Composite Cost Of Capital

DEFINITION of 'Composite Cost Of Capital'

A company's cost to borrow money given the proportional amounts of each type of debt and equity a company has taken on. A company's debt and equity, or its capital structure, typically includes common stock, preferred stock and bonds. A high composite cost of capital, indicates that a company has high borrowing costs; a low composite cost of capital signifies low borrowing costs.


Also referred to as "weighted average cost of capital" or WACC.

BREAKING DOWN 'Composite Cost Of Capital'

A company's management uses the company's composite cost of capital in internal decision making. For example, it might use it as the discount rate in a discounted cash flow analysis to help decide whether the company could profitably finance a new project. Investors may use a company's composite cost of capital as one of several factors in deciding whether to buy the company's stock.

RELATED TERMS
  1. Incremental Cost Of Capital

    A term used in capital budgeting, the incremental cost of capital ...
  2. Capitalization Structure

    The proportion of debt and equity in the capital configuration ...
  3. Capital Structure

    A mix of a company's long-term debt, specific short-term debt, ...
  4. Cost Of Carry

    Costs incurred as a result of an investment position. These costs ...
  5. Capitalized Cost

    An expense that is added to the cost basis of a fixed asset on ...
  6. Economic Spread

    1. A performance metric that is equal to the difference between ...
Related Articles
  1. Investing Basics

    Breaking Down Optimal Capital Structure

    An optimal capital structure shows the best balance of debt to equity a company can have in order to minimize its cost of capital.
  2. Personal Finance

    Target Corp: WACC Analysis (TGT)

    Learn about the importance of capital structure when making investment decisions, and how Target's capital structure compares against the rest of the industry.
  3. Bonds & Fixed Income

    Evaluating A Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  4. Fundamental Analysis

    DCF Analysis: Calculating The Discount Rate

    By Ben McClure Contact Ben Having projected the company's free cash flow for the next five years, we want to figure out what these cash flows are worth today. That means coming up with an appropriate ...
  5. Bonds & Fixed Income

    Investors Need A Good WACC

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality.
  6. Mutual Funds & ETFs

    Index Investing: The Nasdaq Composite Index

    The Nasdaq Composite Index represents all the stocks that trade on the Nasdaq stock market. The recent surge in popularity of technological stocks has launched the Nasdaq into the spotlight. ...
  7. Investing

    McDonald's Stock: Capital Structure Analysis (MCD)

    Learn about the importance of capital structure, and what equity and debt capitalization measures can tell us about the performance of McDonald's Corporation.
  8. Economics

    What Are The Different Types Of Costs In Cost Accounting?

    Cost accounting measures several different types of costs associated with a company’s production processes.
  9. Term

    How Equity Capital Markets Work

    An equity capital market is a market existing between companies and financial institutions that raises money for the companies.
  10. Investing

    Exxon Mobil Stock: Capital Structure Analysis (XOM)

    Investigate Exxon Mobil's capital structure and understand how equity, debt capitalization and enterprise value interact with each other.
RELATED FAQS
  1. How do you calculate the ratio between debt and equity in the cost of capital

    Discover how to calculate the ratio between debt and equity when making cost of capital estimations using the weighted average ... Read Answer >>
  2. What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required ... Read Answer >>
  3. What is the difference between the cost of capital and the discount rate?

    Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return ... Read Answer >>
  4. How do interest rates influence a corporation's capital structure?

    Learn about how changing interest rates can affect a corporation's capital structure because of their impact on the cost ... Read Answer >>
  5. What is the difference between cost of debt capital and cost of equity?

    Learn about how the costs of debt and equity capital differ and how to calculate each using interest and tax rates and stock ... Read Answer >>
  6. What are the benefits and shortfalls of the Herfindahl-Hirschman Index?

    Learn about the differences between equity and debt financing and how they impact financials. Find out how businesses determine ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center