Question

What is meant by ‘Trading on Equity’?

Answer 1

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Trading on equity, which is also referred to as financial leverage, occurs when a corporation uses bonds, other debt, and preferred stock to increase its earnings on its common stock.

Answer 2

Explanation:

Trading on Equity Trading on equity is also called financial leverage.

• Both these terms signify that a corporate body leverages its financial standing to procure debt and enhance the earnings of shareholders.

• In other words, a company utilises its equity strength to avail debts from creditors, and thus the name of the strategy.