The WACC of Farfetch Ltd (FTCH) is 10.6%.
| Range | Selected | |
| Cost of equity | 22.40% - 34.30% | 28.35% |
| Tax rate | 0.40% - 0.70% | 0.55% |
| Cost of debt | 7.00% - 7.00% | 7.00% |
| WACC | 9.6% - 11.6% | 10.6% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 3.65 | 4.85 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 22.40% | 34.30% |
| Tax rate | 0.40% | 0.70% |
| Debt/Equity ratio | 4.89 | 4.89 |
| Cost of debt | 7.00% | 7.00% |
| After-tax WACC | 9.6% | 11.6% |
| Selected WACC | 10.6% | |
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 FTCH:
cost_of_equity (28.35%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (3.65) + 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.