Wells Fargo (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Wells Fargo's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Wells Fargo'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 Wells Fargo. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Wells Fargo before they make value investing decisions. This WACC analysis is used in Wells Fargo's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Wells Fargo's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Wells Fargo uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Wells Fargo over the long term. If there are any short-term differences between the industry WACC and Wells Fargo's WACC (discount rate), then Wells Fargo is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Wells Fargo'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 Wells Fargo uses a significant proportion of equity capital.