Trading on the equity (leverage) refers to the
A) amount of working capital.
B) amount of capital provided by owners.
C) use of borrowed money to increase the return to owners.
D) number of times interest is earned.

Question

Quizplus · Accepted Answer

Trading on the equity, also known as leverage, refers to the use of borrowed funds to increase the return to owners. This means that the company is using debt to finance its operations and investments, which can magnify returns for shareholders in good times but can also increase risk in bad times. It is not related to the amount of working capital or capital provided by owners, and it is also not a measure of how many times interest is earned.

Trading on the Equity (Leverage) Refers to the