What is required to return your own capital?
The required return on equity is the rate of return that the company must earn on specific projects. Own capital is external funds that the company uses for large business operations. In most cases, investors who put capital funds into the company expect to receive a financial return. For the company, this expected financial income is the cost of capital related to the use of stock funds. Therefore, the required return on the company's own capital must be higher than capital costs to experience a certain level of success in the project. This department or group of individuals check the costs related to stock fund funds and their use. All costs for each project must be separate because it allows for easier measurement of the return on equity. In many cases, the company uses invested stock funds for multiple projects. In this way, a project with a lower return rate can bcompassed projects with MNohem for a higher rate of return.
The basic return of the formula of equity is a net income divided by the shareholder owner. Although it is a total measurement of the company's profitability for stock funds, the company financing department can adjust this formula to calculate the required return on its own capital. For example, the formula can measure the difference between the inflow of cash and the cash molding is divided by the stock funds used. Each project uses this formula to ensure that the return rate is sufficient. The accounting department often has information that the corporate finance department can use for this process.
Owners, company managers or other members of the proceedings often determine the required return rate for each project. The percentage that represents the rate of return often comes from the period of study. For example, the owner can check similar operations of competitors.Judging that the success of competitors based on their finances can help set the required return on the company's own capital. Otherwise, the company's manager's team simply places the level of return on any project that will provide sufficient financial revenues.
individuals can also use the required return on investment in their own capital. In most cases, this rate of return from investment in shares of individual purchases in the open stock exchange comes. The investor seems to make a specific rate of return on each purchase of shares. It can be carefully calculated data or arbitrary percentage selected by the investor. The formula is basically the same as for companies: revenues earned divided by investment costs.