Cost of Capital Study 2020 Cost of Capital Study 2020 Cost of Capital Study 2020

The 15th edition of the Cost of Capital Study is entitled "Global economy – search for orientation?" The study uses sector-specific analyses to look at the effects of the increasingly dynamic economic environment, including the Covid-19 pandemic's impact on business models, budgets and long-term expected returns (cost of capital).

The latest Cost of Capital Study shows that planning uncertainty is growing, both on a macroeconomic as well as microeconomic level. On a microeconomic level, risks arising from innovative business models and disruptive developments as a result of digitalisation are increasingly being taken into account when budgeting in the participants' financial projections. However, a majority of those surveyed refrained from determining future cash flows using simulation-based procedures and continue to estimate individual values.

The weighted average cost of capital (WACC) decreased across all industries from 6.9% in the prior year to 6.6% in the current reporting year. Overall, WACC developed uniformly across industries, with almost all sectors reporting a drop in the cost of capital. Exceptions here were the energy & natural resources and transport & leisure sectors, which were able to report a rise in WACC of +0.1 and +0.2 percentage points, respectively.

A declining cost of capital was evident especially in the automotive (-0.8 percentage points), chemicals & pharmaceuticals (-0.6 percentage points) and media & telecommunications (-0.6 percentage points) industries. At 7.7% and 7.4% in the technology and automotive sectors, respectively, the highest WACC was observed in those industries where political risks and technology-driven changes to business models have the most significant fundamental impact.

This year's responses once again demonstrated the practical relevance of our annual Cost of Capital Study. Despite current challenges, a total of 309 companies – almost as many as in the previous year (312) – took part in our study. The participants included 242 companies based in Germany, including 77% of the DAX companies and 54% of the MDAX companies.

You can download the study here.