Obagi Medical Products - WACC Analysis

Obagi Medical Products (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Obagi Medical Products's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Obagi Medical Products'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 Obagi Medical Products uses a significant proportion of equity capital.