W&T Offshore (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for W&T Offshore's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine W&T Offshore'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 W&T Offshore. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in W&T Offshore before they make value investing decisions. This WACC analysis is used in W&T Offshore's discounted cash flow (DCF) valuation and see how the WACC calculation affect's W&T Offshore's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for W&T Offshore uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for W&T Offshore over the long term. If there are any short-term differences between the industry WACC and W&T Offshore's WACC (discount rate), then W&T Offshore is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of W&T Offshore'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 W&T Offshore uses a significant proportion of equity capital.