A Gearing ratio shows the ratio between the amount of capital provided by shareholders or through government grants (equity) and those lending money to the firm in the form of credit of one type or another (debt).
If the debt is greater than the reserves, the business is highly geared. If the reserves are greater than the debt, the business is lowly geared. For most businesses it is preferable to be low geared as this puts less strain on the profits of the business. Just fill in your figures in the boxes below and your Gearing Ratio will be calculated.