Thomson Reuters - WACC Analysis

Thomson Reuters (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Thomson Reuters's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Thomson Reuters'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 Thomson Reuters uses a significant proportion of equity capital.