The traditional formula for the cost of equity is the dividend capitalization model and the capital asset pricing model (CAPM). The cost of equity is the return that a company requires for an ...

valuation and the overall cost of capital. By using the cost of equity formula, you can assess a company's potential to meet your return expectations based on its risk profile and market conditions.

"The formula uses the cost of each of the sources of capital and weighs them relevant to the market value of the business," says Daniel Milan, an investment advisor at Cornerstone Financial Services.

Nick David / Getty Images There is no specific formula in Excel or other spreadsheet applications that will calculate a company's weighted average cost of capital (WACC) for you. Instead ...