AOS WACC - Weighted Average Cost of Capital

The WACC of A. O. Smith Corp (AOS) is 8.9%.

The Cost of Equity of A. O. Smith Corp (AOS) is 9.05%.

The Cost of Debt of A. O. Smith Corp (AOS) is 4.25%.

	Range	Selected
Cost of equity	8.00% - 10.10%	9.05%
Tax rate	22.20% - 22.90%	22.55%
Cost of debt	4.00% - 4.50%	4.25%
WACC	7.9% - 10.0%	8.9%

WACC

AOS WACC calculation

Category	Low	High

Long-term bond rate	3.9%	4.4%
Equity market risk premium	4.6%	5.6%
Adjusted beta	0.89	0.93

Additional risk adjustments	0.0%	0.5%
Cost of equity	8.00%	10.10%

Tax rate	22.20%	22.90%
Debt/Equity ratio	0.02	0.02
Cost of debt	4.00%	4.50%

After-tax WACC	7.9%	10.0%


Selected WACC	8.9%

AOS's CAPM model and how its cost of Equity is calculated

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 AOS:

cost_of_equity (9.05%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.89) + 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.