# Spread over hurdle / Cost of Equity

Return on capital minus the discount rate the fair value uses.

## Definition

The third Reinvestment row subtracts the company's hurdle rate from the return in the row above. Positive means new money has earned more than it costs; negative means it has not.

## Formula

Return on capital − hurdle rate

## Why it matters

Reinvesting at a return below the cost of capital destroys value however fast the company grows.

## How Standard Equity uses it

The hurdle is the WACC when the fair value is a discounted free cash flow model, and the cost of equity for every other model (banks, insurers, REITs). The row is labelled with the one used. If the stock has no fair value, it shows n/m.

## The metric

| Category | Breakdown Tables |
| -------- | ---------------- |
| Unit     | pts              |

[← Back to glossary](https://standard-equity.report/glossary)