Patterson-UTI Energy - WACC Analysis

Patterson-UTI Energy (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Patterson-UTI Energy's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Patterson-UTI Energy'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 Patterson-UTI Energy uses a significant proportion of equity capital.