There are two compaines B and D. Total contribution of capital is ₹40 lakh each. The ratio of equity to total capital in company B is ₹10 lakh and debt is ₹30 lakh while in company D, the total equity capital is ₹ 40 lakh, sourced through equity. EBIT is ₹ 8 lakh , the interest rate on debt is @10% and the tax rate is 30%.
Identify, which concept is related to the above case.

Explanation

As per the above furnished details, which company enjoys the favourable financial leverage.

Company B is in the position of favourable financial leverage as use of debt increaes the EPS and thus the sitution is considered as favourable for trading on equity.