Avery Dennison (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Avery Dennison's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Avery Dennison'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 Avery Dennison. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Avery Dennison before they make value investing decisions. This WACC analysis is used in Avery Dennison's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Avery Dennison's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Avery Dennison uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Avery Dennison over the long term. If there are any short-term differences between the industry WACC and Avery Dennison's WACC (discount rate), then Avery Dennison is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Avery Dennison'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 Avery Dennison uses a significant proportion of equity capital.