There is an increase in profit earned by equity shareholders because of the presence of fixed financial charges. This concept is:

Trading on equity

The correct answer is option 2- Trading on equity.

There is an increase in profit earned by equity shareholders because of the presence of fixed financial charges. This concept is Trading on equity.

Trading on Equity is a financial technique where a company utilizes borrowed funds, such as debt, to amplify the return on investment for shareholders. By using debt in addition to equity financing, the company aims to increase its earnings per share (EPS), thereby enhancing the returns for its equity shareholders. This concept is closely related to the financial leverage strategy, which involves using fixed-cost funds to magnify the returns on equity.