This version of Gearing measures the relationship between how much of the Funds Employed are owed in interest-bearing borrowings.
Generally speaking, a bank manager is relatively happy to maintain Gearing at 50%. This means that for every R1 that you have invested in the business, the Bank manager will also invest R1.
Both of these versions of Gearing generate the same answer, albeit in a different way. However, the net result is the same.
Example:
A) Interest-Bearing Borrowings = R4,541,263 B) Funds Employed = R9,883,926 C) Gearing Percentage = 46% (A ÷ B X 100)
Discussion:
The example above is stating that 46% of the money invested in the business is from loans and therefore the remaining 54% is the owner's funds.