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Alphabet(Google) WACC %

:9.54% (As of Today)
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As of today (2022-08-19), Alphabet(Google)'s weighted average cost of capital is 9.54%. Alphabet(Google)'s ROIC % is 35.17% (calculated using TTM income statement data). Alphabet(Google) generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.


Alphabet(Google) WACC % Historical Data

The historical data trend for Alphabet(Google)'s WACC % can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Alphabet(Google) Annual Data
Trend Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20 Dec21
WACC %
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 8.41 9.74 8.01 6.82 7.37

Alphabet(Google) Quarterly Data
Sep17 Dec17 Mar18 Jun18 Sep18 Dec18 Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21 Dec21 Mar22 Jun22
WACC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 7.10 7.35 7.37 8.28 9.63

Competitive Comparison

For the Internet Content & Information subindustry, Alphabet(Google)'s WACC %, along with its competitors' market caps and WACC % data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

   

Alphabet(Google) WACC % Distribution

For the Interactive Media industry and Communication Services sector, Alphabet(Google)'s WACC % distribution charts can be found below:

* The bar in red indicates where Alphabet(Google)'s WACC % falls into.



Alphabet(Google) WACC % Calculation

The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances.

WACC=E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate)

1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap". As of today, Alphabet(Google)'s market capitalization (E) is $1511841.144 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together. As of Jun. 2022, Alphabet(Google)'s latest two-year average Short-Term Debt & Capital Lease Obligation was $1941.5 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $25642 Mil. The total Book Value of Debt (D) is $27583.5 Mil.
a) weight of equity = E / (E + D) = 1511841.144 / (1511841.144 + 27583.5) = 0.9821
b) weight of debt = D / (E + D) = 27583.5 / (1511841.144 + 27583.5) = 0.0179

2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The current risk-free rate is 2.97400000%. Please go to Economic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. Alphabet(Google)'s beta is 1.12.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.
Cost of Equity = 2.97400000% + 1.12 * 6% = 9.694%

3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
As of Dec. 2021, Alphabet(Google)'s interest expense (positive number) was $346 Mil. Its total Book Value of Debt (D) is $27583.5 Mil.
Cost of Debt = 346 / 27583.5 = 1.2544%.

4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation. The calculated average tax rate is limited to between 0% and 100%. If the calculated average tax rate is higher than 100%, it is set to 100%. If the calculated average tax rate is less than 0%, it is set to 0%.
The latest Two-year Average Tax Rate is 16.225%.

Alphabet(Google)'s Weighted Average Cost Of Capital (WACC) for Today is calculated as:

WACC=E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate)
=0.9821*9.694%+0.0179*1.2544%*(1 - 16.225%)
=9.54%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.


Alphabet(Google)  (NAS:GOOG) WACC % Explanation

Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.

As of today, Alphabet(Google)'s weighted average cost of capital is 9.54%. Alphabet(Google)'s ROIC % is 35.17% (calculated using TTM income statement data). Alphabet(Google) generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.


Be Aware

1. GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together.

2. The WACC formula discussed above does not include Preferred Stock. Please adjust if preferred stock is considered.

3. (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.

4. GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.


Related Terms

Alphabet(Google) Business Description

Alphabet(Google) logo
Address
1600 Amphitheatre Parkway, Mountain View, CA, USA, 94043
Alphabet Inc is a holding company, with Google, the Internet media giant, as a wholly owned subsidiary. Google generates 99% of Alphabet revenue, of which more than 85% is from online ads. Google's other revenue is from sales of apps and content on Google Play and YouTube, as well as cloud service fees and other licensing revenue. Sales of hardware such as Chromebooks, the Pixel smartphone, and smart homes products, which include Nest and Google Home, also contribute to other revenue. Alphabet's moonshot investments are in its other bets segment, where it bets on technology to enhance health (Verily), faster Internet access to homes (Google Fiber), self-driving cars (Waymo), and more. Alphabet's operating margin has been 25%-30%, with Google at 30% and other bets operating at a loss.
Executives
Hennessy John L director
Mather Ann director
Porat Ruth officer: SVP, CFO C/O GOOGLE INC. 1600 AMPHITHEATRE PRKW MOUNTAIN VIEW CA 94043
Pichai Sundar director, officer: Chief Executive Officer GOOGLE INC. 1600 AMPHITHEATRE PARKWAY MOUNTAIN VIEW CA 94043
Doerr L John director C/O KLEINER PERKINS CAUFIELD & BYERS 2750 SAND HILL ROAD MENLO PARK CA 94025
Arnold Frances director 5200 ILLUMINA WAY SAN DIEGO CA 92122
Ferguson Roger W. Jr. director CORNING INCORPORATED ONE RIVERFRONT PLAZA CORNING NY 14831
Shriram Kavitark Ram director 1600 AMPHITHEATRE PARKWAY MOUNTAIN VIEW CA 94043
Mulally Alan R director P.O. BOX 995 MERCER ISLAND WA 98040
Washington Robin L director 333 LAKESIDE DRIVE FOSTER CITY CA 94404
Brin Sergey director, 10 percent owner 555 BRYANT STREET, #367 PALO ALTO CA 94031
Drummond David C officer: SVP, Corporate Development 1600 AMIPHITHEATRE PARKWAY BUILDING 41 MOUNTAIN VIEW CA 94043
Schmidt Eric E director 1010 ALMA STREET MENLO PARK CA 94025
Greene Diane B director C/O ALPHABET INC., 1600 AMPHITHEATRE PKWY MOUNTAIN VIEW CA 94043
Campbell James Grier officer: VP, Alphabet Corp. Controller 1600 AMPHITHEATRE PKWY MOUNTAIN VIEW CA 94043

Alphabet(Google) Headlines

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