Johnson & Johnson (Weighted Average Cost of Capital (WACC) Analysis)
Improve your investment analysis with by seeing the Johnson & Johnson's Discounted Cash Flow analysis, Johnson & Johnson's Warren Buffet analysis, and Johnson & Johnson's Comparable Multiple analysis.
Helpful Information for Johnson & Johnson's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Johnson & Johnson'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 Johnson & Johnson. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Johnson & Johnson before they make value investing decisions. This WACC analysis is used in Johnson & Johnson's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Johnson & Johnson's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Johnson & Johnson uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Johnson & Johnson over the long term. If there are any short-term differences between the industry WACC and Johnson & Johnson's WACC (discount rate), then Johnson & Johnson is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Johnson & Johnson'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 Johnson & Johnson uses a significant proportion of equity capital.