Tutorial for WACC Calculation
Hello All,
Does anyone have a recommend tutorial on calculating WACC? I understand the basis of the formula and the equation as a whole but I would like to see a real world walk through of the equation (Without Bloomberg or Capiq). My real interest lies in the cost of debt portion of the equation. I have head of using YTM for a company’s debt, is their a recommended tool for finding this number ? I have seen videos were people look up the debt rating then revert to a chart with the required ytm. Regarding cost of Debt , is that total long term debt ?
You are trying to establish a company's cost of debt without Bloomberg, right?
Look at the Income Statement (P&L in Europe) and see how much interest the company paid in a given year.
Then look at the balance sheet to figure out the company's interest-bearing financial debt. Ideally, look at last year and current year, and calculate the average. This is an approximation of average debt over the year.
Divide the interest from 1 by the average debt in 2. That's it - that's your average cost of debt that goes into WACC. Don't forget the tax shield!
Good luck,
Tamara
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