Royal Gold - WACC Analysis

Royal Gold (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Royal Gold's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Royal Gold'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 Royal Gold uses a significant proportion of equity capital.