The correct answer is C. Trading on equity.
Trading on equity is a financial strategy in which a company raises funds by issuing securities that carry a fixed rate of interest or dividend which is less than the average earnings of the company. This allows the company to increase its return on equity, as the company’s earnings will be higher than the interest or dividend payments it makes on the securities.
Under-capitalisation is a situation in which a company does not have enough capital to meet its financial obligations. This can lead to the company being unable to pay its debts, which can result in bankruptcy.
Over-capitalisation is a situation in which a company has too much capital. This can lead to the company being inefficient, as it may have more assets than it needs to operate.
Capital gearing is the relationship between a company’s debt and equity financing. A high level of capital gearing means that the company has a lot of debt, while a low level of capital gearing means that the company has a lot of equity.
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