Gearing ratio measures a company's financial leverage, the level of interest-bearing liabilities in its capital structure. It is most commonly calculated by dividing total debt by shareholders equity. ... The gearing ratio tells a company its current proportion of debt in its capital structure.

What should be included in gearing ratio?

Well-known gearing ratios include debt-to-equity, debt-to-capital and debt-service ratios. Although financial leverage and financial risk are not the same, they are interrelated. Measuring the degree to which a company uses financial leverage is a way to assess its financial risk.

Does gearing ratio include lease liabilities?

Gearing, commonly calculated as a ratio of interest liabilities to equity, may also increase due to the recognition of all leases as part of financial liabilities. Operating cash flows may rise due to lease payments now being part of the interest expense rather than operating costs.