Book gearing

Book gearing (or financial leverage ratio) measures a company's financial indebtedness relative to its equity or total assets, using balance sheet book values. It is typically expressed as net financial debt divided by total equity, or as a debt-to-capital ratio. In financial due diligence, book gearing is analysed alongside market gearing and covenant ratios to assess the company's financial structure, refinancing risk and debt capacity. High book gearing relative to sector peers may indicate covenant pressure, limited acquisition capacity or vulnerability to interest rate movements.

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Example: a Swiss manufacturing company presents book gearing of 85% (net debt CHF 8.5 million / equity CHF 10.0 million) against a sector median of 40%. This elevated leverage, combined with a banking covenant of net debt / EBITDA ≤ 4.0x (current ratio: 3.7x), limits the buyer's ability to layer additional acquisition debt — reducing the feasible LBO leverage and increasing the required equity contribution.

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Hectelion analyses gearing ratios and debt capacity as part of every financial due diligence and acquisition financing advisory mandate.