SUBSCRIBE(free)-Daily Updates (Click Verification Link Received in Your Email)

Geared and Ungeared Company : Meaning & Definition

WHAT IS AN UNGEARED COMPANY?

A Company which has an ungeared balance sheet is called as an "Ungeared Company".

What does ungeared balance sheet mean?

Before we get to know about what ungeared balance sheet means, one must first be aware of the term "Gearing" or "Gearing ratio".

  • What is "Gearing" and "Gearing ratio"?

    • Gearing is the difference between a company's debt to 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 highly-geared company, a high gearing is the result of a high debt amount of the company in proportion to its debt.
    • 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%.

  • Low-geared Company

    • A company with a low gearing ratio is called low-geared company, a low gearing is the result of a low debt amount of the company in proportion to its debt.
    • 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%.

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".
Submit/See Comments With: or

No comments:

Post a Comment