WACC is the discount rate used in discounted-cash-flow valuation. Companies that persistently earn returns above WACC create value; those that don't destroy it.
Practice this in Aurora
See a plain-English bull/bear/bias breakdown on any stock — no signup needed.
Open Decision Lab →Frequently asked questions
How is WACC calculated?
(E/V × cost of equity) + (D/V × cost of debt × (1 − tax rate)), where E, D and V are equity, debt, and total capital.
Related terms
Return on invested capital (ROIC)
Net operating profit after tax divided by invested capital — a rigorous measure of business quality.
Discounted cash flow (DCF)
A valuation method that discounts future cash flows back to their present value.
Return on invested capital (ROIC)
After-tax operating profit divided by invested capital (debt + equity).
Discounted cash flow (DCF)
A valuation method that discounts a company's future cash flows to present value.