P.F.Chang's China Bistro - WACC Analysis

P.F.Chang's China Bistro (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for P.F.Chang's China Bistro's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of P.F.Chang's China Bistro'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 P.F.Chang's China Bistro uses a significant proportion of equity capital.