Diamond Hill Investment - WACC Analysis

Diamond Hill Investment (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Diamond Hill Investment's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Diamond Hill Investment'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 Diamond Hill Investment uses a significant proportion of equity capital.