Baldor Electric - WACC Analysis

Baldor Electric (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Baldor Electric's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Baldor Electric'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 Baldor Electric uses a significant proportion of equity capital.