ELAN WACC - Weighted Average Cost of Capital
The WACC of Elanco Animal Health Inc (ELAN) is 6.3%.
| Range | Selected | |
| Cost of equity | 6.5% - 8.4% | 7.45% |
| Tax rate | 12.5% - 15.3% | 13.9% |
| Cost of debt | 5.0% - 5.0% | 5% |
| WACC | 5.7% - 6.8% | 6.3% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.57 | 0.63 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.5% | 8.4% |
| Tax rate | 12.5% | 15.3% |
| Debt/Equity ratio | 0.61 | 0.61 |
| Cost of debt | 5.0% | 5.0% |
| After-tax WACC | 5.7% | 6.8% |
| Selected WACC | 6.3% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| ELAN | Elanco Animal Health Inc | 0.61 | 1.04 | 0.69 |
| BMY | Bristol-Myers Squibb Co | 0.53 | 0.15 | 0.1 |
| CTLT | Catalent Inc | 0.43 | 0.41 | 0.3 |
| JNJ | Johnson & Johnson | 0.1 | 0.09 | 0.08 |
| LLY | Eli Lilly and Co | 0.05 | 0.79 | 0.76 |
| MRK | Merck & Co Inc | 0.19 | 0.4 | 0.35 |
| PFE | Pfizer Inc | 0.47 | 0.32 | 0.23 |
| RPRX | Royalty Pharma PLC | 0.38 | 0.14 | 0.1 |
| ZTS | Zoetis Inc | 0.09 | 0.29 | 0.27 |
| Low | High | |
| Unlevered beta | 0.24 | 0.29 |
| Relevered beta | 0.36 | 0.45 |
| Adjusted relevered beta | 0.57 | 0.63 |
ELAN'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 ELAN:
cost_of_equity (7.45%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.57) + 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.