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