In which scenario is it difficult to compare WACC directly between two companies?

The difficulty in comparing the Weighted Average Cost of Capital (WACC) directly between two companies arises significantly when those companies operate in different industries. Each industry has its own unique risk profile, capital structure, and cost of capital components, influenced by factors such as market competition, regulatory environments, and business cycles.

For instance, a technology company may face higher growth expectations and risks, resulting in a different cost of equity compared to a utility company, which generally has a stable demand but lower growth potential. These variations lead to distinct WACC calculations that reflect the specific circumstances and risks associated with each industry. Therefore, comparing WACC directly in such cases may not provide a meaningful insight, as the underlying factors affecting the costs of capital differ considerably.

In contrast, when companies have similar market capitalizations, operate under low interest rate environments, or possess identical equity structures, the comparison of WACC tends to be more straightforward because the influencing factors are more aligned, allowing for a more valid comparison.