I was wondering if anyone could help explain how WACC might be different for industries? I understand that debt is cheaper than equity, and that start-ups would have less debt than mature companies, but what about between industries?
Specifically, I am looking for how WACC differs between real estate, technology, retail, and financial services companies??
average WACC for companies in different industries
When comparing Real Estate, Tech, Retail and Financial Services companies - each industry may have a very distinct WACC. For example - small tech firms will likely have very little debt and therefore a greater amount of equity in the capital structure meaning that WACC will be higher. However, for large tech companies - they may have a sizeable amount of debt. When making assumptions about WACC and industries it is important to be very specific.
Retailers will likely have a larger amount of debt in their capital structure - especially given the difficult retail environment. In real estate - often times properties are financed with debt and therefore the portion of debt will be high and the WACC low.
For financial services - WACC is not terribly relevant since WACC will be distorted by the amount of debt that the company has in the capital structure due to the nature of the business. Often times WACC will not be used for valuation of these types of companies.
Learn more about WACC with the video below.
Read More About WACC on WSO
- Weighted Average Cost Of Capital (WACC) Definition
- Cost Of Capital Vs. WACC
- What Is "WACC" Or The Weighted Average Cost Of Capital?
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