Weighted average cost of capital

A printable cheatsheet with calculations
and notes

Download FREE Ratio Diagram

Instead of calculating each ratio individually

Let our ratio tool instantly calculate your ratios. Input your financial data once and get multiple results.
START AUTO CALCULATION

Weighted Average Cost of Capital (WACC)

WACC =

Market value of Equity

Total value of financing

x Cost of equity +

Market value of debt

Total value of financing

x Cost of debt x (1 - tax rate)

INTERPRETATION

WACC is the average rate that a company expects to pay to finance its assets.

Management typically uses this ratio to decide whether the company should use debt or equity to fund new purchases.

Note: expanded calculation

Divide the market value of the firm’s equity by the total market value of the company’s equity and debt multiplied by the cost of equity multiplied by the market value of the company’s debt by the total market value of the company’s equity and debt multiplied by the cost of debt times. One minus the corporate income tax rate

EXAMPLE

M&M works with a WACC of 12%, meaning that M&M should invest in projects only if they give a return higher than 12%.

BENCHMARK: HA, PG, EB, ROT

Generally, the small business rate should be at least 12% to 25%, but some rates are much higher. A high WACC signifies higher risk; the company pays more to service any debt or equity they raise.

WACC :

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.