The rear-end gear ratio describes the relationship between the pinion gear (the gear attached to the engine) and the ring gear (the gear attached to the wheels). This relationship determines whether a gear is better-suited for torque or speed; the former is used for acceleration, towing and climbing up hills while the latter is used for cruising on the open road. This is why higher gears tend to have a lower ratio. Lower, high-ratio gears are used to gain speed, and higher, low-ratio gears are used simply to maintain it. To test this theory, try flooring your accelerator when you are in fifth gear; you won't gain much speed at all, but you won't use much gas either.
Count the number of teeth in your pinion gear, which will be attached to your engine's crankshaft.
Count the number of teeth in the ring gear whose ratio you are calculating. This gear will be one of the four or five gears in your transmission.
Divide the number of teeth in the ring gear by the number of teeth in the pinion gear. So if the ring gear has 30 teeth and the pinion gear has 10 teeth, the ratio is 3:1. For every one time the ring gear spins, the pinion gear has to spin three times. The ring gear has just as much power but does not spin as fast, thus converting the energy from the pinion's speed into torque.
