Parker-Hannifin - WACC Analysis

Parker-Hannifin (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Parker-Hannifin's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Parker-Hannifin'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 Parker-Hannifin uses a significant proportion of equity capital.