Sterling Financial - WACC Analysis

Sterling Financial (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Sterling Financial's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Sterling Financial'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 Sterling Financial uses a significant proportion of equity capital.