Sentences with phrase «opportunity cost of capital»

The test is always quantitative: does the restaurant generate a return on investment that is significantly above the opportunity cost of capital and does that last for a significant number of years?

The inputs above create a future stream of cash flows that we must discounted to their present to account for the opportunity cost of capital.

Consider the fact that, whether you're borrowing money at exorbitant interest rates or paying cash, you're still losing money because when you spend your own cash without paying yourself interest, you're losing the opportunity cost of that capital invested elsewhere.

Assuming the company decides not to pay a dividend to the shareholders (so the shareholders can reinvest the money themselves), financial managers within Pfizer must identify new projects that offer a higher rate of return than what they could get if they simply invested the money in the financial market (this being the opportunity cost of capital).

The core point being made here is simple: if there is no barrier to competition, the competitors of any business will drive profit down to the opportunity cost of capital.

It's important to especially compare the latter against the opportunity cost of the capital, because much of the former is uncontrollable to a degree (rent, food, etc).

Hence the companies are better off when they retain greater part of their earnings, and utilize it in the net positive value investments which generate returns in excess of the opportunity cost of capital.

If a business has not earned returns on capital that substantially exceed the opportunity cost of capital for a period of years, it does not have a moat.

Michael Mauboussin, in what is arguably the best essay ever written on moats put it this way, «Companies generating high economic returns will attract competitors willing to take a lesser, albeit still attractive return, which will drive aggregate industry returns to opportunity cost of capital.»

Consider the fact that, whether you're borrowing money at exorbitant interest rates or paying cash, you're still losing money because when you spend your own cash without paying yourself interest, you're losing the opportunity cost of that capital invested elsewhere.

The opportunity cost of capital is what is being argued, not the interest rates or amortization periods of different loan products.