Hewitt Associates - WACC Analysis

Hewitt Associates (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Hewitt Associates's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Hewitt Associates'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 Hewitt Associates uses a significant proportion of equity capital.