O'Reilly Automotive - WACC Analysis

O'Reilly Automotive (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for O'Reilly Automotive's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of O'Reilly Automotive'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 O'Reilly Automotive uses a significant proportion of equity capital.