WACC

The weighted average cost of capital (WACC) blends the required return on a company’s equity and debt, weighted by how much of each it uses. In a discounted cash flow it is the rate that converts future cash flows into present value, so it encodes the risk of those cash flows.

WACC is also the hidden lever behind market multiples. When interest rates rise, the cost of capital rises, future cash flows are discounted harder, and both DCF values and EV/Sales multiples compress. This is the mechanism explained in Multiples Through the Cycle.

For startups, WACC is genuinely hard to pin down because the company is illiquid and can fail, which is one reason the income approach is often a cross-check rather than the primary method.