Introduction
• Entire capital won’t be raised by issuing Equity
Share Capital.
• External sources of funds may be used.
• Its proportion ranges from 40 to 70 percent.
• It’s found profitable if such funds raised at a lower
rate of interest.
• Dividend can be paid at higher rate on equity
shares, is known as “Trading on Equity”.
Meaning of Trading on Equity
• When a co. uses fixed interest bearing capital
along with owned capital in raising finance, is
said “Trading on Equity”. (Owned Capital =
Equity Share Capital + Free Reserves )