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