Cost of Equity
Definition
The return shareholders require for investing in a business, reflecting its risk. It is a key input to WACC and to valuing a company's equity.
Related Terms in Financial Analysis
Cost of Debt
The effective interest rate a business pays on its borrowings, usually considered after tax because interest is generally tax-deductible. It feeds into the weighted average cost of capital.
Discounted Cash Flow (DCF)
A valuation method that estimates the value of an asset or business as the present value of its expected future cash flows, discounted at a rate reflecting their risk and the time value of money.
Terminal Value
In a discounted cash flow valuation, the estimated value of all cash flows beyond the explicit forecast period, capturing the long-run value of a business as a going concern.
Enterprise Value (EV)
A measure of a company's total value including equity and debt, less cash. It reflects what it would cost to acquire the whole business and is used in multiples such as EV/EBITDA.
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