Health Net - WACC Analysis

Health Net (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Health Net's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Health Net'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 Health Net uses a significant proportion of equity capital.