Chipotle Mexican Grill - WACC Analysis

Chipotle Mexican Grill (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Chipotle Mexican Grill's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Chipotle Mexican Grill'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 Chipotle Mexican Grill uses a significant proportion of equity capital.