Universal Forest - WACC Analysis

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



Helpful Information for Universal Forest's Analysis

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

WACC Analysis Information

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

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