Brown Shoe - WACC Analysis

Brown Shoe (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Brown Shoe's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Brown Shoe'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 Brown Shoe uses a significant proportion of equity capital.