Capital gearing ratio is a useful tool to analyze the capital structure of a company or business and is computed by dividing the common stockholders’ funds by fixed cost bearing funds.
Analyzing capital structure means measuring the relationship between the funds provided by common stockholders and the funds provided by those who receive a periodic interest or dividend at a fixed rate.
Formula of Capital Gearing Ratio
Capital Gearing Ratio = Common stockholders Funds/Fixed Cost bearing funds
Common Stakeholder Equity = Equity Share Capital + Reserve & Surplus
Fixed Cost Bearing Funds = Debt (Loan) + Debenture + Preference Share Capital
Example how to calculate Capital gearing ratio
