Berkshire Hathaway - WACC Analysis

Berkshire Hathaway (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Berkshire Hathaway's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Berkshire Hathaway'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 Berkshire Hathaway uses a significant proportion of equity capital.