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