Financial Analysis. Lesson 7. Cost of Capital and Funding Sources
<ol>
<li>Cost of capital represents the required return for funding investments.
</li>
<li>Equity financing raises funds by issuing shares in the company.
</li>
<li>Debt financing involves borrowing funds with an obligation to repay.
</li>
<li>Cost of equity estimates returns expected by shareholders for investment.
</li>
<li>Cost of debt calculates interest expense as a funding cost.
</li>
<li>Capital structure refers to a company’s mix of debt and equity.
</li>
<li>Leverage measures debt's role in financing and enhancing potential returns.
</li>
<li>Weighted average cost of capital (WACC) averages funding costs for investment.
</li>
<li>Interest coverage ratio assesses a company's ability to meet interest expenses.
</li>
<li>Optimal capital structure balances debt and equity to minimize cost of capital.
</li>
</ol>
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Technical Examples:
<ol>
<li>Using WACC, analysts evaluate if project returns exceed funding costs.
</li>
<li>Leverage analysis reveals the impact of debt on potential returns.
</li>
<li>Interest coverage ratio helps assess the company's debt repayment ability.
</li>
</ol>

**Financial Analysis. Lesson 7. Cost of Capital and Funding Sources**

1. **Cost of capital** represents the required return for funding investments.
    
2. **Equity financing** raises funds by issuing shares in the company.
    
3. **Debt financing** involves borrowing funds with an obligation to repay.
    
4. **Cost of equity** estimates returns expected by shareholders for investment.
    
5. **Cost of debt** calculates interest expense as a funding cost.
    
6. **Capital structure** refers to a company’s mix of debt and equity.
    
7. **Leverage** measures debt's role in financing and enhancing potential returns.
    
8. **Weighted average cost of capital (WACC)** averages funding costs for investment.
    
9. **Interest coverage ratio** assesses a company's ability to meet interest expenses.
    
10. **Optimal capital structure** balances debt and equity to minimize cost of capital.
    

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**Technical Examples:**

1. Using **WACC**, analysts evaluate if project returns exceed funding costs.
    
2. **Leverage** analysis reveals the impact of debt on potential returns.
    
3. **Interest coverage ratio** helps assess the company's debt repayment ability.