Steel Dynamics - WACC Analysis

Steel Dynamics (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Steel Dynamics's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Steel Dynamics'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 Steel Dynamics uses a significant proportion of equity capital.