Sigma Designs - WACC Analysis

Sigma Designs (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Sigma Designs's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Sigma Designs'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 Sigma Designs uses a significant proportion of equity capital.