Home Depot - WACC Analysis

Home Depot (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Home Depot's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Home Depot'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 Home Depot uses a significant proportion of equity capital.