Cost of capital

The minimum return a business must achieve before creating value is known as the cost of capital. A company must at the very least make enough money to cover the cost of the capital it uses to fund its operations before it can start to make a profit. This includes the costs of both the equity and debt used to finance a business. The capital structure of a company and the type of financing it chooses to use have a significant impact on the cost of capital, and the business may use a mix of debt and equity, or it may rely solely on equity or debt.