Concho Resources - WACC Analysis

Concho Resources (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Concho Resources's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Concho Resources'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 Concho Resources uses a significant proportion of equity capital.