What are the cost of capital?

Capital costs are considered to be a rate of return on the Company's common shareholders. It is generally expected to be equal to the rate of return on capital delivered by capital. The basic formula for calculating the cost of capital includes several simple numbers that are easily extracted from financial data relevant to the quoted period.

In order to determine the cost of capital, it is necessary to know three specific data. First, the current market value associated with the shares must be determined. Secondly, the rate of dividend growth must be calculated in terms of the period. Finally, the number of dividends per share should be identified. Once this three information is in hand, it is possible to quickly calculate the current number.

The basic formula begins with dividends divide into the share of the current market value. The result number is added to the rate of dividend growth. After adding these two numbers, the cost of capital that Ty is revealedThey are roasting shares and can be reported to shareholders.

Companies tend to use this basic formula continuously and take into account all the new data that may have occurred from the previous financial period. Capital cost monitoring is one of the tools used to ensure shareholder protection and also that the company's best interests are delivered. Because the formula is so simple, a heavier part of the process is to collect the necessary data. However, once the data is in hand, it will not take any time to determine the current cost of the equity capital.

Investors who have access to the three basic number needed to calculate this number can also use this simple formula. The necessary data are often invested in financial reports to investors or can be obtained by talking to financial analysts. As a quick and easy way to check the status of stocks, the cost of capital capital indirectly helpIt is ensured that the investor is properly managed and the investment remains healthy.