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.

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