Finance costs: tangible cost, interest, dividends; opportunity costs - loss of alternative projects using retained earnings; tax effects.© BrainMass Inc. brainmass.com December 24, 2021, 9:43 pm ad1c9bdddf
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The first definition of a cost is the price paid for a product or service. Beyond that, costs can be non-monetary including sacrifices, losses or penalties. Examples might include the cost to one's health for doing a certain type of job. The term 'cost' is also used in financial planning and forecasting to estimate or evaluate a future situation.
In the business world, costs can be defined as:
Interest Cost: The price paid in interest for using money from a lender rather than company capital.
Tangible costs are those that are quantifiable and can be traced to a product or as a direct cost or expense of performance.
Intangible costs are often not quantifiable such as customer goodwill mentioned in the link following. They are real costs, but efforts to place a dollar value on them are difficult.
Cost of Dividends: Beyond the dollar amount, dividends represent the cost to a company to keep shareholders happy, to attract new shareholders and to provide support for the price of company stock in the financial markets. Typically, when companies reduce dividends, shareholders often sell their investment and the price of stock decreases in the marketplace.
Interest income as a cost would be a discussion of alternative use of cash resources. For example, if bank deposits are earning 1%, but the cash could be invested elsewhere to earn more, then the difference is a true cost to the company. See opportunity cost below.
Interest income could also be considered as an offset to the cost of maintaining adequate cash reserves to run a company. Idle cash in a company is expensive to maintain when assets are often measured by their rate of return or return on investment (ROI). http://moneyterms.co.uk/cost-income/
Opportunity costs measure that which is given up to pursue another course of action. One could compare the benefits of the new opportunity to the former activity. Businesses are always limited in what they can do and often the study of lost opportunity costs will affect new decisions. Business limitation may include amount available for alternatives, amount that can be borrowed or other less tangible effects such as plant production space, or limited operating personnel, for example.
The cost method versus the equity method of accounting for investments determines how an investment is reported on the balance sheet. It is essentially a comparison of cost to value.
Cost accounting refers to the process of allocating costs by product, location, or other category which allows for comparison, planning, and evaluating pieces of a business. It is simply a definition of how to organize costs of operations into meaningful categories.
I've expanded a little beyond your zone of finance costs in a business, but the truth is that all costs in a business relate to finance in terms of net profits or value of assets.© BrainMass Inc. brainmass.com December 24, 2021, 9:43 pm ad1c9bdddf>