Capital Gearing

In finance, capital gearing is a term used to define the extent to which a business continues to acquire assets or to which it continues its operations during the process of financial leverage. Capital gearing differs between companies and industries and it often changes with the course of time.  Many common financial calculations like risk analysis, determining the impact of a particular action on the stability of the business etc. are applied in the process of capital gearing. The general strategy behind capital gearing is to assure that existing operation of a business will not be hampered even if it does not yield the expected return. It is also important to take into account the firm’s ability to pay the additional interests on the basis of an after tax and also it is necessary to analyze whether the firm will be able to pay off the new debts when it matures.

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Edited and Updated 31st May 2014

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