Methode Electronics - WACC Analysis

Methode Electronics (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Methode Electronics's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Methode Electronics'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 Methode Electronics uses a significant proportion of equity capital.