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