Finance

  Business financing: Capital gearing. This article first appeared on Ayi Post. 1. What is capital gearing? 2. Why is capital gearing ratio important to business? 3. Why is capital gearing ratio important to business financing? Having a great business idea without a startup capital is like wandering a vast desert in search of an oasis.  You are literally going to leap in when you see one. Then gulp down the water with all the impurities. It’s wise to understand what capital gearing is before you decide to borrow or not to borrow to start your business. What is capital gearing? It’s a financial ratio that shows the amount of debt of a company to it’s equity. It’s a measure of financial risk.  This risk increases toward volatility as the ratio of debt to equity gets higher. The higher the gearing ratio, the more the interest payable on debt and the lower the earnings on equity. You may end up borrowing to service debt commitments. The risk doesn’t end with sinking deeper in...

  Having a great business idea without a startup capital is like wandering a vast desert in search of an oasis. You are literally going to leap in when you see one. Then gulp down the water with all the impurities. It’s wise to understand what capital gearing is before you decide to borrow or not to borrow to start your business. What is capital gearing? It’s a financial ratio that shows the amount of debt of a company to it’s equity. It’s a measure of financial risk. This risk increases toward volatility as the ratio of debt to equity gets higher. The higher the gearing ratio, the more the interest payable on debt and the lower the earnings on equity. You may end up borrowing to service debt commitments. The risk doesn’t end with sinking deeper into more debts, your control of the company could also be threatened. Your creditors may want to teach you best ways to run your business profitably. This may come in the form of business partnership and so called, “business support”. In m...