Calculating WACC correctly should preclude its use to optimize capital structure. In this post we’ll see why.
There was a time when WACC was used to find an “optimal capital structure”, which meant a debt/equity ratio that minimized the cost of capital. Charts like this were part of the argument:
There are a variety of online sources of company fundamental data (historical financial filings). The easiest and most reliable are the paid services, such as Compustat, Capital IQ, or Bloomberg.
In this recipe we show how to use Yahoo Finance’s “Stock Market Functions” Excel add-in, which consolidates references to a variety of company and market data from several online sources. [Read more…]
Separately from overall debt capacity, debt structure reflects specific choice of capital structure instruments. We address the goal of maximizing shareholder value in two ways:
In this post we consider duration matching, which clients occasionally propose. [Read more…]
Better analysis requires more information. In this recipe you will learn
Information is difficult and costly to acquire. This issue is at the forefront of quantitative analysis, which elevates the reliance on data in decision making. The following diagram lays out, left to right, the use of increasing amounts of information: [Read more…]
