Natural Gas Services - WACC Analysis

Natural Gas Services (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Natural Gas Services's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Natural Gas Services'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 Natural Gas Services uses a significant proportion of equity capital.