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In capital budgeting, the cost of capital is the return required to justify undertaking acapital ...
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In capital budgeting, the cost of capital is the return required to justify undertaking acapital
project, such as the construction of anew factory. In capital budgeting, the cost of capital is
the return required to justify undertaking acapital project, such as the construction of anew
factory. The term "cost of capital" is typically used by analysts and investors to describe the
weighted average of afirm's debt cost and equity cost combined.
An indicator of the relative contribution of creditors and shareholders to business capital is
the debt-to-equity ratio. Defined simply, adebt-to-equity ratio compares the amount of long-
term debt with the amount of equity capital invested in the business. A tool like this one can
be used to estimate how much borrowed capital (debt) might be able to be repaid by
shareholder contributions. Typically, itis calculated using aprevious fiscal year's data to
assess afirm's financial leverage and soundness.
As per the data available on the site itis noted that the Healthcare Products is having low debt
ratio. The debt ratio of the industry is 9.66% which means the company is mostly depended
upon the own equity. Following might be the reasons for low debt ratios:
1. As there is very less investment compared to the other industries.
2. As the business of the healthcare product based on the credit available which means
the credit provided in the industry is very high and the company can roll the funds
based on the credit available to him and the credit given to customer is very less
period so that the funds received from the customer can be utilised for the payment of
3. There is no requirement of the costly equipment, so that there will be less requirement
of the long term funds and the same can be fulfilled by the own capital.
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