HMS Corp - WACC Analysis

HMS Corp (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for HMS Corp's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of HMS Corp'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 HMS Corp uses a significant proportion of equity capital.