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What is Cost of Capital?
The Cost of Capital is the hurdle over which a business must get to generate positive cash flow. It is what it will cost companies to get capital from investors.
Companies sometimes use debts or equities to finance their business operations. The service paid on debt and the operating expenses are lines over which the revenue must get to be saved as retained earnings or distributed as dividends. The yield expected by investors on debt is the cost of capital for the company taking on those loans.
This is called cost of debt and is easy to understand. The return expected by equity investors is a slipperier number, which is often arrived at using the Capital Asset Pricing Model, which takes Beta and the current risk-free rate into account. What dividend will those investors expect for taking on the risk of investing capital into this business? This is called Cost of Equity.
When both are used, a weighted average must be useful, which would be the Weighted Average Cost of Capital (WACC). The board members of a company might make a decision on whether or not to raise capital to start a new project by looking at the cost of capital in the current environment.
What is the Difference Between a Thrift Savings Plan and Other Retirement Plans?
The main difference is that the TSP is only for Federal employees. A Thrift Savings Plan is essentially a 401(k)
What is a Profit?
In its simplest form, a profit is the revenue or income gained from an entity after all expenses/overhead is accounted
How to use Andrew's Pitchfork in trading
Alan Andrews designed Andrew’s Pitchfork as a way to define a trend with support and resistance lines around a median line
What is Book Value?
Book value can apply to an individual asset and tends to be straightforward. It is an asset's value on a balance sheet
What is the Interest Coverage Ratio?
The interest coverage ratio is a measure of how many times a company can pay the interest owed on its debt with EBIT
What is market discipline?
Market discipline is a term which describes the restraint implicitly required of financial services companies in...
What is an Uptrend?
An uptrend is a continuous upward movement in a stock's price. A security purchased at the beginning of an uptrend...
What are forward contracts?
Forward contracts are agreements to exchange specific assets on a specific date, at a price determined at the outset
What was the “South Sea Company” Bubble?
The South Sea Company was created in the 18th Century, by the British government. The bubble burst a few years later
What is a long position in options trading?
To be “long” means to own a security, and to essentially be bullish on it. When people buy stocks, they are "long"