The Spread Missing from the Balance Sheet: Weighted Average Cost of Confidence

Almost everything in finance has a price.

Money has an interest rate. Currencies have exchange rates. Shares have prices, bonds have yields, companies have valuation multiples, and countries have risk premiums. Even the discount rate we use to bring future cash flows into the present when acquiring a company has a calculation.

Except for one thing:

Trust.

It has neither a separate ticker on a Bloomberg screen nor a line on the balance sheet. Open a company’s financial statements and you will not see an asset called ‘stock of trust.’ When it disappears, no ‘loss of trust expense’ appears in the income statement either.

But once it declines, it spreads into almost every other price.

Banks demand more collateral. Credit margins rise. Investors expect higher returns. Acquirers conduct longer due diligence. Sellers face stricter representations and warranties. Maturities shorten. Liquidity falls. A valuation considered acceptable yesterday begins to look expensive today, for the very same company.

Trust itself has no visible price.

Distrust does.

Türkiye today offers an interesting laboratory for thinking about this relationship.

As of September 10, the policy rate stands at 37%. The CBRT’s latest Monetary Policy Committee summary shows that the Turkish lira commercial lending rate, excluding credit cards and overdraft accounts, was 49.3% in the week of September 4. The visible price of capital is hardly low already.

But events in September reminded us again that the cost of capital is about more than interest rates.

On September 17, a decision was taken to liquidate 131 funds belonging to seven asset management companies. According to Central Securities Depository records, these funds had 455,758 unique investors. Reuters reported that their combined size was approximately $18 billion. As some funds struggled to meet redemption requests, various liquidity and capital measures were also introduced to support financial stability.

The Capital Markets Board’s own statement shows that this was not merely a liquidity accident.

The Board said it had observed as early as the final quarter of 2025 that certain funds were causing price movements, especially in low-free-float shares, that could not be explained by companies’ economic reality or fundamental financial figures. It was equally explicit about subsequent measures: preventing fictitious calculations of some fund values, limiting opportunities for manipulation through funds, increasing transparency, and reducing systemic risk.

On the judicial side, the issue is not confined to market mechanics either. As Reuters reported on September 23, the investigations include allegations of violations of capital markets legislation, membership in a criminal organization, and aggravated fraud allegedly committed by company executives or people acting on companies’ behalf. It is essential to distinguish these as allegations, not final court judgments.

The scale of the sell-off on Borsa Istanbul was also significant. The BIST 100 fell by about 8% in a week; during the same period, Borsa Istanbul made significant changes to its main indices and market criteria.

Putting all this together, the question that interests me is somewhat different from ‘Which fund did what?’

How do we calculate the cost of capital created by a breakdown of trust in a market?

This is where WACC comes in.

The variable missing from the formula

We can assume finance professionals know WACC by heart: Weighted Average Cost of Capital, the weighted average cost of a company’s funding sources.

The cost of debt, the return equity investors expect, their respective weights in the capital structure, and the tax effect of debt. It is one of our fundamental tools for calculating the present value of future cash flows in a DCF.

There is no variable called ‘trust’ in WACC.

At first glance, there need not be.

The problem is that even though trust does not appear as a separate line in the formula, it enters the formula’s inputs.

If a bank’s confidence in a company’s cash flows declines, the price of debt changes.

If an investor sees greater uncertainty about management, reported financials, or the sustainability of future earnings, the required return on equity rises.

If perceived country or market risk increases, the risk premium changes.

If confidence in being able to sell an asset when needed declines, a liquidity discount comes into play.

If doubts about a counterparty’s figures grow during an acquisition, the contract structure changes as much as the price: escrow increases, earn-outs enter the discussion, and representations and warranties become more demanding.

None of these is called the ‘cost of trust.’

But each contains an element of it.

That is why I would like to propose a second, nontechnical interpretation of WACC for the present moment:

Weighted Average Cost of Confidence.

This is not a new accounting or valuation standard. I am not changing the formula.

Quite the opposite: I am trying to explain why the formula’s result sometimes changes.

The real issue is not the price itself

To me, this is the most interesting aspect of the recent debate about funds.

When we see a price on a financial-market screen, we unconsciously make a second assumption:

There is a real market behind that price.

In normal times, we give this little thought.

Yet price and economic value are not the same thing, just as the last traded price and the price at which a large position can actually be converted to cash are not the same.

That difference can become especially large in a low-free-float stock.

If only a limited proportion of a company’s shares trades actively, relatively small transactions can move the price significantly. When the last traded price rises, the calculated value of portfolios holding that stock can rise too.

The problem may not be arithmetic.

The multiplication is correct.

The assumption is debatable.

If you hold one million shares and the screen shows a last price of TRY 100, marking the position at TRY 100 million is mathematically straightforward.

But if you want to sell all one million shares tomorrow, will you actually receive TRY 100 million?

