Stepan Company - WACC Analysis

Stepan Company (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Stepan Company's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Stepan Company'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 Stepan Company uses a significant proportion of equity capital.