MANAGEMENT

Detailed explanation-1: -By means of trading on equity, as mentioned before, companies expect to increase their income by acquiring new assets, and subsequently generating returns that are higher than the debt they procure. Thereby, that excess income increases shareholder’s earnings per share (EPS).

Detailed explanation-2: -Trading on equity happens when a company incurs new debt using bonds, loans, bonds or preferred stock. The company then uses these funds to gain assets which will create returns which are larger than the interest of the new debt. Alternatively, trading on equity called financial leverage.

Detailed explanation-3: -In Trading on Equity, also known as financial leverage what happens is that the company uses its own equity capital as well as borrowed funds or only borrowed funds to increase its operational capacity. The management is certain that the increase in returns from the expansion would be more than the increase in cost.

Detailed explanation-4: -What is Trading on Equity? Trading on equity occurs when a company incurs new debt (such as from bonds, loans, or preferred stock) to acquire assets on which it can earn a return greater than the interest cost of the debt.