Weighted Average Cost of Capital (WACC) Calculator: Instantly calculate your company’s WACC. Free tool for financial analysis and investment decisions. Get accurate results now!
Calculation Result
WACC: –%
Using the WACC calculator
The simple online Weighted Average Cost of Capital (WACC) calculator finds the cost of any business when you’re raising capital. Just enter the costs of equity, debt, and the tax rate for the company.
After you have inserted this information, the calculator will give you the Weighted Average Cost of Capital.
It is typically used as the discount rate for Net Present Value / discounted cash flow analyses.
Weighted Average Cost Of Capital (WACC)
WACC (Weighted Average Cost Of Capital) in finance is the average amount a company will expect to pay out in all costs of all holdings with respect to funding assets. This is why it is always called out as the cost of capital. The WACC for a firm is the minimal return it must generate from its assets to keep all its investors, including stockholders, creditors, and other capital providers, happy, or they will replace you.
WACC calculation must look at different capital sources like common and preferred stock, straight debt and convertible debt, warrants, options, pension liabilities even subsidies. WACC is important because other types of securities are assumed to have different returns, so WACC properly discounts each piece. That is why this notion is so much a part of financial management and investment.
How to calculate WACC?
For Weighted Average Cost of Capital (WACC) — To acquire this, you must incorporate the various elements of the cost of capital that may be attributable to equity and debt. To start with, you will have to make an approximation of the component’s cost. This is doing equity, which means calculating how much investment can remain in a company so when the price is held at a level that keeps investors happy by sustaining earnings. On the debt side, the key is the interest rate on your outstanding loans. Finally, the taxes associated with where that income is taxed work as part of the larger calculation.
Once you get hold of the right information, refer to links for the corresponding formula or resort to the WACC calculator above for quick calculations. Once the WACC has been established, you can use that figure to see if a company is allocating its capital assets efficiently by comparing its returns. For example, in a case where a yield of 22% can be generated, and WACC is, let us say, 10, this means this company makes 11% on top of each dollar invested, creating value for the company at a rate of 11 cents per dollar of capital. On the other hand, if yield slips lower than WACC, it means the company is destroying value and losing capital.
WACC formula
There are many a way to express the weighted average cost of capital formula. (1) the normal form, with N being a number of sources of capital, ri, the required rate of return for security i, and MVi being the total market value of all outstanding securities i (2) is the formula you get if the only financing sources are equity and debt, D = total debt, E = total shareholder’s equity, Kd = cost of debt, Ke = equity cost in.
The WACC formula calculator uses Formula (3), which recognizes tax effects through the inclusion of t (tax rate) as in the formula below for WACC using the formula calculator. With numerous plausible proxies for each element in the cost of capital equation, this will allow for a variety of plausible analyses on WACC.
Financial caution
The online tool is a good beginning to gauge how much is the average cost of a capital raise. However, it should not be considered the end of the process. Important to get a professional for any major financial decisions or long-term binding contracts, i.e., long-term bank deposits. Another thing to always remember when using the weighted average cost of capital calculator is that critical thinking must be responsible for your own decisions.