Meaning of Trading on Equity
Meaning of Trading on Equity are given in the image below.
Image credits © Manoj Patil.
Meaning of Trading on Equity are follows.
Trading on Equity is the use of borrowed funds and capital in financing the requirements from the company. It indicates the use of debt capital in the capital structure of the company in order to increase the returns available to equity shareholders.
Definition of Trading on Equity
Definition of Trading on Equity are given in the image below.
Image credits © Manoj Patil.
According to Gerstenberg the definition of trading on equity are follow:
“when a person or a corporation uses borrowed capital as well as owned capital in the regular conduct of its business, he or it is said to be trading on equity.”
Define Trading on Equity
Define trading on equity are given in the image below.
Image credits © Manoj Patil.
Define trading on equity are follows
Trading on Equity the main aim is to ensure maximum possible return on investment to equity shareholders and also adequate managerial control to them. Thus, when a company relies more upon borrowed capital and preference shares, it is said to be trading on equity.
Examples of Trading on Equity
Examples of Trading on Equity are given in the image below.
Image credits © Manoj Patil.
Examples of Trading on Equity are follows.
Suppose the company needs capital of 20,00,000. It may collect the funds as follows :15% Non - convertible debentures 6,00,000 15 % Preference Capital 12,00,000 Equity Capital 2,00,000 20,00,000 Now, if the company makes a net profit of 6,00,000, it will divide it as follows: 15% Non - convertible debentures (6,00,000 X 15%) = 90,000 15 % Preference Capital (12,00,000 X 15%) = 1,80,000 Equity Capital (balance amount) = 3,30,000 6,00,000 Thus, on equity of C 2,00,000, equity shareholders will get a return of C 3,30,000, which comes to be 165%. Thus, from above we can say that Preference Shares and debentures Source is used to give more returns to equity shareholders.
Some Important Articles on Finance are given below.
Indian Financial System and Classification of Financial Market
Functions of Financial System, Functions of Financial Market
Methods of raising funds from capital markets
What is Primary Market? Functions of Primary Market
Problems and Indications of Shareholders Wealth Maximization
No comments:
Post a Comment