IPG Photonics - WACC Analysis

IPG Photonics (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for IPG Photonics's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of IPG Photonics'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 IPG Photonics uses a significant proportion of equity capital.