New Oriental Education - WACC Analysis

New Oriental Education (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for New Oriental Education's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of New Oriental Education'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 New Oriental Education uses a significant proportion of equity capital.