Cost of capital

Cost of capital is the minimum return a company needs to earn on its investments to satisfy its investors or lenders. It reflects the expense of raising funds, whether through borrowing (debt) or by attracting investors (equity). Think of it as the "price" a company pays to acquire the money needed for projects or growth. If the company earns more than this cost, the investments are generally considered profitable; if less, they may not be worthwhile. Essentially, it guides decisions about which projects will add value and sustain the company's financial health.