I do not understand why when a company does the following, the gearing ratio will reduce? As I think if numerator and denominator increase proportionately, the ratio should increase.
Thank you!
“‘Selling’ an asset under a sale and leaseback agreement”
You need to work it with numbers to get the true impact. If we pretend that debt is currently 2 and equity 1, you have 2:1 as the gearing ratio. You can then adjust this for the sale and leaseback agreement.