hurdle rate: meaning, definition, pronunciation and examples
C1/C2Formal, Technical
Quick answer
What does “hurdle rate” mean?
The minimum rate of return required by an investor or manager for approving a project or investment.
Audio
Pronunciation
Definition
Meaning and Definition
The minimum rate of return required by an investor or manager for approving a project or investment.
A benchmark in capital budgeting and corporate finance used to evaluate the attractiveness of an investment. Projects must generate a return equal to or greater than this rate to be considered viable. Conceptually, it represents the 'hurdle' a project must 'jump over' to receive funding.
Dialectal Variation
British vs American Usage
Differences
No significant difference in meaning or usage. Spelling conventions (e.g., 'behaviour' vs. 'behavior' in surrounding text) may apply, but 'hurdle rate' itself is invariant.
Connotations
Identical in both dialects; carries strong connotations of corporate finance, investment analysis, and rigorous financial evaluation.
Frequency
Equally common and specialized in both UK and US professional financial contexts.
Grammar
How to Use “hurdle rate” in a Sentence
The board set a hurdle rate of 12%.The project failed to clear the hurdle rate.We evaluate all proposals against our standard hurdle rate.Vocabulary
Collocations
Examples
Examples of “hurdle rate” in a Sentence
verb
British English
- The new venture was hurdle-rated at 18%.
American English
- All proposals are hurdle-rated before review.
adjective
British English
- The hurdle-rate calculation is critical.
American English
- We need a hurdle-rate analysis.
Usage
Meaning in Context
Business
Primary context. 'The CFO insisted on a 15% hurdle rate for all new acquisitions.'
Academic
Used in finance, economics, and business studies textbooks and lectures. 'The chapter explains how to derive a risk-adjusted hurdle rate.'
Everyday
Virtually never used in casual conversation.
Technical
Core term in corporate finance, capital budgeting, and private equity.
Vocabulary
Synonyms of “hurdle rate”
Vocabulary
Antonyms of “hurdle rate”
Watch out
Common Mistakes When Using “hurdle rate”
- Using it as a verb (e.g., 'We need to hurdle rate this project' – incorrect).
- Confusing it with 'discount rate' (while related, a discount rate is used in NPV calculations; the hurdle rate is the benchmark for comparison).
- Misspelling as 'hurdle ratio'.
FAQ
Frequently Asked Questions
Not exactly. WACC is often used *as* the hurdle rate, especially for projects with similar risk to the overall firm. However, the hurdle rate can be adjusted higher for riskier projects or set by management discretion.
Yes. It can change with shifts in interest rates, the company's overall risk profile, cost of capital, and strategic priorities.
Senior management, often the Chief Financial Officer (CFO) or the board of directors, in consultation with the finance department, based on financial models and strategic goals.
The project should theoretically be rejected, as it does not meet the minimum financial return required by the investors or the company.
The minimum rate of return required by an investor or manager for approving a project or investment.
Hurdle rate is usually formal, technical in register.
Hurdle rate: in British English it is pronounced /ˈhɜː.dəl ˌreɪt/, and in American English it is pronounced /ˈhɝː.dəl ˌreɪt/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “clear the hurdle rate”
- “jump the financial hurdle”
Learning
Memory Aids
Mnemonic
Imagine a runner (an investment) needing to jump over a high hurdle (the minimum rate) to finish the race (get approved). If it trips (returns less), it fails.
Conceptual Metaphor
FINANCIAL VIABILITY IS AN ATHLETIC HURDLE / A PROJECT MUST JUMP OVER A FINANCIAL BARRIER.
Practice
Quiz
What is the primary purpose of a 'hurdle rate'?