The Weighted Average Cost of Capital (WACC) for Alphabet (Google) is 10.12% as of December 24, 2024.
The WACC represents the average rate of return a company expects to pay to all its security holders (debt and equity) to finance its assets. It's a crucial metric used in financial valuation to discount future cash flows and assess the profitability of potential projects or investments. A lower WACC generally indicates a lower cost of financing for a company, which can be a competitive advantage.
Key Financial Metrics for Alphabet (Google)
To provide a comprehensive view of Alphabet's capital efficiency, it's also insightful to consider its Return on Invested Capital (ROIC). ROIC measures how well a company generates cash flow relative to the capital it has invested.
| Metric | Value | Date |
|---|---|---|
| Weighted Average Cost of Capital (WACC) | 10.12% | Dec 24, 2024 |
| Return on Invested Capital (ROIC) | 32.52% | TTM (Trailing Twelve Months) |
Understanding WACC and ROIC in Context
- WACC's Role: Google's WACC of 10.12% is the hurdle rate that new projects or investments must exceed to create value for shareholders. If a project's expected return is less than this percentage, it would typically destroy shareholder value.
- ROIC's Significance: An ROIC of 32.52% indicates that for every dollar of capital Alphabet has invested, it generates over 32 cents in profit. When a company's ROIC consistently exceeds its WACC, as is the case with Alphabet (32.52% vs. 10.12%), it signifies that the company is effectively deploying its capital and creating significant economic value. This positive spread is often seen as a strong indicator of financial health and efficient capital allocation.
Importance of WACC for Investors and Analysts
For investors and financial analysts, understanding Google's WACC is vital for:
- Valuation: It's used as the discount rate in Discounted Cash Flow (DCF) models to estimate the intrinsic value of the company's stock.
- Investment Decisions: It helps assess whether an investment in Google is attractive by comparing its expected returns against the cost of capital.
- Performance Evaluation: A company's ability to earn returns significantly above its WACC indicates strong management and a sustainable competitive advantage.
