Life Time Fitness - WACC Analysis

Life Time Fitness (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Life Time Fitness's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Life Time Fitness'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 Life Time Fitness uses a significant proportion of equity capital.