Hormel Foods - WACC Analysis

Hormel Foods (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Hormel Foods's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Hormel Foods'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 Hormel Foods uses a significant proportion of equity capital.