**Weighted Average Cost of Capital (WACC) = SUM(Proportion of Capital * Cost of Capital)**

Streamline Your Financial Analysis with Our Easy-to-Use Weighted Average Cost of Capital Calculator.

Customize this calculator to help your finance team quickly assess investment opportunities and financial strategies.

## How to Calculate WACC?

WACC integrates the costs associated with each capital component proportionally, providing a comprehensive understanding of total capital costs.

## What is WACC?

The Weighted Average Cost of Capital (WACC) is the average rate that a company is expected to pay to all its security holders to finance its assets.

## Why is WACC Important?

Knowing the WACC helps firms make investment decisions, assess new projects, and evaluate potential acquisitions, ensuring these are profitable enough to justify the risk.

## Calculating WACC Example

Let’s consider a company with:

- $100 million debt at 5% cost
- $400 million equity at 10% cost WACC = ($100M/$500M * 5%) + ($400M/$500M * 10%) = 1% + 8% = 9%

## How to Improve WACC

### Optimize Debt-Equity Ratio

Create a balance between debt and equity to minimize the WACC while ensuring the company remains attractive to investors.

### Renegotiate Debt Terms

Seek terms with lower interest rates to reduce the cost of debt, reflecting positively on WACC.

### Improve Credit Rating

Work towards a higher credit rating to lower the cost of capital, having a direct impact on reducing WACC.

### Dividend Policy Review

Adjust dividend payouts to optimize equity costs without alienating shareholders, thereby impacting WACC beneficially.

### Cost Efficiency

Implement cost-cutting measures that free up more capital for other operations, improving overall financial health and potentially reducing WACC.

## How to Calculate WACC in Google Sheets and Excel

- Input “Equity” in cell A1 and “Debt” in A2.
- Enter the corresponding values in B1 and B2.
- Put “Cost of Equity” in C1 and “Cost of Debt” in C2, and fill in the values.
- List the “Proportion of Equity” in D1 and “Proportion of Debt” in D2.
- In E1, input the formula =(B1
*D1*C1) + (B2*D2*C2). - The result in E1 is your WACC.

## Drawbacks of Using WACC

**Market Sensitivity**: WACC can be overly sensitive to market fluctuations, leading to inaccuracies.**Assumptive Nature**: Often involves assumptions that might not hold true, affecting the reliability.**Complexity in Calculation**: Proper calculation requires precise data on cost of debt and equity, which might not always be readily available.

## When to Use the WACC Calculator

Apply our calculator during strategic planning, investment analysis, or while assessing the feasibility of financing options.

## Calculator: Tips and Tricks

- Regularly update your rates as markets change to keep your calculations accurate.
- Use snapshots to keep track of historical calculations.
- Influence your result by adjusting both the Proportion of Capital and Cost of Capital dynamically.