6.3.3: Leverage / Gearing: An Overview
Leverage, also known as Gearing, refers to the value of the assets on hand that has been financed using debt (liabilities).
The formula* looks like this: (Total Liabilities / Total Assets) x 100
* The "/" sign signifies division: thus Total Liabilities divided by Total Assets...
Debt is a way for businesses to own and control more assets than it otherwise could without the debt finance. Of course, the business must be able to service that debt, and ensure that the associated asset values are likely to remain constant or even increase.
The formula* looks like this: (Total Liabilities / Total Assets) x 100
* The "/" sign signifies division: thus Total Liabilities divided by Total Assets...
Debt is a way for businesses to own and control more assets than it otherwise could without the debt finance. Of course, the business must be able to service that debt, and ensure that the associated asset values are likely to remain constant or even increase.