The rate a company expends on servicing its debt (interest payments etc) expressed as a percentage. It can either be pre-tax or after-tax. Pre-tax is calculated by dividing interest payments by the amount of debt outstanding. After-tax is calculated by dividing interest payments times (1-tax rate) by the amount of debt outstanding.

A hidden cost of debt would be the various covenants that would come with a bank loan or bond issuance. This is why companies would issue stocks—equities carry less strings.

Related Terms

• Margin Debt
• Equity Financing
• Dollar Cost Averaging
• Debt-to-income ratio-DTI
• Default
• Double Up

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