Transform risk analytics into Competitive edge for investments and corporate loans

What is the WACC we – analysts – should be using to value a corporate Free Cash flow, and ultimately a corporate Enterprise Value – EV – ?

 

What is the WACC we – analysts – should be using to value a corporate Free Cash flow, and ultimately a corporate Enterprise Value – EV – ?

Since there is a credit spread curve, do we need a WACC curve, or can we resort to using one single WACC ?

Also, we all know that – theoretically – Equity BETA should be deleveraged and re leveraged as a function of corporate financial leverage dynamics. Should we be using one-single Equity BETA to compute the cost of Equity, or do we have to build a Beta Curve ?

Lets’s examine a few examples, to better measure and understand this twin challenge.

Here are the WACC distribution (the top image) and Equity BETA distribution (the bottom picture) for 4 major and global retailers : WALMART, THE KROGER, AHOLD and CARREFOUR.

  • 1-year distribution in blue
  • 5 year distribution in red
  • 10-year distribution in green
  • First observation : WALMART is unique : a relatively narrow bandwidth both in its BETA as well as in its WACC
  • Second observation : in any case, what a world of difference between those corporates.
  • Third observation : what a world of difference between between 1-year, 5-year and 10-year WACC and BETA distribution for every corporate.
  • Final observation : even for a given year, what a broad distribution in the Equity BETA itself.

Can we answer the original question : for better issuer valuation, should we use a WACC and a BETA curve ? Probably so.

Ask for your private access to ALGOSAVE ISSUER DATABASE and check how you can increase the POWER AND UNIQUENESS of your financial analysis.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s