Target gearing is the optimal debt-to-equity ratio a company is expected to maintain over the long term — used as the capital structure assumption in WACC construction for unlisted company valuations. Rather than using the current (potentially transient) capital structure, the target gearing reflects the sustainable financing mix the company would maintain in a steady state. It is typically derived from the median gearing of sector comparable listed companies, validated against the company's financing capacity and lender constraints.

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Example: for a Swiss industrial SME with current gearing of 120% (post-acquisition leverage), Hectelion retains a target gearing of 42% (sector median from 8 listed comparables) for WACC construction. Using the current 120% gearing would produce an artificially low WACC — increasing the DCF enterprise value by CHF 4.0 million relative to the target gearing-based result, a distortion that must be avoided in defensible valuations.

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Hectelion documents target gearing selection with sector comparable references in every valuation, ensuring WACC calculations reflect long-term rather than transient capital structures.