Financial Federal - WACC Analysis

Financial Federal (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Financial Federal's Analysis

What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Financial Federal'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 Financial Federal. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Financial Federal before they make value investing decisions. This WACC analysis is used in Financial Federal's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Financial Federal's company valuation.

WACC Analysis Information

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

2. The WACC calculation uses the higher of Financial Federal'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 Financial Federal uses a significant proportion of equity capital.