What is the Cutoff Point in Investing?

The cutoff point is the minimum rate of return at which a capital investment proposal will be accepted. The cutoff point increases when the perceived risk level of an investment is high, and declines when the risk level is low. Under no circumstances should an investment be made which generates a return lower than the corporate cost of capital, since doing so will result in a negative return for the business.

The same concept can be applied to an investor, where the cutoff point is the price at which the investor decides whether a security should be purchased. It is used as a general guideline, so that the investor makes more consistent investment decisions.

What is the Cutoff Point in Manufacturing?

In manufacturing, the cutoff point is the error rate or product failure rate that will trigger the stoppage of a production line. At this point, the production engineering staff will step in to examine the process and correct the underlying issue before re-starting the production line. For example, a poor batch of raw materials could cause production to exceed the cutoff point, as could an incorrect machine setting.