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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.
See also debt management ratio, debt-to-equity ratio. Case Study Financial leverage results from utilizing debt to finance assets. The greater the ratio of funds contributed by creditors compared to funds contributed by stockholders, the greater a firm's financial leverage.Financial leverage magnifies changes in net income compared to changes in operating income.ase Study Financial leverage results from utilizing debt to finance assets. The greater the ratio of funds contributed by creditors compared to funds contributed by stockholders, the greater a firm's financial leverage.