07/01/2013 - 08/01/2013

According to source of Revenue, it is divided into two categories i.e. Operating revenue and Non-operating revenue.

Operating Revenue:-

Operating revenue denotes the revenue which earned from normal and regular business activities of organization. Operating revenue is sales after adjusted
sales return and other discount. Other forms of income such as interest on investment or sale of assets are income but not consider in the calculation of
operation revenue. Operating revenue in balance sheet reflects only ordinary revenue generate from the regular business operation.

Cost of Goods Sold (COGS) refers to the cost to a business of making product or service. COGS differ from one industry to another. COGS appear on the
income statement and can be deducted from revenue to calculate a company's gross margin. The cost of goods sold includes net direct inventory cost and
labour expense, factory overhead, office and administration overhead but does not includes indirect cost related to selling and distribution overhead.

For manufacturing industry, COGS refers to buying of raw material & expense for manufacturing finished goods. For retailers, it is the cost of
obtaining or buying the products sold to customer. If the company is in a service industry, COGS is the cost of the service it offers.

WACC denotes the Weighted Average Cost of Capital. It is also known as Overall Cost of Capital. As the name suggest, it is computed by reference to the proportion of each element of capital as weights. WACC is the expected average future cost of finance over the long run of firm.

 Weighted Cost of Capital of Overall Cost of Capital represented symbolically by Ko

 WACC = Sum of (Cost of each Capital Element × Proportion or percentage or weight of Capital)

The calculation of Weighted Average Cost of Capital or Overall Cost of Capital involves the following steps:-

  • Determine the cost of each source of capital separately i.e. Cost of Equity Capital, Cost of Debt, Cost of Preference Capital, Cost of Retained Earning, Cost of Loan, Cost of any other finance. 
  • Determine the weight of each source of capital. 
  • Multiplying the cost of each of the source by appropriate weights. and 
  • Dividing the total weighted cost by total weight.

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