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Glossary
Valuation

WACC

Weighted average cost of capital

The blended rate a company must beat to be worth anything.

Every pound in a business comes from lenders (who want interest) or shareholders (who want returns). WACC blends the two into a single hurdle rate, weighted by how much of each the company uses.

It is usually the discount rate in a DCF. It is also mostly an estimate, since the cost of equity is unobservable and must be inferred, typically through beta. Treat it as a reasoned guess, and test how much your valuation depends on it.

The formula
WACC = (E/V × cost of equity) + (D/V × cost of debt × (1 − tax rate))
Figure

One number, four consequences

Central bank raises ratesBonds fallOld coupons look poorShares fallFuture cash worth lessBorrowing dearerSpending slowsEarnings slowRoughly a year later

A rate is the price of the future. Move it, and everything whose value sits in the future is repriced, which is why growth companies fall hardest.

Why it matters

Beat it and the company creates value. Fail to and growth actively destroys it.

The mistake everyone makes

Presenting a DCF as precise when a one-point change in WACC swings fair value by a third.

Related terms

DCF
Valuing a business as the sum of all the cash it will ever produce, in today's money.
ROIC
The return on all the money in the business, borrowed and owned alike.
Beta
How much a stock moves relative to the market as a whole.

See WACC on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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