Main objective of employing Financial Leverage is to:

Correct option is D

The correct answer is (d) Magnify the return on equity share capital.
Financial Leverage (also known as "Trading on Equity") involves using fixed-interest-bearing securities, such as debt and preference shares, in the company's capital structure. The primary objective is to use this "cheaper" debt to earn a return higher than the interest cost. Since the interest on debt is fixed, any surplus profit generated by these borrowed funds belongs entirely to the equity shareholders, thereby increasing (magnifying) their Earnings Per Share (EPS) and overall return on equity.
INFORMATION BOOSTER
· Trading on Equity: This strategy is beneficial only when the Return on Investment (ROI) is higher than the Cost of Debt.
· Fixed Financial Charges: Debt requires mandatory interest payments, which creates "leverage" against the operating profit (EBIT).
· Double-Edged Sword: While it magnifies gains during good times, it also magnifies losses if the company's ROI falls below the interest rate.
· Tax Shield: Debt is often preferred because interest payments are tax-deductible, further reducing the effective cost of capital.
ADDITIONAL KNOWLEDGE
· (a) is incorrect because financial leverage actually increases financial risk, as the firm must pay interest regardless of profit levels.
· (b) is incorrect because leverage tends to make the bottom-line profits (EAT) more volatile relative to changes in operating income.
· (c) is incorrect because the objective is to utilize debt to benefit equity, not necessarily to decrease the cost of the debt itself.