Protection One - WACC Analysis

Protection One (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Protection One's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Protection One'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 Protection One uses a significant proportion of equity capital.