Weighted average cost of capital (WACC)
The blended return the providers of the company's debt and equity require, in percent per year.
It is the hurdle. A business earning less than this on its capital is destroying value however fast it grows.
How it is computed here
Equity share x (10-year Treasury yield + beta x 5.5%) + debt share x after-tax cost of debt
A model output rather than an observed figure. Filed under value. Lower is the stronger reading, other things equal.
No published threshold exists for this figure, so this page prints none. Read it against the company's own history and its peers instead.
When it misleads
- The Treasury yield is last night's, dated. The 5.5% premium is our assumption.
- An estimate, not an observation. It inherits every weakness of beta.
- Withheld for deposit-taking lenders, without a filed debt line, and when interest implies a cost of debt above 20%.
Questions
How is weighted average cost of capital calculated?
Equity share x (10-year Treasury yield + beta x 5.5%) + debt share x after-tax cost of debt. A model output rather than an observed figure.
What does weighted average cost of capital tell a value investor?
It is the hurdle. A business earning less than this on its capital is destroying value however fast it grows.
When does weighted average cost of capital mislead?
The Treasury yield is last night's, dated. The 5.5% premium is our assumption. An estimate, not an observation. It inherits every weakness of beta. Withheld for deposit-taking lenders, without a filed debt line, and when interest implies a cost of debt above 20%.