The minimum rate of return a company must earn on its investments to maintain its current market value and satisfy investors. It represents the cost of financing operations through debt and equity.
From Latin 'constare' (to stand firm, cost) and 'capitalis' (of the head, chief). The modern financial concept emerged in the 1950s with advances in corporate finance theory, particularly the work of Modigliani and Miller on capital structure.
Cost of capital is like the financial 'hurdle rate' every company faces - if McDonald's cost of capital is 8%, any new restaurant location must generate more than 8% returns or it actually destroys shareholder value. It's why companies obsess over their credit ratings and stock prices!
Complete word intelligence in one call. Free tier — 50 lookups/day.