The WACC of HSBC Holdings PLC (HSBA.L) is 6.7%.
Range | Selected | |
Cost of equity | 11.3% - 14.8% | 13.05% |
Tax rate | 21.0% - 22.4% | 21.7% |
Cost of debt | 5.0% - 5.0% | 5% |
WACC | 6.2% - 7.2% | 6.7% |
Category | Low | High |
Long-term bond rate | 4.0% | 4.5% |
Equity market risk premium | 6.0% | 7.0% |
Adjusted beta | 1.22 | 1.4 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 11.3% | 14.8% |
Tax rate | 21.0% | 22.4% |
Debt/Equity ratio | 2.25 | 2.25 |
Cost of debt | 5.0% | 5.0% |
After-tax WACC | 6.2% | 7.2% |
Selected WACC | 6.7% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
HSBA.L | HSBC Holdings PLC | 2.25 | 1.5 | 0.54 |
BARC.L | Barclays PLC | 5.54 | 1.75 | 0.33 |
BBVA.MC | Banco Bilbao Vizcaya Argentaria SA | 1.3 | 1.36 | 0.68 |
BNP.PA | BNP Paribas SA | 4.18 | 1.23 | 0.29 |
GLE.PA | Societe Generale SA | 1.77 | 1.51 | 0.64 |
INGA.AS | ING Groep NV | 2.72 | 1.05 | 0.34 |
LLOY.L | Lloyds Banking Group PLC | 2.7 | 1.54 | 0.5 |
OTP.BD | OTP Bank Nyrt | 0.42 | 1.61 | 1.21 |
PKO.WA | Powszechna Kasa Oszczednosci Bank Polski SA | 0.31 | 1.58 | 1.27 |
SAN.MC | Banco Santander SA | 3.05 | 1.58 | 0.47 |
Low | High | |
Unlevered beta | 0.49 | 0.58 |
Relevered beta | 1.33 | 1.6 |
Adjusted relevered beta | 1.22 | 1.4 |
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 (13.05%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (1.22) + 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.