## Understanding the Weighted Average Cost of Capital (WACC)

Introduction The Weighted Average Cost of Capital (WACC) shows a firm’s blended cost of capital across all sources, including both debt and equity. We weigh each type of financing source by its proportion of total capital and then added together. Financial analysts use WACC widely in financial modeling as the Read more…

## Least-Squares Method to Estimate the Cost Function

Introduction Linear regression is considered the most accurate method in segregating costs into Fixed and Variable components. Like the High-Low Method and other methods, the Least-Squares Method follows the same simple linear cost function: However, most people consider the Least-Squares Method more accurate, as it computes Fixed and Variable Costs Read more…

## Estimating Fixed and Variable Costs with the High-Low Method

Introduction The High-Low Method is a technique of cost accounting, which is used to split mixed costs into variable and fixed components. It is essential to note that the High-Low method is not very popular as it relies on extreme values of the population and can distort the cost distribution. Read more…

## Capital Asset Pricing Model (CAPM)

Introduction The Capital Asset Pricing Model (CAPM) shows us the relationship between systematic risk for an investment and the expected return on it. Analysts and financial professionals use the model widely for pricing risky investments and generating expected returns for assets, considering the risk and cost of capital. The CAPM Read more…

## Cost-Volume-Profit Analysis and Break-even point

Today we will take a look at Cost-Volume-Profit (CVP) analysis and the Break-even point (BEP) in sales. Cost-Volume-Profit Analysis The Cost-Volume-Profit  (CVP) analysis is a method of cost accounting. It looks at the impact of changes in production costs and sales on operating profits. Performing the CVP, we calculate the Read more…

## Creating a Variance Analysis Model – Part 2

This article builds upon the theory discussed in Creating a Variance Analysis Model – Part 1. Be sure to read this article before looking at the more practical examples below. Building a Variance Analysis Model in Excel Let’s create an Excel model to perform our variance analysis. For the exercise, we Read more…