What is Capital Charge?
Capital Charge The minimum return required on invested capital, representing the cost of capital multiplied by invested capital, used in performance measurement frameworks such as Economic Value Added (EVA) and regulatory capital models.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Capital Charge” Used in Practice?
Economic profit is calculated after deducting the capital charge from net operating profit after taxes.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Capital Charge?
The minimum return required on invested capital, representing the cost of capital multiplied by invested capital, used in performance measurement frameworks such as Economic Value Added (EVA) and regulatory capital models.
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