The Weighted Average Cost of Capital (WACC) is a financial metric that represents the average cost of financing a company’s assets, considering both debt and equity components.
Page written by Ian Hawkins. Last reviewed on May 19, 2025. Next review due July 1, 2026.
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WACC stands for weighted average cost of capital. It’s a financial metric used to calculate the overall cost of a company’s capital, taking into account the cost of both debt and equity.
Essentially, WACC represents the average rate of return a company must generate to satisfy all its investors, including shareholders and debt holders. This calculation considers the amount of debt and equity financing in the company’s capital structure, as well as the costs related to each. By including these factors, WACC provides insight into the minimum return a company needs to generate from its investments to keep or increase its overall value. It’s an important tool used in investment decision-making, capital budgeting, and evaluating the financial performance of a company.
To calculate the weighted average cost of capital:
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