Dick's Sporting Goods - WACC Analysis

Dick's Sporting Goods (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Dick's Sporting Goods's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Dick's Sporting Goods'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 Dick's Sporting Goods uses a significant proportion of equity capital.