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