can someone explain to me what a negative gross gearing means

say gross gearing -800%

thanks

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can someone explain to me what a negative gross gearing means

say gross gearing -800%

thanks

Already have an account?

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Jeffvshep

Imagine you have borrowed money to buy a property and you rent that property out. Negative gross gearing is where the rental income is not enough to cover the repayments of the loan.

Bonitabeach

For a different perspective on "negative gross gearing" look at **Crest Nicholson (LON:CRST)****.**

Gross gearing at 31 October 2019 is shown as -4.47% which is arrived at by dividing Net Debt of £M-38.2 by the "Book Value" of £M854.4.

Negative net debt indicates at at that balance sheet date in time the company had more cash than debt. It is a snapsot on that date only.

Hope this helps.

*Bonitabeach*

HumourMe

https://www.stockopedia.com/ratios/gross-gearing-905/

Gross Gearing = Total Debt / Book Value of Equity

If total debt is negative (i.e. net cash) then gross gearing can be negative. Which is good.

Book Value = All Assets minus all Liabilities

If liabilities exceed assets then this can also give a negative result.Which is bad.

Conceivably you could have both and then end up with a positive gearing figure.

So negative gearing is either positive or negative and the inputs should also be examined. Same goes for positive gearing!

Alternatively in more normal times, use a measure that looks at the ability to repay debt. I believe a popular version is net debt < 5x operating profit. Or something like that.

Gromley

As noted above, **Gross Gearing ** is define as **Gross Debt** (ie not netted off with any cash on the balance) as a percentage of **Total Net Asset Value. [TNAV]**

The principle is that the lower this figure the *safer* the company is.

However, like some similar measures, the logic only holds true if the numbers are rational (ie above zero).

AFAIK **Gross Debt** can never correctly be a negative number. However, TNAV can (when total liabilities exceed total assets).

The closest I can find on the UK market currently to Gross gearing -800% is **Domino's Pizza ** (LON:DOM).

Here the figures are :

Total Debt : £248.3m

Total Assets : £353.9m

Total Liabilities : £383.5m

TNAV : -£29.6m

So Gross Gearing = -839% (248.3 / - 29.6)

Whether the number itself has any meaning, I don’t really know, but that the fact that TNAV is negative is definitely not a good thing.

On the other hand, **net gearing **AKA **Net debt to Equity** or just **Gearing. **Compares Net debt (Gross debt less cash) with equity.

As Net Debt can logically be negative (if you have more cash than debt) then negative numbers here **can ** be a good thing (so long as TNAV is actually positive and it is negative **net** debt that drives the result negative.)

Personally though I am always slightly cautious about companies with negative net debt (who also have actual gross debt) - if the cash of the balance sheet is really unencumbered and not effectively tied up in working capital, the why would you need to have debt?