Provident Bankshares - WACC Analysis

Provident Bankshares (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Provident Bankshares's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Provident Bankshares'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 Provident Bankshares uses a significant proportion of equity capital.