# Wacc

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How to Calculate the WACC From a Balance Sheet | eHow.com

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How to Calculate the WACC From a Balance Sheet

Weighted average cost of capital (WACC) is a calculation of a company's cost of capital, or the minimum that a company must earn to satisfy all debts and support all assets. The calculation includes the company's debt and equity ratios, as well as all long-term debt. Companies usually do an internal WACC calculation to assess overall company health. The larger and more complex a company is, the harder it is to determine WACC. Unfortunately, only some of the information needed to calculate WACC can be found on a balance sheet.
Difficulty:Moderate

Instructions
Calculating WACC

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Gather the required information from the balance sheet. Finding the information is the hardest step. Write out the full WACC equation and list the variables separately. It is a good idea to make a list of all your variables before rewriting the equation. WACC = [(E/V) * Re] + [(D/V) * Rd * (1-Tc)] Re= cost of equity (expected rate of return on equity) Rd = cost of debt (expected rate of return on debt) E = market value of company equity D = market value of company debt V = total capital invested, which equals E + D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate Start calculating the variables. Start with cost of equity and cost of debt. Some companies include these ratios on the balance sheet or income statement. It is a good idea to check both those reports and the executive summary at the beginning of financial statements---why do calculations if the company has done them for you?

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4/6/2013

How to Calculate the WACC From a…...

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#### Wacc

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