Blue Nile - WACC Analysis

Blue Nile (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Blue Nile's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Blue Nile'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 Blue Nile uses a significant proportion of equity capital.