Big Lots - WACC Analysis

Big Lots (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Big Lots's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Big Lots'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 Big Lots uses a significant proportion of equity capital.