Finance / August 5, 2018 / Hanna Hunt
A company's weighted average cost of capital (WACC) is the average interest rate it must pay to finance its assets, growth and working capital. The WACC is also the minimum average rate of return it must earn on its current assets to satisfy its shareholders or owners, its investors, and its creditors.
Liability is a financial obligation made by a company to pay certain amount for the goods or services received by the company in the past. The short-term legal agreements which are required to be paid within one year are referred as current liabilities. Current liabilities are reported under liabilities on balance sheet.
This focus makes EBIT an especially useful metric for certain applications. For example, if an investor is thinking of buying a firm out, the existing capital structure is less important than the company's earning potential. Similarly, if an investor is comparing companies in a given industry that operate in different tax environments and have different strategies for financing themselves, tax and interest expenses would distract from the core question: how effectively do these companies generate profits from their operations.
Depending on your reason for valuing a business, you have several options for coming up with a basic company worth. If you need to sell the business quickly, you can use tangible assets and current liabilities to find a value. If you’re looking to get the maximum possible for your business, or an accurate value for a business you might buy, you’ll add more calculations.
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