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