Baker Hughes - WACC Analysis

Baker Hughes (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Baker Hughes's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Baker Hughes'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 Baker Hughes uses a significant proportion of equity capital.