The WACC of Hutchison China MediTech Ltd (HCM.L) is 6.9%.
| Range | Selected | |
| Cost of equity | 6.00% - 7.80% | 6.90% |
| Tax rate | 3.90% - 5.00% | 4.45% |
| Cost of debt | 4.00% - 7.00% | 5.50% |
| WACC | 6.0% - 7.8% | 6.9% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.38 | 0.44 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.00% | 7.80% |
| Tax rate | 3.90% | 5.00% |
| Debt/Equity ratio | 0.01 | 0.01 |
| Cost of debt | 4.00% | 7.00% |
| After-tax WACC | 6.0% | 7.8% |
| Selected WACC | 6.9% | |
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 HCM.L:
cost_of_equity (6.90%) = risk_free_rate (3.95%) + equity_risk_premium (6.50%) * adjusted_beta (0.38) + 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.