Discover Financial - WACC Analysis

Discover Financial (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Discover Financial's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Discover Financial'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 Discover Financial uses a significant proportion of equity capital.