Snap-On (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Snap-On's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Snap-On'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 Snap-On. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Snap-On before they make value investing decisions. This WACC analysis is used in Snap-On's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Snap-On's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Snap-On uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Snap-On over the long term. If there are any short-term differences between the industry WACC and Snap-On's WACC (discount rate), then Snap-On is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Snap-On'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 Snap-On uses a significant proportion of equity capital.