AmTrust Financial - WACC Analysis

AmTrust Financial (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for AmTrust Financial's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of AmTrust Financial'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 AmTrust Financial uses a significant proportion of equity capital.