Standard Motor Products - WACC Analysis

Standard Motor Products (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Standard Motor Products's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Standard Motor Products'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 Standard Motor Products uses a significant proportion of equity capital.