Vertex Pharmaceuticals - WACC Analysis

Vertex Pharmaceuticals (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Vertex Pharmaceuticals's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Vertex Pharmaceuticals'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 Vertex Pharmaceuticals uses a significant proportion of equity capital.