The WACC of HSBC Holdings PLC (HSBA.L) is 6.7%.
| Range | Selected | |
| Cost of equity | 11.60% - 15.00% | 13.30% |
| Tax rate | 21.00% - 22.40% | 21.70% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.2% - 7.1% | 6.7% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 1.27 | 1.43 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.60% | 15.00% |
| Tax rate | 21.00% | 22.40% |
| Debt/Equity ratio | 2.41 | 2.41 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.2% | 7.1% |
| Selected WACC | 6.7% | |
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 HSBA.L:
cost_of_equity (13.30%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (1.27) + 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.