Question

______ refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest.

Options

• Capital structure

• Earning per share

• Trading on equity 

• Return on investment

Answer 1

Trading on equity refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest.

Explanation:

Trading on equity is a financial strategy in which a corporation uses borrowed capital to generate income that exceeds the cost of borrowing in order to increase the return on equity shareholders' investments. The approach is known as trading on equity since the only stake (or equity) in the firm profits belongs to the equity shareholders.