Question

"A judicious mix of both sources - Debt and Equity would increase the EPS" ________ concept of Financial Management is conveyed by the above statement.

• A. Risk consideration
• B. Return on Investment
• C. Cost of Equity
• D. Trading on Equity

Hint:

Trading on Equity means using debt wisely to enhance shareholder returns—but be mindful of the associated financial risk.

Answer 1

The Correct Option is D

"Trading on Equity" is a financial strategy where a firm uses debt to increase the returns to equity shareholders. By leveraging borrowed funds (debt), the company aims to amplify Earnings Per Share (EPS), as long as the return from the investment exceeds the cost of debt. However, this also involves increased financial risk. The concept highlights the balance of debt and equity financing to optimize shareholder value.