Glossary
WACC (weighted average cost of capital)
The average return a company's lenders and shareholders expect, weighted by how much of each it uses.
WACC blends the cost of equity (the return shareholders expect) and the after-tax cost of debt, weighted by the market value of each in the company's capital.
It is the hurdle a business has to clear. A company whose return on invested capital is above its WACC creates value; one below it destroys value. WACC is also the usual discount rate in a discounted cash flow valuation.
Small changes in its inputs move a valuation a lot, so treat any single WACC as an estimate.
Try it: WACC calculator
Related terms
- Cost of equity: The return shareholders expect for owning a company's shares, given their risk.
- Return on invested capital (ROIC): How much profit a company earns on the money invested in it by shareholders and lenders.