How are the shareholders likely to gain with loan components in capital employed ? Explain with suitable example.

Explanation

Trading on equity refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interset. The use of more debt along with equity increases, Earning per share ( EPS) . Let us take an example of companies A and B.


Earning per share ( EPS)
`= ( " profit After Tax")/( " Number of Equity shares") `
A B
` ( 1,50,000)/(10,000) ( 1,05,000)/(4,000)`
= ₹15 - ₹ 26,25