Star Gas Partners - WACC Analysis

Star Gas Partners (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Star Gas Partners's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Star Gas Partners'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 Star Gas Partners uses a significant proportion of equity capital.