Under Armour - WACC Analysis

Under Armour (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Under Armour's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Under Armour'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 Under Armour uses a significant proportion of equity capital.