American Express - WACC Analysis

American Express (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for American Express's Analysis

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

WACC Analysis Information

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

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