Capital gearing is the ratio of the amount of fixed interest loan stock and preference shares in a company to its ordinary share capital. A company with a preponderance of ordinary share capital is low-geared while one in which fixed-interest capital dominates is high-geared. With high gearing, when profits are rising, the amounts available to ordinary shareholders rise, in percentage terms, faster than the percentage rise in profits. However, when profits are falling shareholders in high- geared companies suffer a larger percentage drop in their dividends than the percentage fall in profits. In the USA capital gearing is known as leverage. Research Capital Gearing
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Abbreviations
Research Capital Gearing
