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Glossary

Weighted Average Cost of Capital

Also: WACC

Essential — core valuation theory

What it measures

Minimum return the company must earn on investments to create value. If ROIC > WACC = value creation.

Formula

(E/V)·Re + (D/V)·Rd·(1-t)

Benchmark

Typical 7-12% for mature firms

Related metrics

ROICCost of EquityAfter-Tax Cost of DebtROIC − WACC Spread

Source

McKinsey, Valuation (7th ed.) ch. 13

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Working Capital