Term of the Day WACC

Term of the Day

WACC

Weighted Average Cost of Capital. An average representing the expected return on all of a company’s securities. Each source of capital, such asstocksbonds, and other debt, is assigned a required rate of return, and then these required rates of return are weighted in proportion to the share each source of capital contributes to the company‘s capital structure. The resultingrate is what the firm would use as a minimum for evaluating a capital projector investment.
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Usage Example
Before starting on a new project or initiative most companies calculate theWACC to see if the project is worthwhile and proves to be profitable.
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Term of the Day correlation


Term of the Day

correlation

Degree and type of relationship between any two or more quantities(variables) in which they vary together over a period; for example, variation in the level of expenditure or savings with variation in the level of income. Apositive correlation exists where the high values of one variable areassociated with the high values of the other variable(s). A ‘negative correlation‘ means association of high values of one with the low values of the other(s). Correlation can vary from +1 to -1. Values close to +1 indicate a high-degree of positive correlation, and values close to -1 indicate a high degree of negative correlation. Values close to zero indicate poor correlation of either kind, and 0 indicates no correlation at all. While correlation …
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Usage Example
Market capitalization can be deceiving and must be measured in correlationto other important business metrics.