AO Smith Corp - WACC Analysis

AO Smith Corp (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for AO Smith Corp's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of AO Smith Corp'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 AO Smith Corp uses a significant proportion of equity capital.