WACC Calculator

GuruFocus WACC (Weighted Average Cost of Capital) Calculator FAQs

How do you calculate WACC?

WACC = [(E/V) x Re] + [(D/V) x Rd x (1 - Tc)], where:

• E = equity market value.
• Re = equity cost.
• D = debt market value.
• V = the sum of the equity and debt market values.
• Rd = debt cost.
• Tc = the current tax rate for corporations.

Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt. The market value of equity (E) is also called "Market Cap". As of today, Apple's market capitalization (E) is $2864773.127 Mil. The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest one-year quarterly average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together. As of Dec. 2023, Apple's latest one-year quarterly average Book Value of Debt (D) is $109826.6 Mil.

a) weight of equity = E / (E + D) = 2864773.127 / (2864773.127 + 109826.6) = 0.9631

b) weight of debt = D / (E + D) = 109826.6 / (2864773.127 + 109826.6) = 0.0369

What does a 12% WACC mean?

The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances. A 12% WACC means that on average, the company has to pay approximately $0.12 for every dollar it finances.

What is CAPM?

GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula is: Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)

a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The current risk-free rate is 4.275%. Please go toEconomic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default.

b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. Apple's beta is 1.21.

c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%. Cost of Equity = 4.275% + 1.21 * 6% = 11.535%

Does WACC use debt or net debt?

GuruFocus uses the latest TTM Interest Expense divided by the latest one-year quarterly average debt to get the simplified cost of debt.

As of Sep. 2023, Apple's interest expense (positive number) was $3933 Mil. Its total Book Value of Debt (D) is $112232.4 Mil. Cost of Debt = 3933 / 112232.4 = 3.5043%.

What is a good WACC value?

Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.