What is an Ungeared Company?
A company which has an ungeared balance sheet is called an "Ungeared Company".
What does ungeared balance sheet mean?
In case, the company does not have any debt, then the gearing ratio becomes zero and as the balance sheet will not contain any debt figure in such cases, hence the balance sheet for any such fiscal years will be referred to as "ungeared balance sheet".
What is "Gearing" and "Gearing ratio"?
Gearing is the difference between a company's debt and its equity. Gearing ratio = Debt/Equity
E.g. A company's total debt is $1,000,000 and total equity stands at $2,000,000, then the gearing ratio is 50%.
Highly-geared Company
A company with a high gearing ratio is called a highly-geared company.
A high gearing is the result of a high debt amount of the company in proportion to its equity.
A high gearing is the result of a high debt amount of the company in proportion to its equity.
E.g. A company's total debt is $2,000,000 and total equity stands at $1,000,000, then the gearing ratio is 200%.
Lowly-geared Company
A company with a low gearing ratio is called a lowly-geared company.
A low gearing is the result of a low debt amount of the company in proportion to its equity.
A low gearing is the result of a low debt amount of the company in proportion to its equity.
E.g. A company's total debt is $1,000,000 and total equity stands at $5,000,000, then the gearing ratio is 20%.
well said. many thanks
ReplyDelete