Olympic Steel - WACC Analysis

Olympic Steel (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Olympic Steel's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Olympic Steel'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 Olympic Steel uses a significant proportion of equity capital.