What is trading on equity?

Question

what is trading on equity? what are terms and conditions?

Answer 1

When a business trades on its equity it borrows funds to increase capital investment with the hope that it will be able to generate returns in excesss of the interest charges.

A company that trades on equity may show an increase in profits due to its increased capital.  Potential investors should beware of misinterpreting this alone as a sign of a successful business.

Net Return on Equity is a more accurate indicator of the profitability of a business rather than a raw profit figure that does not take into account increased borrowings.