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Highly geared tends to be used in the UK when someone wants to talk about using a high level of debt or leverage.
It is never a good time to be highly geared if you lack the means to service the debt. If you have a lot of income, more than would be needed to cover the debt service even if there are some speed bumps in the future means that you are much less likely to have issues.
Another time when it becomes a problem is when someone is using debt to buy an asset that is not likely to hold its value. If you could predict that the asset would rise in value and the cash flow is not an issue (income needed to service the debt) then using gearing can be rather profitable.
So, the real to when to use gearing is strongly related to why someone is using gearing. Debt on its own is not good or bad. It is a tool to be used correctly. There is a time and place for high gearing. There are other times when lower levels of gearing is the right solution.
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What is highly geared?
explain what is meant by the term 'highly geared' in financial management
What is meant by highly geared company?
the business has a lot of money tied up in loans and interest.
What is the difference between a highly geared company and a lowly geared company?
Gearing is a measure of how big a company's borrowings are, relative to its size. There are different methods of calculating gearing but the simplest and most effective is the debt-to-equity ratio. This shows how much the company owes (debt) compared to its size (equity) and is calculated by dividing total borrowings (current and long term) by net assets and is expressed as a percentage. A company with a high percentage is said to be highly geared and has large borrowings (normally from the bank) relative to its size and vice versa for a company with a low percentage.
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What is highly geared?
explain what is meant by the term 'highly geared' in financial management
What is meant by highly geared company?
the business has a lot of money tied up in loans and interest.
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An anagram of geared is agreed.
