What is Cost of Debt?

A definition of Cost of Debt

“The cost of debt is the effective rate that a company pays on its borrowed funds. It reflects the interest rate that the company must pay to investors or lenders to obtain financing.”

Cost of Debt in Business Glossary - What is the Cost of Debt?

Business Glossary > What is Cost of Debt?


Examples of Cost of Debt in a Sentence:

The company calculated the cost of debt to assess its financial health.

Reducing the cost of debt can improve the net income.

Understanding the cost of debt helps in evaluating investment opportunities.

Why is Cost of Debt Important in Business?

Understanding the cost of debt is important for evaluating a company’s financial health and decision-making. Companies can make informed decisions about financing, budgeting, and investment by managing their cost of debt effectively.

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Associated Terms

Here are some associated business terms and synonyms for “Cost of Debt”:

  • Debt Interest Rate
  • Borrowing Cost
  • Debt Expense

General Electric’s Cost of Debt

General Electric actively manages its cost of debt by refinancing at lower rates and optimizing its capital structure. This strategy has helped GE maintain a competitive advantage and financial stability over the years.

Final Notes on Cost of Debt

By carefully analyzing the cost of debt, companies can optimize their capital structure and ensure sustainable growth. Businesses should consider interest rates, market conditions, and economic forecasts when making borrowing decisions.


This has been a definition of Cost of Debt meaning.

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