Delta Air Lines (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Delta Air Lines's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Delta Air Lines'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 Delta Air Lines. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Delta Air Lines before they make value investing decisions. This WACC analysis is used in Delta Air Lines's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Delta Air Lines's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Delta Air Lines uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Delta Air Lines over the long term. If there are any short-term differences between the industry WACC and Delta Air Lines's WACC (discount rate), then Delta Air Lines is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Delta Air Lines'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 Delta Air Lines uses a significant proportion of equity capital.