What does a high WACC indicate about a company?

A high Weighted Average Cost of Capital (WACC) indicates that a company is considered to be high-risk in raising capital. WACC reflects the average rate of return that a company must earn on its investments to satisfy its stakeholders, including debt holders and equity investors. When WACC is elevated, it typically means that the market perceives the company to have a higher level of risk.

This perception of risk could stem from various factors, such as volatile earnings, industry challenges, or other financial uncertainties. As a result, investors demand a higher return to compensate for this perceived risk, which in turn raises the company's WACC. Thus, a high WACC suggests that the company faces challenges in securing capital at a reasonable cost, indicating that it is seen as more risky in terms of its financial stability and growth prospects.