Prosperity Bancshares - WACC Analysis

Prosperity Bancshares (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Prosperity Bancshares's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Prosperity Bancshares'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 Prosperity Bancshares uses a significant proportion of equity capital.