The relationship between gearing ratio and return on equity (ROE) ratio to earnings per share (EPS)

Mary Mathews ,Vijayaletchumy Krishnan ,Bahiah A. Malek ,Benjamin Joseph

doi:10.24294/jipd10071

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The relationship between gearing ratio and return on equity (ROE) ratio to earnings per share (EPS)

Mary Mathews

Vijayaletchumy Krishnan

Bahiah A. Malek

Benjamin Joseph

Journal of Infrastructure Policy and Development 2025, 9(2), 10071; https://doi.org/10.24294/jipd10071

Submitted：04 Nov 2024

Accepted：02 Dec 2024

Published：14 Apr 2025

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Abstract

The study examines the relationship between EPS and the gearing ratios and return on equity (ROE) ratio of 9 public listed firms on the Malaysian Stock Exchange from 2014 to 2022 financial years. The firms are selected at random. From this study it was established that there is a negative relation between EPS and gearing and a positive relation between EPS and ROE. Companies that want to attract more investors need to keep their gearing ratio low and increase the return on equity ratio high. To obtain the benefits of gearing or external funding, there need to be a balance between equity and debts. There is no one optimal balance between debt and equity. This balance is difference for each company and the sector they operate in. It is important for managers of companies to find the optimal balance between debt and equity, unique to their company.

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