Universal American - WACC Analysis

Universal American (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Universal American's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Universal American'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 Universal American uses a significant proportion of equity capital.