That is a different question.

In fact, one of the most important features of a market price is not the number itself, but whether it can be challenged. In a market with enough buyers and sellers, someone will take the other side if your view of the price is wrong. The price is continually tested.

As market depth declines, that test weakens.

And at some point, the finance professional returns to this question:

What am I pricing?

The asset?

The last trade?

Liquidity?

Or everyone’s shared belief that the price is valid?

When trust breaks down, the balance sheet may not change first

Timing is another interesting aspect of this.

A loss of trust does not begin in accounting records.

It begins in behavior.

A bank may not refuse a loan, but it asks for more collateral than before.

A supplier does not stop doing business with a customer, but cuts payment terms from 90 days to 45.

An investor does not write off a company entirely, but starts offering less for the same shares.

An M&A buyer does not leave the table; they simply spend two more weeks in the data room and want part of the consideration held in escrow at closing.

Individually, none of these may look dramatic.

But they all have the same economic consequence:

Doing the same business requires more capital.

This is where the cost of trust becomes tangible.

From a finance executive’s perspective, this distinction is particularly important. The company’s operations may be running perfectly well. Orders are coming in, production continues, and there are customers. Yet if capital providers change their behavior, a very different financing environment can emerge.

The company’s cost of capital can change even when the company has not.

And that changes its valuation.

Consider a simple example.

Assume not a penny changes in a company’s future cash flows. Only the perceived risk that those cash flows will not materialize rises, and investors now demand a higher return.

The discount rate in the denominator of the DCF rises.

The company’s present value falls.

The factory is in the same place.

The machines are the same.

The customers are the same.

The cash-flow forecast is the same.

What changes is how much we believe today in that future money.

Finance’s relationship with trust is that direct.

Risk is one thing; a trust problem is another

We need to distinguish two concepts here.

Risk is hardly unfamiliar to finance. On the contrary, much of the profession is built around measuring it.

We calculate default probabilities. Examine volatility. Use beta. Conduct stress tests. Build currency scenarios. Measure interest-rate sensitivity.

As long as we can place a probability distribution around what we do not know, we remain in finance’s familiar world.

A trust problem is somewhat different.

Because the question is no longer simply:

‘How bad could the outcome be?’

It goes beyond that.

Sometimes it becomes:

‘How reliable is the data I am using to calculate the outcome?’

When that changes, things become harder.

Because now it is not only the model’s result that is in question, but its inputs too.

This is part of the reason an independent audit report, a credit rating, a fund valuation methodology, a market price, or management’s forecast matters so much in finance.

None of them guarantees the future.

They do something else:

They make uncertainty priceable.

That is why transparency is a financing issue, not simply a communications issue.

Corporate governance does more than create the image of a good company; it affects the cost of capital.

An audit is not a regulatory checkbox; it enables two parties to look at the same number.

Liquidity is not merely ease of sale either; it makes it possible to test a price in practice.

Where is a country’s or company’s ‘trust expense’ recorded?

Nowhere.

But its effect can be found in many places.

In a higher credit margin.

A lower valuation multiple.

A shorter maturity.

Heavier collateral requirements.

A longer due diligence process.

A higher risk premium.

Lower liquidity.

And sometimes, an investment that never happens.

Perhaps the last is the most expensive.

Because you can measure interest expense that has been paid.

Measuring capital that never arrived is much harder.

When an investor never comes to the table, a company’s cost of capital may have created a burden invisible in its financial statements.

That is why treating trust as a soft, sociological, or abstract concept in financial discussions increasingly seems wrong to me.

Trust is a very hard economic variable.

It simply has no unit of measurement.

Time will tell how recent events in Türkiye unfold. Investigations continue, and final conclusions about individual responsibility require the outcome of judicial proceedings. Yet the regulator’s discussion of unusual price movements, fictitious valuations, limiting opportunities for manipulation, and protecting market confidence in the same series of statements presents a picture worth considering.

Perhaps that is precisely why the issue is bigger than 131 funds.

Financial systems appear to run on money.

In reality, they run largely on verifiable trust.

Millions of people who do not know one another can buy shares, make deposits, purchase bonds, invest in funds, or provide capital to a company on the other side of the world without everyone having to know everyone else.

They need sufficient trust in the system’s mechanisms for price formation, custody, auditing, and disclosure.

When that works, capital flows.

When it does not, people first start asking questions.

Then they demand higher returns.

There is no name for the difference between those two moments.

Perhaps there should be.

WACC — Weighted Average Cost of Confidence.

In finance textbooks, it will remain Weighted Average Cost of Capital, as it should.

But at certain times, the second interpretation helps us understand the first.

Because the cost of capital is not determined only by the scarcity of money.

Sometimes what is truly expensive is that the person providing the money has to be convinced first.

And the bill never arrives under the heading ‘trust.’

It arrives embedded in the spread.