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In risk analysis, any ratio that measures a company's leverage. One example of a gearing ratio is the long-term debt/capitalization ratio, which is calculated by taking the company's long-term debt and dividing it by its long-term debt added to its preferred and common stock.
Three leverage levels are illustrated: low leverage (0 percent debt to asset ratio), medium leverage (25 percent debt to asset ratio), and high leverage (50 percent debt to asset ratio). Interest paid and average total liabilities vary among the leverage levels.