Foot Locker - WACC Analysis

Foot Locker (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Foot Locker's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Foot Locker'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 Foot Locker uses a significant proportion of equity capital.