Stock Market Glossary
WACC
Weighted Average Cost of Capital – a company’s weighted cost of capital.
In brief: Weighted Average Cost of Capital – a company’s weighted cost of capital.
Meaning in practice
The WACC mixes equity costs and debt costs according to their proportions. It is the standard discount rate in DCF valuations – and is sensitive to the interest rate environment and debt ratio.
Context for investors and traders
For investors, the term becomes practical in the context of objectives, time horizon, risk capacity and costs. A suitable solution can differ between two people even when they consider the same product or metric.
How to use this in practice
The term becomes practical when expressed in numbers: what is the position weight, which costs apply, what loss is possible and what role does it play in the portfolio? These questions prevent an otherwise useful product from becoming too large or being used at the wrong time.
What to keep in mind
Include taxes, spreads, product structure and personal liquidity reserves in comparisons. Historical returns and a fund’s or index’s characteristics describe the past, not a promised future result.
