Capital Gearing

The degree to which a company acquires assets or to which it funds its ongoing operations with long- or short-term debt. Capital gearing will differ between companies and industries, and will often change over time.

Capital gearing is also known as "financial leverage".

In the event of a leveraged buyout, the amount of capital gearing a company will employ will dramatically increase as the company increases its debt in order to finance the acquisition. When analyzing a firm undergoing a leveraged buyout, it is important to consider the firm's ability to service the additional interest payments on an after-tax basis, as well as the likelihood of the firm paying off the new debt as it matures.


Investment dictionary. . 2012.

Look at other dictionaries:

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