Question:
‘Increase in profit earned by equity shareholders due to the presence of fixed financial charges like interest' is referred to as:
‘Increase in profit earned by equity shareholders due to the presence of fixed financial charges like interest' is referred to as:
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Trading on equity occurs when a company uses debt to amplify the returns on equity. This practice increases profit for shareholders but also raises financial risk.
Updated On: Feb 19, 2025
- Capital structure
- Financing decision
- Return on Investment
- Trading on equity
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The Correct Option is D
Solution and Explanation
The correct answer is Trading on equity. Trading on equity occurs when a company uses fixed financial charges, such as interest on debt, to increase the return for its equity shareholders. The presence of debt can amplify the profits for equity shareholders due to the leverage effect.
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