What is Weighted Average Cost of Capital (WACC)?
WACC is the average rate a company is expected to pay across its sources of capital — equity, debt, and preferred — weighted by their market values. It is widely used as a discount rate in valuation.
How It Works
- Compute cost of equity (often via CAPM) and after-tax cost of debt.
- Weight by the market-value mix of equity and debt.
- Sum to get WACC.
Saudi Context
Saudi corporate WACCs typically land in the 8 to 12% range in SAR, with banks tighter and high-growth sectors wider. Zakat-only entities lose the conventional debt tax shield in the calculation.
Example
A Saudi company has 70% equity at 11% cost and 30% debt at 6% after-tax — WACC is 70% × 11% + 30% × 6% = 9.5%.