Shoe Carnival - WACC Analysis

Shoe Carnival (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Shoe Carnival's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Shoe Carnival'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 Shoe Carnival uses a significant proportion of equity capital.