A “good” WACC (weighted average cost of capital) depends entirely on the industry, but for most established U.S. companies, it falls somewhere between 6% and 12%. Lower is generally better, because WACC represents the minimum return a company needs to earn on its investments just to satisfy its lenders and shareholders. The real question isn’t whether a WACC hits some universal number, but whether the company earns enough above it to create value.
Why WACC Varies So Much by Industry
WACC blends the cost of a company’s debt and equity into a single rate, weighted by how much of each the company uses. Industries with stable, predictable cash flows can borrow cheaply and carry more debt, which pulls WACC down. Industries with volatile revenue or heavy competition tend to rely more on equity financing, which is more expensive, pushing WACC higher.
That’s why utilities consistently sit at the low end. Their revenue is regulated and predictable, so investors accept lower returns and lenders offer favorable rates. Electric and natural gas utilities have historically carried WACCs in the 3% to 4.5% range. Water utilities fall in the same neighborhood. These aren’t exciting returns, but investors in utilities are buying stability, not growth.
Technology companies land much higher. Software firms tend to have WACCs around 7% to 8%, while semiconductor and hardware companies push toward 9% to 10%. Internet companies fall somewhere in between. The higher cost reflects greater uncertainty: tech revenue can shift quickly, competitive moats are harder to defend, and these companies typically carry less debt relative to equity.
Healthcare sits in the middle. Drug companies average around 7% to 7.5%, medical device firms range from about 6% to 7.5%, and medical services companies come in closer to 5.5%. The variation within healthcare reflects the difference between, say, a large pharmaceutical company with a diversified drug portfolio and a smaller medical device maker with concentrated product risk.
Retail spreads across a wide range too. Grocery and wholesale food companies carry WACCs near 4.5% to 5%, closer to utilities, because people buy groceries regardless of the economy. Hardlines retail (think electronics and home goods) pushes above 10%, reflecting how sensitive those sales are to consumer spending cycles.
The Number That Actually Matters: ROIC Minus WACC
Knowing a company’s WACC in isolation tells you relatively little. What matters is the spread between a company’s return on invested capital (ROIC) and its WACC. ROIC measures the actual return a company generates from the money it has deployed in its business. If ROIC exceeds WACC, every dollar the company invests creates value. If ROIC falls below WACC, the company is destroying value, no matter how low its WACC looks on paper.
A utility with a 4% WACC that earns a 6% ROIC is creating more economic value than a tech company with a 9% WACC earning only 8% ROIC. The utility has a positive 2-percentage-point spread. The tech company has a negative spread, meaning its investors would have been better off putting their money elsewhere.
Research from the University of Gothenburg confirms this framework: companies with a positive ROIC-WACC spread are significantly more likely to turn their capital allocation decisions into shareholder value. Companies without that positive spread tend to see their investment activities drag down stock performance on average. Capital efficiency isn’t just a nice bonus. It’s the dividing line between companies that reward their investors and companies that don’t.
How Company Size Affects WACC
Smaller companies almost always have higher WACCs than large-cap peers in the same industry. This isn’t just theoretical. Valuation professionals add a “size premium” to the cost of equity for smaller firms because their shares are less liquid, their revenue streams are less diversified, and they’re more vulnerable to disruption.
For micro-cap companies with market capitalizations below $5 million, this size premium alone can add 4% to 7% to the cost of equity compared to large-cap benchmarks. That means a small software company might face a WACC of 14% or higher, while a large software company in the same space sits closer to 7% or 8%. A small company with a 14% WACC isn’t necessarily poorly managed. It simply needs to clear a much higher bar to create value for its investors.
How Companies Use WACC as a Decision Tool
Inside a company, WACC serves as the starting point for what’s called the “hurdle rate,” the minimum return a proposed project or acquisition must promise before it gets the green light. If a company’s WACC is 8%, any new project that’s expected to return less than 8% would, in theory, make the company worse off by tying up capital that costs more than it earns.
In practice, companies don’t just use their raw WACC as the hurdle. They add a risk premium on top, adjusted for the specific project. A straightforward factory expansion might only need to clear WACC plus a small buffer. A venture into a completely new market might require WACC plus several additional percentage points to account for the extra uncertainty. The riskier the project, the higher the hurdle.
This is why WACC is more than an academic number. It shapes which projects get funded, which acquisitions go through, and how aggressively a company invests in growth. A company with a low WACC has a structural advantage: it can profitably pursue projects that a higher-WACC competitor would have to pass on.
What Drives WACC Up or Down
Three main levers move a company’s WACC. The first is the mix of debt and equity. Debt is cheaper than equity because lenders get paid before shareholders, and interest payments are tax-deductible. Adding more debt (up to a point) tends to lower WACC. But too much debt increases the risk of financial distress, which eventually drives both debt and equity costs higher.
The second lever is the company’s risk profile. A company with volatile earnings, concentrated customer relationships, or heavy exposure to economic cycles will face a higher cost of equity. Investors demand more compensation for uncertainty. This is largely why the industry benchmarks vary so widely.
The third lever is the broader interest rate environment. WACC calculations start with the risk-free rate, typically based on U.S. Treasury yields. As of early 2025, the equity risk premium for the U.S. market sits around 4.46%, per NYU Stern’s annual estimate. When Treasury yields rise, the baseline cost of both debt and equity shifts upward, pushing WACCs higher across all industries. When rates fall, WACCs compress.
Judging Whether a WACC Is “Good”
If you’re evaluating a specific company, compare its WACC to the average for its industry, not to the market as a whole. A 10% WACC is perfectly normal for a retailer but would signal something unusual for a utility. Then look at whether the company’s ROIC consistently exceeds its WACC by a meaningful margin. A spread of 2 to 5 percentage points over a sustained period is a strong sign of a well-run business.
If you’re building a financial model or valuing a business, a WACC between 8% and 12% is a reasonable range for most mid-to-large U.S. companies outside of utilities and financial services. Going below 6% or above 15% should prompt a second look at your assumptions, unless you’re modeling a very low-risk regulated business or a very small, high-risk firm where those extremes are justified.