Weighted Average Cost of Capital Explained

Average Cost of Capital, tips to assessing the financial state of the company. The professional analysts of stock use certain models in order to estimate the inherent worth of a company. This important for determining if the stock of the company is a bargain. A lot of inputs are required by the models. One of the important inputs that are required for the models is the weight average cost of capital of the company. A business organization can acquire money by borrowing from banks or selling bonds, they can also offer stocks and equity.
These are the alternative sources of capital of a business organization. The company has to payments pf interest for the debts. The company could make payments of dividends and a capital gain can be expected by the shareholders for equity. By taking the cost of these capital sources in average, a proportion of weight is taken for funding the organization. This method is very effective for assessing the financial state of the company.


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