In an entity that is highly geared, the effect of a decrease in profits or an increase in interest rates will have a greater negative impact on returns to shareholders than it will on an entity that is not so highly geared.

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A highly geared entity has a significant amount of debt compared to equity, which means that a decrease in profits or an increase in interest rates will result in higher interest payments and less profit available to distribute to shareholders. This results in a greater negative impact on returns to shareholders than it would on an entity that is not so highly geared.

In an Entity That Is Highly Geared, the Effect of a Decrease