Covenant Transport - WACC Analysis

Covenant Transport (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Covenant Transport's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Covenant Transport'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 Covenant Transport uses a significant proportion of equity capital.