Sally Beauty (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Sally Beauty's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Sally Beauty'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 Sally Beauty. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Sally Beauty before they make value investing decisions. This WACC analysis is used in Sally Beauty's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Sally Beauty's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Sally Beauty uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Sally Beauty over the long term. If there are any short-term differences between the industry WACC and Sally Beauty's WACC (discount rate), then Sally Beauty is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Sally Beauty'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 Sally Beauty uses a significant proportion of equity capital.