Weighted average cost of capital

The weighted average cost of capital (WACC) represents the average anticipated return on all of company’s sources of financing where each is weighted in proportion to the amount of capital it provides. This includes common and preference shares, bonds and other long term debt. WACC allows a company to calculate how much interest it pays for every pound of financing it has. A high WACC suggests the company is finding it expensive to raise capital and it could therefore be a risky investment.

This definition is for general information purposes only