gearing

Vocabulary Word

Definition

'Gearing' is a term used in finance to explain how a company uses borrowed funds to finance its activities. It's like a business taking a loan to build its operations.

Examples in Different Contexts

In corporate finance, analyzing 'gearing' is crucial. A CFO might say, 'Maintaining optimal gearing is fundamental to ensure our financial stability, manage risks effectively, and secure favorable terms when seeking additional financing.'

Practice Scenarios

Finance

Scenario:

The financials reveal high reliance on borrowed funds, which could be risky in volatile markets.

Response:

You're right, we should construct a plan to reduce our gearing ratio to minimize risk.

Business

Scenario:

Our capital structure needs a review. The disproportionate dependence on debts is concerning.

Response:

I agree, we need to manage our gearing levels to mitigate the risks associated with high debt.