Smith Intl - WACC Analysis

Smith Intl (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Smith Intl's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Smith Intl'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 Smith Intl uses a significant proportion of equity capital.