It is impossible for any company to execute its operations without finances. Organizations use different monetary methods to raise funds so that they can execute their procedures without hassles.
However, if fundraisers are providing investment sums to run a company, each of them would expect a return. WACC comes into play when multiple alternatives have been used to raise funds for running a company.
Through WACC, the ratio at which returns have to be delivered for every fundraising option is determined. Now, when you talk about calculating WACC, what kind of knowledge do you need to get done with the calculation. Ideally, people with core financial knowledge have the edge.
However, even if you have financial knowledge, getting done with the calculations manually is not the finest option on the table.
The use of a WACC and its plus points
The use of a technological tool is a better alternative than manual calculations. It is not feasible for most users to perform lengthy steps and determine the WACC value. With a quality calculator, the need of performing lengthy steps does not exist.
- WACC calculator is very simple to use. Hence, their usage is not restricted to people with technical knowledge. People who don’t have computing skills can use this calculator without any kind of inconveniences. Using a quality calculator offers several positive aspects to the user.
- It is quite a challenge to understand the formula of WACC and implement it in the correct manner. Some users have a strong background in terms of financial knowledge. Even for them, calculating the value of WACC manually is not an easy alternative.
The perspective of the investor and company
If you have a look at the financial perspective of WACC, it has two different angles. One of them is related to the company.
A company uses investments from different fundraisers to execute its operations. Thus, for any company, WACC is analyzed with the perspective of paying the investors. In other words, it is a method to pay profit percentages to investors. Similarly, for the investors.
WACC is a method of earning profits. Different fundraisers use it to check the profit they are earning. For both these stakeholders, it is important to understand how the value of WACC should be interpreted.
The procedure of using the WACC calculator
Do you need to be technically sound for using the WACC calculator? Do you need advanced financial knowledge to use the tool in a hassle-free manner? The answer to both these questions is no. The WACC calculator is a simpler tool than various other online calculators. Thus, you can use the tool without any problems.
Further information about the tool can be used by going through the steps. Here are the stages of using the WACC calculator.
Enter the percentages for the cost of equity, debt, and tax
The first three inputs have to be entered in the percentage form. Simply enter the percentages for these inputs and move ahead to the next ones.
Enter the amounts for equity and debt
Once you have entered the percentages for equity, debt, and tax, you have to enter the amounts for equity and debt. Thus, a total of five inputs have to be entered to check the outputs. When all the inputs have been entered, click the “calculate” button to view the generated WACC value. The best way to see how a tool works are looking at an example. Consider that you have the following input values for calculating the value of WACC.
- Equity percentage = 15
- Debt Percentage = 12
- Tax percentage = 16
- Equity = 1500
- Debt = 800
When you are done with entering all the input values, simply click the calculate button and the value of WACC would be shown on your screen. In this case, it would be 13.29%.
Easy WACC calculation method for finance professionals
Along with professional financial analysts, students are also responsible for carrying out calculations related to WACC. How can they carry out these calculations in an easy manner?
The answer to this question is very simple. Using a quality online calculator is the best way out. These WACC calculators help users in eliminating the stress of performing calculations. In other words, you do not have to carry out any steps to determine the value.
At times when students are working on WACC calculations, they do not have a lot of time on their hands. Consider that you are working on a WACC assignment and ten questions have to be completed in a limited span of time.
It is obvious that solving the questions manually is not the best way out. However, using a WACC calculator is one of the easiest solutions to the problem. How is using a calculator better than manual solving techniques?
Using an online calculation tool is a time-saving option for users. If you need one hour to determine the WACC value manually, it would be done in a much shorter while if a calculator is used.
WACC calculations are complex
If you have a look at the formula of WACC, it is obvious that a lot of parameters are involved. In other words, there is a high level of complexity involved.
When you are dealing with complex calculations, not having a related online calculator can be a problem. To start with, if you are not completely aware of the concepts being used, mistakes would be made. The formula of WACC involves several parameters and each of them needs to be 100% correct.
The use of a WACC calculator is the best way to deal with such calculations. You do not have to worry about ending up with errors even if less time is available on your hands.