Precision Drilling - WACC Analysis

Precision Drilling (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Precision Drilling's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Precision Drilling'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 Precision Drilling uses a significant proportion of equity capital.