3M Company (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for 3M Company's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine 3M Company'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 3M Company. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in 3M Company before they make value investing decisions. This WACC analysis is used in 3M Company's discounted cash flow (DCF) valuation and see how the WACC calculation affect's 3M Company's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for 3M Company uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for 3M Company over the long term. If there are any short-term differences between the industry WACC and 3M Company's WACC (discount rate), then 3M Company is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of 3M Company'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 3M Company uses a significant proportion of equity capital.