WACC

The determination of the weighted average cost of capital (WACC) is a core element of company valuations, regulatory proceedings, and financial-economic analyses.

 

Our expertise includes in particular:

• Regulatory cost of capital: A bottom-up approach to determining capital costs that feed into regulatory decisions. We support the process across all capital cost parameters, tailored to the specific characteristics of the applicable regulatory framework.
• Corporate cost of capital: Calculation of company- or division-specific capital costs used as inputs for valuations, value-added analyses, and damage quantification.
• WACC Subscription: Swiss Economics offers regular cost-of-capital calculations in a subscription format. The calculations are derived using a bottom-up approach and cover all relevant parameters, in particular the estimation of betas. In doing so, we rely on our proprietary beta tool. In addition, we conduct structured sensitivity analyses to transparently and clearly illustrate the impact of different assumptions. The subscription is available in several service tiers, which differ in terms of flexibility and update frequency, thereby allowing for use tailored to clients’ specific needs. We would be pleased to provide further information upon request.

 

We support companies, courts, and public authorities in the robust and transparent derivation of capital cost parameters, taking into account key parameters such as currency, inflation, and risk profile:

• Determination of the risk-free rate: Derivation based on regulatory and academic practice, typically relying on government bonds or appropriate proxy approaches (e.g. default-rate methodologies) in cases where government bond markets are illiquid or unavailable.
• Determination of betas: Estimation of equity and asset betas using established methodologies based on regression analyses, including sensitivity analyses with respect to levering and delevering (e.g. Hamada vs. Harris-Pringle), data frequency, and averaging windows.
• Determination of the market risk premium: Consideration of current academic and regulatory discussions regarding the appropriate methodology (e.g. historical excess returns, total market returns, or forward-looking models).
• Cost of debt and debt premia: Derivation of the cost of debt using up-to-date methods, including index-based approaches and the estimation of debt premia over the risk-free rate, consistent with market conditions and credit-rating information.
• Calculation of the WACC: Calculation of the WACC based on the cost of equity and cost of debt, as well as their respective weights in the company’s capital structure.