Royale Energy - WACC Analysis

Royale Energy (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Royale Energy's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Royale Energy'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 Royale Energy uses a significant proportion of equity capital.