The WACC of Shinhan Financial Group Co Ltd (055550.KS) is 4.5%.
| Range | Selected | |
| Cost of equity | 6.30% - 8.40% | 7.35% |
| Tax rate | 25.20% - 25.70% | 25.45% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 4.3% - 4.8% | 4.5% |
| Category | Low | High |
| Long-term bond rate | 3.1% | 3.6% |
| Equity market risk premium | 5.8% | 6.8% |
| Adjusted beta | 0.56 | 0.64 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.30% | 8.40% |
| Tax rate | 25.20% | 25.70% |
| Debt/Equity ratio | 3.5 | 3.5 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 4.3% | 4.8% |
| Selected WACC | 4.5% | |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for 055550.KS:
cost_of_equity (7.35%) = risk_free_rate (3.35%) + equity_risk_premium (6.30%) * adjusted_beta (0.56) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.