East West Bancorp - WACC Analysis

East West Bancorp (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for East West Bancorp's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of East West Bancorp'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 East West Bancorp uses a significant proportion of equity capital.