Gearing ratio In a simple example, if a company has 100 million of total assets and 13 million of borrowings, shareholders' funds

are 87 million. If the total assets grow or fall by 10% to 110million or 90million, and the borrowings remain the same at 13 million, the shareholders' funds grow to 97 million or fall to 77 million. This is an increase or decrease in shareholders' funds of 11.5%, which in both cases is 15% more than the 10% increase or decrease in total assets. This means the shareholders' funds are 15% geared (and the gearing factor/ratio would be 115 in this instance.) Total asse Debt Equity 100 13 87 0.1 110