Wal-Mart Stores - WACC Analysis

Wal-Mart Stores (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Wal-Mart Stores's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Wal-Mart Stores'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 Wal-Mart Stores uses a significant proportion of equity capital.