Trading on the equity financial 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

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Trading on the equity financial leverage refers to the use of borrowed money to increase the return to owners. This means that a company borrows additional funds with the aim of earning a higher return on the investment than the cost of borrowing. It allows a company to increase its return on equity by using leverage, but also increases the risk. The amount of working capital (A), amount of capital provided by owners (B), and number of times interest is earned (D) are not directly related to trading on the equity financial leverage.

Trading on the Equity Financial Leverage)refers to the