The WACC of STM Group PLC (STM.L) is 7.4%.
| Range | Selected | |
| Cost of equity | 6.90% - 9.20% | 8.05% |
| Tax rate | 17.60% - 30.30% | 23.95% |
| Cost of debt | 4.00% - 5.20% | 4.60% |
| WACC | 6.4% - 8.4% | 7.4% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.49 | 0.6 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.90% | 9.20% |
| Tax rate | 17.60% | 30.30% |
| Debt/Equity ratio | 0.16 | 0.16 |
| Cost of debt | 4.00% | 5.20% |
| After-tax WACC | 6.4% | 8.4% |
| Selected WACC | 7.4% | |
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 STM.L:
cost_of_equity (8.05%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.49) + 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.