Weighted Average Cost of Capital:
It is the average cost of various sources of finance. For computing weighted average cost of capital, we can employ the steps shown below:
Step A: Compute proportion percentage of various source of finance in capital structure. This will be W.Step B: Compute cost of equity capital, cost of debt and cost of retain earning and this will be X.Step C: Compute the product of W and X by multiply W by X.Step D: Compute the net of product W and X and this will be ∑WXStep E: Compute the net of W and this will be ∑WStep F: Compute the WACC by dividing ∑WX by ∑W
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Ratios can be collected into categories, with each category relating to a specific aspect of financial performance or position.
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