Consilient Observer

•

febbraio 15, 2023

Cost of Capital

febbraio 15, 2023

Cost of Capital

Consilient Observer

Cost of Capital

febbraio 15, 2023

A Practical Guide to Measuring Opportunity Cost

This is a practical guide to estimating the weighted average cost of capital (WACC) for a company.
The cost of capital is a measure of both expected return and the discount rate. For example, investors discount future free cash flows at the WACC to come up with a present value in a discounted cash flow model.
Our goal is to find a figure that reflects opportunity cost sensibly, is economically sound, and provides the investor and businessperson with a solution to apply to the problem.
We recommend settling on a sensible cost of capital and then allocating the bulk of analytical time and attention to thinking about the potential paths of future cash flows.

SCARICA IL PDF

Counterpoint Global’s culture fosters collaboration, creativity, continued development, and differentiated thinking.

Subscribe to Counterpoint Global Insights - Consilient Observer

Email Address*

Please enter a valid email address

Please enter the code sent to your email address.

Valid for 10 minutes only

Invalid Otp

Confirm

Resend Code

Email Not Sent

First Name* Please enter your first name

Last Name* Please enter your last name

Paese* Please enter your country

Submit

Approfondimenti correlati

Consilient Observer

ROIC and Intangible Assets

9-nov-2022

We extend the analysis from our recent report, “Return on Invested Capital,” by adjusting ROIC for all companies to reflect intangible investment. While the median and aggregate ROIC for the adjusted figures is similar to the traditional one, the main result is that extremely high and low ROICs regress toward the mean. We believe these adjustments represent a step toward a more accurate view of the magnitude and return on investment.

Consilient Observer

Return on Invested Capital

6-ott-2022

We discuss how to calculate return on invested capital (ROIC) and show how it is connected to free cash flow, economic profit, and growth. We work through the challenges in estimating it, present empirical data, review how adjusting for intangible investments can reshape the figures, and include a case study.

Consilient Observer

Market Share

15-set-2022

We examine whether a study of market share can help us determine if a company has a sustainable competitive advantage. This takes us on a journey that includes life cycles, market share, concentration, markups, intangibles, and "superstars".

DEFINITIONS

Free cash flow (FCF) is a measure of financial performance calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able generate after laying out the money required to maintain or expand its asset base.

Weighted average cost of capital (WACC) represents a firm’s cost of capital where each category of capital is proportionately weighted.

IMPORTANT INFORMATION

The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively the Firm”), and may not be reflected in all the strategies and products that the Firm offers.

This material is for the benefit of persons whom the Firm reasonably believes it is permitted to communicate to and should not be forwarded to any other person without the consent of the Firm. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It is the responsibility of every person reading this material to fully observe the laws of any relevant country, including obtaining any governmental or other consent which may be required or observing any other formality which needs to be observed in that country.

This material is a general communication, which is not impartial, is for informational and educational purposes only, not a recommendation to purchase or sell specific securities, or to adopt any particular investment strategy. Information does not address financial objectives, situation or specific needs of individual investors.

Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.

Prior to making any investment decision, investors should carefully review the strategy’s relevant offering document. For the complete content and important disclosures, refer to the article pdf.

Cost of Capital

Cost of Capital

Cost of Capital

Cost of Capital

Cost of Capital

Subscribe to Counterpoint Global Insights - Consilient Observer

Thank you for Subscribing to Counterpoint Global Insights - Consilient Observer.

Thank you for Subscribing to Counterpoint Global Insights - Consilient Observer.