Usually, the financing cost indicator is expressed by the financing cost rate: Financing cost rate = fund usage fee ÷ (total financing amount - financing fee).

The financing cost here is the capital cost, which is the object of analysis by ordinary enterprises in the financing process.

However, looking at capital costs alone cannot fully meet the needs of modern financial management. We should consider several other related costs of financing in a deeper sense.

1. If the opportunity cost is an internal source of financing for the enterprise, it is generally used "free" and does not require actual external payment of financing costs.

However, if we look at it from the perspective of the average expected annualized expected return from various investments or capital in society, the retained expected annualized expected return of endogenous financing should also receive corresponding remuneration after use. The only difference between internal financing and

Internal financing does not need to be paid externally, while other financing methods must be paid externally. The financing cost of the enterprise's internal financing, represented by the retained expected annualized expected earnings, should be the expected annualized earnings rate of the common stock, but it does not have financing fees.

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2. Risk cost The risk cost of corporate financing loans mainly refers to the cost of bankruptcy and the cost of financial distress.

The bankruptcy risk of corporate debt financing is the main risk of corporate financing. The loss of corporate value related to corporate bankruptcy is the bankruptcy cost, which is the risk cost of corporate financing.

Financial distress costs include legal, administrative and consulting fees.

The indirect costs include financial difficulties that affect the company's ability to operate, at least reduced demand for the company's products, the inability to make decisions without creditors' permission, and the time and energy spent by management.

3. Agency cost: There will be a principal-agent relationship between users and providers of funds, which requires the principal to supervise and motivate in order to restrain the agent's behavior. The supervision costs and restraint costs generated during the period are agency costs.

In addition, users of funds may also conduct investment behaviors that deviate from maximizing the interests of the principal, resulting in overall efficiency losses.

Warm reminder: The above content is for reference only.

Response time: 2022-01-11. For the latest business changes, please refer to the official website of Ping An Bank.