For most of the last 15 years, capital has been cheap. Since 2009, the after-tax cost of borrowing for some large companies has been below the rate of inflation, making their debt in real terms cost-free. And for much of this time, the stock market moved steadily upward, consistent with historically low costs of equity. We estimate that in early 2022, the weighted-average cost of capital (WACC) for the average company in the S&P 500 hovered below 6%.
Capital Is Expensive Again. Now What?
It’s time for companies to reevaluate growth investments, focus on productivity, and manage dynamically.
March 30, 2023
Summary.
With interest rates rising in real terms, the value of growth strategies has declined. Managers need to look carefully at where they allocate capital, focusing more on investing in productivity. Nor should they treat strategy-making as a periodic exercise but rather as a dynamic, continuous process
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New!
HBR Learning
Strategy Planning and Execution Course
Accelerate your career with Harvard ManageMentor®. HBR Learning’s online leadership training helps you hone your skills with courses like Strategy Planning and Execution. Earn badges to share on LinkedIn and your resume. Access more than 40 courses trusted by Fortune 500 companies.
How to develop a winning strategy—and put it to work.