You are a corporate or an industry analyst ?
ALGOSAVE CORPORATE VALUATION DATABASE is a tool that lets you easily gain deeper understanding of critical corporate Free Cash Flow components. It will even allow you to check how macro-economic scenarios affect each corporate WACC and BETA. Use ALGOSAVE CORPORATE VALUATION DATABASE and increase the POWER and UNIQUENESS of your cutting edge financial analysis.
For instance, what is the WACC we – analysts – should be using to value a corporate Free Cash flow ?
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.
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