Which among the following refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges?

Trading on Equity

The correct answer is Option (1) → Trading on Equity

• Trading on Equity refers to the practice of using fixed-cost funds (like debentures, preference shares, or loans) in the capital structure so that the equity shareholders gain higher returns.

• This happens because when the company earns more than the cost of debt (interest), the surplus increases the earnings per share (EPS) of equity holders.