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Thin capitalisation - what you need to know

 
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Thinly capitalised entities

A thinly capitalised entity is one whose assets are funded by a high level of debt and relatively little equity. An entity's debt-to-equity funding is sometimes expressed as a ratio. For example, a ratio of 3:1 means that for every $3 of debt, the entity is funded by $1 of equity. This is also known as 'gearing'. An entity that is highly geared funds its assets with proportionately more debt than equity.

Last Modified: Friday, 6 November 2009
 
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