What are effect of leases on the gearing of an entity?

Leases can significantly affect the gearing of an entity by altering its debt-to-equity ratio. When leases are classified as liabilities on the balance sheet, they increase total debt, which can lead to higher gearing ratiOS. This increased leverage may impact the entity’s financial stability and borrowing capacity, as higher gearing indicates greater financial risk. Additionally, the treatment of leases under accounting standards, such as IFRS 16, can further influence how gearing is perceived by investors and creditors.