Valuation Inputs
Equity Risk Premium
5.00%
Stock Risk Premium
5.50%
Valuation Result Analysis
Required Cost of Equity (Re)
Model Used
CAPM
Valuation Insight
- ✅ Standard Hurdle Rate measure
- 📊 Sensitive to Market Volatility
- ⚖️ Critical for DCF Valuation
- 📈 High Beta = Higher Cost
Leverage Sensitivity Matrix
How your Cost of Equity changes across different stock risk profiles (Beta).
| Stock Beta (β) | Risk Premium | Cost of Equity | Classification |
|---|
"This calculator follows standard CAPM (Capital Asset Pricing Model) methodology used by equity research analysts."
How is Cost of Equity Calculated?
Re: Cost of Equity (Required Return).
Rf: Risk-Free Rate (e.g. 10Y Govt Bond Yield).
β: Stock Beta (Sensitivity to market).
Rm - Rf: Equity Risk Premium.
Total Hurdle: Used in WACC for corporate finance.
Example Valuation Case
- Risk Premium: 12% - 7% = 5%
- Calculation: 7% + [1.2 × 5%]
- Cost of Equity: 13.00%
What is the Cost of Equity?
Cost of Equity (Ke) is the theoretical rate of return a company must generate to satisfy the expectations of its equity shareholders given the risk profile of investing in the business. In financial modeling, it is primarily calculated using the Capital Asset Pricing Model (CAPM).
Equity is consistently more expensive than debt because shareholders absorb the residual risk of the business. Combine the cost of equity with borrowing rates to compute overall corporate capital costs on our cost of debt calculator and WACC calculator. Use your resulting cost of capital to discount corporate cash flows on our DCF calculator, evaluate company market sensitivity with our beta calculator, measure true annualized growth on our CAGR calculator, and analyze corporate valuation with our enterprise value calculator.
In 2026, as Indian financial markets mature, using a Cost of Equity Calculator is essential for both CFOs and retail investors. It serves as the core discount rate for calculating the **Intrinsic Value** of a stock. Compare this with annualized historical returns using our CAGR or XIRR tools.
The components of CAPM
Our tool uses the **Capital Asset Pricing Model (CAPM)**, which is the globally accepted standard for determining equity costs. It consists of three primary building blocks:
- Risk-Free Rate (Rf): The return with zero risk. In India, the yield on the 10-year G-Sec is the standard Rf.
- Beta (β): Measures volatility relative to the market. Check your stock's sensitivity with our Beta Tool.
- Market Return (Rm): Average expected return from the overall market (e.g., Nifty 50). This is often compared against SIP benchmarks.
Beta-Based Equity Cost Comparison
| Sector Profile | Typical Beta | Typical Cost (Re) |
|---|---|---|
| Utilities / FMCG (Defensive) | 0.6 - 0.8 | 10% - 11% |
| Banking / Auto (Standard) | 1.0 - 1.2 | 12% - 13% |
| Technology / Small Cap (Aggressive) | 1.5 - 2.0 | 15% - 17% |
Strategic Valuation Insights
Cost of Equity vs WACC
Cost of Equity is almost always higher than the Cost of Debt. Combine both to find the total firm valuation using our Enterprise Value Tool.
Link: Valuation Engine
The Beta Leverage
High-growth sectors command higher equity costs because their future cash flows are riskier. Always use a margin of safety in your DCF model.
Focus: Risk Adjustment