The WACC of Smith & Nephew PLC (SN.L) is 8.8%.
| Range | Selected | |
| Cost of equity | 8.20% - 11.30% | 9.75% |
| Tax rate | 10.10% - 13.30% | 11.70% |
| Cost of debt | 4.00% - 5.20% | 4.60% |
| WACC | 7.5% - 10.2% | 8.8% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.71 | 0.91 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.20% | 11.30% |
| Tax rate | 10.10% | 13.30% |
| Debt/Equity ratio | 0.2 | 0.2 |
| Cost of debt | 4.00% | 5.20% |
| After-tax WACC | 7.5% | 10.2% |
| Selected WACC | 8.8% | |
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 SN.L:
cost_of_equity (9.75%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.71) + 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.