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).
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