United Parcel Service - WACC Analysis

United Parcel Service (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for United Parcel Service's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of United Parcel Service'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 United Parcel Service uses a significant proportion of equity capital.