WACC is used in the discounted cash flow method to discount the company's free cash flows. The cost of equity is usually calculated with the capital asset pricing model (risk-free rate, beta, market risk premium), and the cost of debt after taking the tax shield into account.
Related terms
Discounted cash flow (DCF)A valuation method based on discounting the free cash flows an asset or company will generate in the future to the present using an appropriate discount rate.Cost of capitalThe minimum rate of return investors expect from an investment in return for the risk they take.LeverageThe extent to which a company uses debt to finance its assets or investments.Completion accountsFinancial statements prepared as at the closing date of an acquisition, through which the final price is set by net debt and working capital adjustments.Earn-outA mechanism under which part of the purchase price is paid depending on the target company reaching certain performance targets after closing.EBITDAEarnings before interest, tax, depreciation and amortisation; used as an indicator of the cash-like profitability generated by a company's core operations.
Last updated: October 22, 2026 · This definition is for general information only.