The WACC of Electrocomponents PLC (ECM.L) is 8.3%.
| Range | Selected | |
| Cost of equity | 7.50% - 9.90% | 8.70% |
| Tax rate | 23.50% - 25.50% | 24.50% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 7.2% - 9.5% | 8.3% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 5.3% | 6.3% |
| Adjusted beta | 0.85 | 0.94 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.50% | 9.90% |
| Tax rate | 23.50% | 25.50% |
| Debt/Equity ratio | 0.07 | 0.07 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 7.2% | 9.5% |
| Selected WACC | 8.3% | |
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 ECM.L:
cost_of_equity (8.70%) = risk_free_rate (3.15%) + equity_risk_premium (5.80%) * adjusted_beta (0.85) + 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.