Northrop Grumman - WACC Analysis

Northrop Grumman (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Northrop Grumman's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Northrop Grumman'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 Northrop Grumman uses a significant proportion of equity capital.