Hot Topic - WACC Analysis

Hot Topic (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Hot Topic's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Hot Topic'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 Hot Topic uses a significant proportion of equity capital.