Fairfax Financial - WACC Analysis

Fairfax Financial (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Fairfax Financial's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Fairfax Financial'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 Fairfax Financial uses a significant proportion of equity capital.