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| ''Investment - rate of return.''
| | == Summary == |
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| Broadly, the rate of return on a firm’s investments which is required to service the providers of the firm’s capital.
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| Often the term is used in a more specific sense to refer to the weighted average cost of capital of a business.
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| For example if a firm's cost of capital is 8%, it must earn a return of at least 8% on its operational investments in order to provide the investors with the minimum investment return of 8% which they require.
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| The concept of cost of capital is important because when inferior rates of return are earned from operational investments - for example only 5% compared with a cost of capital of 8% - such operations are destructive of shareholder value and need to be improved or discontinued.
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| The results of these operations may appear (wrongly) to be profitable, when considered in simplistic historical cost financial accounting terms.
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| == See also == | |
| * [[Capital]]
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| * [[Capital structure]]
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| * [[Discount rate]]
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| * [[Discounted cash flow]]
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| * [[Gearing]]
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| * [[Opportunity cost]]
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| * [[Opportunity cost of capital]]
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| * [[Rate of return]]
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| * [[Shareholder value]]
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| * [[Tax shield]]
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| * [[Weighted average cost of capital]]
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| === Other resources ===
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| [[Media:2015_11_Nov_-_Balancing_act.pdf| Balancing act, The Treasurer, 2015]]
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| [[Category:Corporate_finance]]
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Latest revision as of 09:29, 27 July 2023
Summary
Importing files from local file repository
