WACC (Weighted Average Cost of Capital)

WACC (Weighted Average Cost of Capital) is the average rate a company needs to pay to finance its operations through both debt (loans) and equity (shareholders’ investments). It reflects the overall cost of capital, taking into account the proportion of debt and equity used, and the cost associated with each. WACC is important because it helps companies estimate the minimum return they must generate to satisfy investors and creditors. A lower WACC suggests easier access to affordable funding, while a higher WACC indicates higher perceived risk or borrowing costs.