Ulta Salon - WACC Analysis

Ulta Salon (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Ulta Salon's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Ulta Salon'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 Ulta Salon uses a significant proportion of equity capital.