Cato Corp - WACC Analysis

Cato Corp (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Cato Corp's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Cato Corp'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 Cato Corp uses a significant proportion of equity capital.