the Cost of capital The return on equity is the expected return that a company must pay to its investors (both equity and debt investors) to compensate them for providing capital. They represent the "price of money" for the company, so to speak. As a rule, the cost of capital is calculated as a weighted average of the cost of equity (e.g. the dividend and share price increase expected by shareholders) and the cost of debt (e.g. interest on bank loans), which is known as the weighted average cost of capital (WACC). This concept is of central importance in corporate financing: it serves as a discount rate in the valuation of investment projects (net present value method) and is used to value companies. An investment is only value-enhancing if its expected return exceeds the cost of capital. The reliable calculation of the cost of capital requires a solid basis of data from the accounting system; this emphasises the Advantages of ERP software, which provides a consistent data basis. Sophisticated controlling tools, as part of the Versino Financial Suite These can be used to simulate investment scenarios, taking into account the cost of capital.
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