Dictionary of Accounting Terms: trading on equity
trading on equity
financial leverage, or the use of borrowed funds, particularly long-term debt, in the capital structure of a firm. Trading profitably on the equity, also known as positive (favorable) financial leverage, means that the borrowed funds generate a higher rate of return than the interest rate paid for the use of the funds. The excess accrues to the benefit of the owners because it magnifies, or increases, their earnings.
