Estee Lauder - WACC Analysis

Estee Lauder (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Estee Lauder's Analysis

What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Estee Lauder's investment risk. WACC Formula = Cost of Equity (CAPM) * Common Equity + (Cost of Debt) * Total Debt. The result of this calculation is an essential input for the discounted cash flow (DCF) analysis for Estee Lauder. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Estee Lauder before they make value investing decisions. This WACC analysis is used in Estee Lauder's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Estee Lauder's company valuation.

WACC Analysis Information

1. The WACC (discount rate) calculation for Estee Lauder uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Estee Lauder over the long term. If there are any short-term differences between the industry WACC and Estee Lauder's WACC (discount rate), then Estee Lauder is more likely to revert to the industry WACC (discount rate) over the long term.

2. The WACC calculation uses the higher of Estee Lauder's WACC or the risk free rate, because no investment can have a cost of capital that is better than risk free. This situation may occur if the beta is negative and Estee Lauder uses a significant proportion of equity capital.