Is trading on the equity (financial leverage) a good financial strategy?

"Trading on the equity" (financial leverage) is likely to be a good financial strategy for stockholders of companies having a. Cyclical high and low amounts of reported earnings b. Steady amounts of reported earnings d. Steadily declining amounts of reported earnings 7.

What is an example of trading on equity?

Example of Trading on Equity To illustrate trading on equity, let's assume that a corporation uses long term debt to purchase assets that are expected to earn more than the interest on the debt. The earnings in excess of the interest expense on the new debt will increase the earnings of the corporation's common stockholders.

How does operating leverage affect EBIT?

The greater a firm degree of operating leverage, the more its EBIT will vary with respect to fluctuations in sales. The greater a firm degree of operating leverage, the less its EBIT will vary with fluctuations in sales. 12. The use of long-term fixed interest bearing debt and preference share capital along with equity share capital is called: 13.

How is margin of safety related to degree of operating leverage?

Margin of safety is in the following way related to degree of operating leverage: 11. Statements: The greater a firm degree of operating leverage, the more its EBIT will vary with respect to fluctuations in sales. The greater a firm degree of operating leverage, the less its EBIT will vary with fluctuations in sales. 12.