Using Borrowed Money to Increase the Rate of Return on Common

question 132

True/False

Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."

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Definitions:

Special Dividend

A one-time distribution of earnings to shareholders, outside of the regular dividend schedule.

Stock Repurchase

A decision by a company to buy back its own shares from the marketplace, potentially to increase the value of remaining shares.

Outstanding Shares

Outstanding shares refer to the total number of shares of a corporation that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.

Debt-equity Ratio

A measure of a company's financial leverage, calculated by dividing its total liabilities by stockholders' equity.