The cost of equity is the hurdle rate equity investors demand for their risk. Using both methods and comparing the results is a good sanity check.
How to use the Cost of Equity Calculator
- Does the company pay a dividend?
- Dividend per share (next year)
- Current share price
- Dividend growth rate
- Risk-free rate
- Beta
- Expected market return
Results update as you type, and every field accepts the units shown in its menu.
How it works
Choose whether the company pays a dividend, then enter the figures for that method.
Tips
- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.
Common mistakes to avoid
- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.
Inputs explained
| Field | What to enter |
|---|---|
| Does the company pay a dividend? | Choose one: Yes – dividend discount model, No – CAPM |
| Dividend per share (next year) | Amount in your currency |
| Current share price | Amount in your currency |
| Dividend growth rate | In % |
| Risk-free rate | In % |
| Beta | A number |
| Expected market return | In % |
Example values
How the main result changes when Dividend per share changes and everything else stays at the example values above:
| Dividend per share (next year) | Cost of equity (%) |
|---|---|
| 1.2 | 6 |
| 1.8 | 7 |
| 2.4 | 8 |
| 3 | 9 |
| 3.6 | 10 |
| 4.8 | 12 |
Formula
Dividend model: cost of equity = next year's dividend ÷ share price + dividend growth rateCAPM: cost of equity = risk-free rate + β × (market return − risk-free rate)Worked example
Inputs — Does the company pay a dividend?: Yes – dividend discount model; Dividend per share (next year): $2.4; Current share price: $60; Dividend growth rate: 4 %; Risk-free rate: 4.2 %; Beta: 1.2; Expected market return: 9.5 %.
Results — Cost of equity = 8 %; Dividend yield part = 4 %.
Frequently asked questions
What is the cost of equity?
The return shareholders expect for owning the stock.
Which method is better?
DDM suits stable dividend payers; CAPM works for any listed company.
Why is equity more expensive than debt?
Shareholders are paid last and take more risk.
What formula does the Cost of Equity Calculator use?
Dividend model: cost of equity = next year's dividend ÷ share price + dividend growth rate.