend bearing funds in the total capital employed in the business
• C. Both (A) and (B)
• D. None of the above

Answer 1

Answer: (B)

The proportion between fixed interest or dividend bearing funds and non-fixed interest or dividend bearing funds in the total capital employed in the business

Capital gearing is a British word refers to the quantity of debt a corporation has about its equity. In the United States, resources gearing is known as a monetary influence. Companies with high levels of capital gearing will have a generously proportioned amount of debt relative to their equity value. The gearing ratio is a measure of financial risk and expresses the amount of a company's debt in terms of its equity. A company with a gearing ratio of 2.0 would have twice as much debt as equity.