WACC
Business & Finance abbreviation · Finance
| Stands for | Weighted average cost of capital |
|---|---|
| Categories | Business & Finance |
WACC stands for Weighted average cost of capital, a finance abbreviation.
Average rate a company must pay to finance its assets, weighting the after-tax cost of debt and the cost of equity by their shares of the capital structure. It serves as the discount rate in DCF valuations and as a hurdle rate for investment decisions.
Example: Using a 60/40 equity-debt mix, a 10 percent cost of equity and a 4 percent after-tax cost of debt gives a WACC of 7.6 percent.
Usage notes
Pronounced "whack." Market values rather than book values of debt and equity should be used for the weights, and the cost of equity is usually estimated with CAPM. Small changes in WACC can swing a DCF valuation dramatically, which is why analysts present sensitivity tables showing value across a range of rates.
Related abbreviations
More finance abbreviations
- ABL – Asset-based lending
- APA – Asset purchase agreement
- APV – Adjusted present value
- ARR – Annual recurring revenue
- ATM – At-the-market offering
- AUM – Assets under management
- CAGR – Compound annual growth rate
- CapEx – Capital expenditure
- CAPM – Capital asset pricing model
- CCC – Cash conversion cycle
- CIM – Confidential information memorandum
- CVC – Corporate venture capital