Northwest Natural Gas - WACC Analysis

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



Helpful Information for Northwest Natural Gas's Analysis

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

WACC Analysis Information

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

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