Difference between Gearing and Leverage Ratio

oqureshi84's picture
Rank: Chimp | banana points 5

My understanding of the gearing and leverage ratio formulas is as below:

Gearing ratio = Net Debt/Net debt+Equity
Leverage = Total Assets/Total Equity

My question is regarding off balance sheet financing. In this situation if a company takes an operating lease or any other off balance sheet asset, then it should increase the leverage ratio BUT will not impact the gearing ratio? Can someone confirm this?

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Aug 19, 2018