Making a business successful is simply down to ensuring you earn more than your costs. An easy way to check this in a company is by comparing the cost of the capital employed by the company with the return made on that capital. This allows you to see how much value (if any) management is adding.
The cost of capital is made up of the cost of the company's debt and the cost of its equity. The cost of debt is relatively simple in that it refers to the interest rate the company has to pay to borrow money (the riskier the company, the higher this is).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Revolut launches its first stocks and shares ISA with BlackRock and Vanguard ETFsA year after getting its UK banking licence, Revolut is now launching its first stocks and shares ISA with a suite of exchange-traded funds (ETFs) from BlackRock and Vanguard.
-
What does Trump’s ‘Big Beautiful Bill’ mean for the US economy?Donald Trump’s budget bill will slash taxes, but is expected to add at least $3 trillion to US national debt
