What is the 'Cost of Debt'?

Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | INVESTOPEDIA Cost of Debt Cost of debt refers to the effective rate a company pays on its current debt. In most cases, this phrase refers to after-tax cost of debt, but it also means the company's cost of debt before taking taxes into account. The difference in cost of debt before and after taxes lies in the fact that interest expenses are deductible. Breaking it Down: Cost of debt is one part of a company's capital structure, which also includes the cost of equity. Capital structure deals with how a firm finances its... Read More » Related to "Cost of Debt" How do cost of debt capital and cost of equity differ? In corporate finance, capital – the money a business uses to fund operations – comes from two sources: debt and equity. Read More » What Does "Agency Cost of Debt" Mean? Agency cost of debt is an increase in debt costs as shareholder and management interests diverge. Find out why restrictions on companies are imposed. Read More » Do companies measure their cost of debt with before- or after-tax returns? Understand the before and after-tax calculations of cost of debt capital and how each is useful in deciding between funding sources. Read More » Related Definitions Debt Financing Debt financing occurs when a firm raises money for working capital or capital expenditures by selling debt instruments to individuals and institutional investors. Read More » Debt Ratio The debt ratio is a financial ratio that measures the extent of a company's leverage. Read More » Capital Structure Capital structure is how a firm funds its operations and growth, combining long-term debt, specific short-term debt, common equity and preferred equity. Read More » Long-Term Debt To Capitalization Ratio The long-term debt to capitalization ratio, calculated by dividing long-term debt by available capital, shows the financial leverage of a firm. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com If you wish to unsubscribe, please click here, or manage subscriptions 114 West 41st St, floor 8 New York NY 10036 © 2018, Investopedia, LLC, All Rights Reserved | Privacy Policy