WACC: A CFO’s Guide to the Weighted Average Cost of Capital

The cost of capital is no longer just a technical variable in financial models: It has become a strategic compass for the modern CFO. In a context where 82% of CFOs have seen their role expand well beyond the confines of the Finance department, understanding and optimizing WACC (Weighted Average Cost of Capital) means gaining control over the decisions that drive growth, resilience and business value.

Today, 9 out of 10 CFOs are involved in decisions that impact the entire organization. But while their influence is increasing, their cognitive load is also growing: 67% of CFOs admit to feeling overwhelmed by the complexity of the choices, while 65% feel increasing pressure to demonstrate the ROI of the technologies adopted. In this scenario, artificial intelligence (AI) is not only an option, but an essential tool for turning numbers into insights and WACC into strategic leverage.

AI-powered financial planning and analysis (FP&A) is increasingly accessible, intuitive and integrated, and is revolutionizing the CFO’s ability to understand risk, model scenarios and guide investments with greater confidence. Calculating WACC has never been more relevant or so advanced.

Components of WACC: understanding what affects the cost of capital

To truly leverage WACC as a decision-making tool, it’s essential to break down the formula and understand how each element impacts a project’s financial sustainability. WACC is the weighted average cost of capital, equity and debt, taking into account the company’s financial structure and taxation. It’s the “discount rate” that every CFO should be clear about before approving an investment.

1. Cost of equity

Equity capital has an implicit cost: It is the return shareholders expect from continuing to invest in the company.
This value is often calculated using the Capital Asset Pricing Model (CAPM), which takes into account:

• Return on a risk-free asset (e.g. government bonds)
• Market risk premium
• Company beta (indicator of volatility compared to the market)

A common mistake for CFOs is underestimating the cost of equity capital in growth environments: If perceived risk increases (e.g., due to poor visibility of future cashflows), the WACC rises and the value of investments declines.

2. Cost of debt

Borrowed capital has an explicit cost: The interest to be paid. However, the WACC calculation considers the net cost of tax-deductible interest expense.

This means that proper debt capital management, supported by an automated and compliance-ready accounts payable (AP) process, can have a direct impact on reducing WACC. Tools like Esker, with complete audit trails and digital approvals, reduce risks, delays and unplanned financial charges.

3. Percentage weight of debt & equity

Finally, the WACC formula is a weighted average: The relative weight of debt and equity in the financial structure is crucial. High leverage may lower the WACC in the short term due to the lower cost of debt, but it may increase the perceived risk for investors and therefore increase the cost of equity.

An integrated view of the capital structure, supported by AI-powered financial dashboards, helps the CFO find the right balance between risk, return and financial sustainability over time.

How to calculate WACC: formula & examples

The formula to calculate weighted average cost of capital (WACC) is:
WACC = (E/V × Re) + (D/V × Rd × (1 – Tc))

The parts of the WACC formula are:

• E = equity value
• D = value of debt
• V = E + D (total value of invested capital)
• Re = cost of equity
• Rd = cost of debt
• Tc = tax rate (effective tax rate)

A practical example of calculating WACC:

A company with:

• $60M equity (Re = 10%)
• $40M of debt (Rd = 5%)
• Tax rate at 30%

WACC = (0.6 × 10%) + (0.4 × 5% × 0.7) = 6% + 1.4% = 7.4%

This value represents the minimum rate of return a project must generate to create value. Anything below the WACC destroys economic value, even if it appears profitable on paper.

The role of AI in FP&A to improve WACC metrics

Calculating WACC relies on quality data: reliable cashflows, consistent forecasts and realistic risk assessments. This is where AI applied to FP&A becomes a strategic ally for the CFO — Not only to automate, but to improve the accuracy of variables that directly impact the cost of capital.

With Esker’s AI Automation Suite, CFOs can:

• Generate accurate cashflow forecasts, reducing the uncertainty that artificially inflates the cost of equity capital.
• Calculate the cost of debt more realistically by monitoring payment dynamics, delays, supplier ratings and potential penalties.
• Use predictive analytics and AI credit scoring tools to refine risk assessments and improve financial profile.

AI doesn’t directly lower the WACC, but it improves the reliability of the data underlying every decision related to the cost of capital and WACC, allowing the CFO to operate on a more solid, consistent and real-time basis. And this, in a scenario where uncertainty is the new normal, makes the difference between control and reactivity.

Esker: A strategic platform for optimizing cashflow, working capital & risk profile

Reducing WACC isn’t a theoretical goal, but a concrete lever to enable growth. However, without an integrated platform, data remains fragmented, decisions slow down and margins shrink.

Esker intervenes precisely on this critical point:

• Eliminating silos between accounts receivable, AP, customer service and procurement processes
• Improving control over financial and operating costs
• Strengthening collaboration between Finance, IT and Operations, the heart of the Office of the CFO

With end-to-end visibility into the order-to-cash and source-to-pay processes, CFOs can address key WACC drivers:

• DSO reduction and AR optimization
• Expense control and efficient management of the passive cycle
• Greater predictability of cashflows and better management of working capital
• Dynamic risk profiling via AI applied to credit and supply chain

The result? Faster decisions, more targeted investments and a cost of capital aligned with strategic objectives. Because in the new paradigm of the CFO “Growth Architect,” the WACC isn’t just a number: It’s a measure of the company’s growth potential.

Want to learn more about how AI automation can help your business? Get a free demo of Esker’s solutions.