Fifth Third Bancorp - WACC Analysis

Fifth Third Bancorp (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Fifth Third Bancorp's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Fifth Third 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 Fifth Third Bancorp uses a significant proportion of equity capital.