gearing
What gearing means in Business A-Level, as defined for AQA, Pearson Edexcel.
Definitions of gearing
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Reference: AQA
Low gearing provides capacity to borrow for new projects, while borrowing to invest raises gearing and creates fixed interest charges.
Non-current liabilities divided by capital employed times one hundred, which usually rises when finance has to fund the assets.
Non-current liabilities divided by capital employed as a percentage, showing whether there is room to borrow more.
Long term liabilities as a percentage of capital employed, which rises when borrowing to buy equipment.
Non current liabilities divided by capital employed as a percentage.
A financial ratio that measures the proportion of a business's capital that comes from debt. Formula: (Non-current liabilities / Capital employed) x 100.
Topics that use gearing
- Analysing the existing internal position of a business to assess strengths and weaknesses: financial ratio analysis (AQA A-Level)
- Assessing a change in scale (AQA A-Level)
- Financial management (AQA A-Level)
- Making operational decisions to improve performance: increasing efficiency and productivity (AQA A-Level)
- Strategic decision making (A-level only) (AQA A-Level)
- Corporate objectives (Pearson Edexcel A-Level)
Related terms
- capacity utilisation
- return on capital employed
- Automation and the cost structure
- average rate of return
- benchmarking
- break-even output
- budgets and trade offs
- buffer stock
Using gearing in the exam
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