ROOT WACC - Weighted Average Cost of Capital
The WACC of Root Inc (ROOT) is 7.2%.
| Range | Selected | |
| Cost of equity | 6.6% - 8.4% | 7.5% |
| Tax rate | 26.2% - 27.0% | 26.6% |
| Cost of debt | 5.0% - 5.0% | 5% |
| WACC | 6.3% - 8.0% | 7.2% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.6 | 0.64 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.6% | 8.4% |
| Tax rate | 26.2% | 27.0% |
| Debt/Equity ratio | 0.1 | 0.1 |
| Cost of debt | 5.0% | 5.0% |
| After-tax WACC | 6.3% | 8.0% |
| Selected WACC | 7.2% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| ROOT | Root Inc | 0.1 | 1.1 | 1.02 |
| AMBC | Ambac Financial Group Inc | 0.46 | 0.98 | 0.74 |
| AMSF | Amerisafe Inc | 0 | 0.32 | 0.32 |
| EIG | Employers Holdings Inc | 0 | 0.4 | 0.4 |
| HCI | Hci Group Inc | 0.13 | 0.5 | 0.45 |
| JRVR | James River Group Holdings Ltd | 1.13 | 1.22 | 0.67 |
| KNSL | Kinsale Capital Group Inc | 0.02 | 0.42 | 0.41 |
| MBI | MBIA Inc | 15.75 | 1.11 | 0.09 |
| NSEC | National Security Group Inc | 0.32 | -0.37 | -0.3 |
| PPHI | Positive Physicians Holdings Inc | 0 | -0.12 | -0.12 |
| Low | High | |
| Unlevered beta | 0.37 | 0.43 |
| Relevered beta | 0.4 | 0.46 |
| Adjusted relevered beta | 0.6 | 0.64 |
ROOT'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 ROOT:
cost_of_equity (7.50%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.6) + 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.