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