Heritage Commerce - WACC Analysis

Heritage Commerce (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Heritage Commerce's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Heritage Commerce'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 Heritage Commerce uses a significant proportion of equity capital.