Question

Samara Ltd. has Debt Equity ratio of 3:1 whereas Gehlot Ltd. has Debt Equity ratio of 1:1. Name the advantage Samara Ltd. will have over Gehlot Ltd., when the rate of interest is lower than the rate of return on investment of the company.

विकल्प

• Trading on equity

• Low risk

• Low cost of equity

• Greater flexibility

Answer 1

Trading on equity

Explanation -

If the company's ROI is higher, it can opt to increase its EPS by trading on equity, implying that its ability to employ debt is stronger.