Legg Mason - WACC Analysis

Legg Mason (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Legg Mason's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Legg Mason'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 Legg Mason uses a significant proportion of equity capital.