American Oriental Bioeng - WACC Analysis

American Oriental Bioeng (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for American Oriental Bioeng's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of American Oriental Bioeng'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 American Oriental Bioeng uses a significant proportion of equity capital.