Also known as Gearing, this is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity.
The formula is : Total Debt / Book Value of Equity
It uses the book value of equity, not market value as it indicates what proportion of equity and debt the company has been using to finance its assets. It includes intangibles.
The gearing ratio shows how encumbered a company is with debt. A highly-geared company is more vulnerable to a sudden bump in the road, either operationally or due a change in the economy (e.g. a recession or an increase in interest rates).