Wow! This is a nice dashboard to be used by any businessman on a monthly basis. Your contribution is a very good one for anyone who may like to use this explanations. It is the whole life of a business. It is also important for any student learning Finance or accounting. Thank you so much for this valuable work.
How come you are not using CAPM to calculate Rs. How much of an impact/difference does it make that u are using NI/Equity to calculate Rs. Is it also safe to assume the cost of debt (interest rate) is NI/Debt?
Yes equity is more risky than debt. Debt offers stable payments and returns and has a tax benefit. Common stock does not ensure the payment of dividends. A investor can have information showing the future returns on common stock will exceed the returns on dividends causing him to buy the stock instead of the debt.
doctor .phil Harris ? is the current liabilities included as a component to calculate the total debt Return /Debt = to the the cost of debt as mentioned in the above model
I don't get why you use ROE in your WACC calculation rather than COE (cost of equity). ROE need not be equal to COE. Doesn't this depends on management decisions on how much it is returned to investors, how much goes into expanding the capital base, and so on?
Can't read what is written on the Excel. Trying to follow along but not being able to see is too hard. Going to find another youtube that I can see and hear
Following your calculations,I have computed WACC of the Mictosoft on 2013,it has totalled about 27%.On the other hand,if we calculated WACC using beta,risk free rate for computing cost of equity and cost of debt result would have been 8%???
Did you solve the problem? Because I'm doing the same, for Microsoft too, year 2023. I have a WACC of 30%.... He uses return of debt and equity, but shouldn't be cost of equity and debt?
With all due respect, Dr. Harris, the cost of debt is not calculated as net income / debt. The cost of debt is the YTM of the company's long-term bonds. Similarly, the cost of equity is not calculated as net income / equity. This stands to reason: you're saying that if my company earns more in one year my cost of debt and equity have both increased. That makes no sense. Please rethink how you're presenting this. I just had to tell a Level I CFA candidate not to use this approach as it will get her completely confused and ensure that she gets wrong answers on the exam this June.
+Bill Campbell Yes, Your are absolutely correct. I just saw this video and started fishing for comments that criticized this approach. The WACC used required cost of debt and equity (the key word here is required); it is what the company is expected to generate instead of what it is able to generate in any given year.
Unfortunately this is NOT the correct way to calculate WACC. You should be using the cost of debt, not your return on debt. Very misleading video; don't be tricked by this
It's sad that people will watch this and think you're right but in reality you've completely misinterpreted WACC. The cost of debt and cost of equity are different than the return on debt and return on equity.
Fantastic explanation. Very easy to follow. Many thanks Dr. Harris. God bless you.
Wow! This is a nice dashboard to be used by any businessman on a monthly basis. Your contribution is a very good one for anyone who may like to use this explanations. It is the whole life of a business. It is also important for any student learning Finance or accounting. Thank you so much for this valuable work.
Well explained, thanks for using numbers from financial report
How come you are not using CAPM to calculate Rs. How much of an impact/difference does it make that u are using NI/Equity to calculate Rs. Is it also safe to assume the cost of debt (interest rate) is NI/Debt?
To find the cost of debt through wacc, will I have to calculate corporate's tax?
Thanks a lot for sharing this to us. this was so helpful!
Great dashboard. Please, can you share the Excel Template? Thank you.
Yes equity is more risky than debt. Debt offers stable payments and returns and has a tax benefit. Common stock does not ensure the payment of dividends. A investor can have information showing the future returns on common stock will exceed the returns on dividends causing him to buy the stock instead of the debt.
Thank you for sharing this example!
Should the cost of common be higher than the cost of debt? Why would an investor buy stock of this company if it paid less return than the debt.
doctor .phil Harris
? is the current liabilities included as a component to calculate the total debt
Return /Debt = to the the cost of debt as mentioned in the above model
I don't get why you use ROE in your WACC calculation rather than COE (cost of equity). ROE need not be equal to COE. Doesn't this depends on management decisions on how much it is returned to investors, how much goes into expanding the capital base, and so on?
Thanks for uploading the video
thank you for sharing
Is it better to use the market value of equity when calculating the WACC?
THANKS FOR YOUR LECTURE
Dr. be clear on the difference between cost of equity and return on equity. is this not misleading
Regards
Hello Dr. Phil Harris,
How can I get a copy of this template?
has this idiot ever answered this question?
Sir how come cost of equity is less than cost of debt. It doesn't make sense, can you please explain?
Do you not remove A/P and Accruals before computing WACC?
The profit is not always the required return on equity, What about deferred tax issues on the income statement?
hey please listen i need help on this calculation
Can't read what is written on the Excel. Trying to follow along but not being able to see is too hard. Going to find another youtube that I can see and hear
Following your calculations,I have computed WACC of the Mictosoft on 2013,it has totalled about 27%.On the other hand,if we calculated WACC using beta,risk free rate for computing cost of equity and cost of debt result would have been 8%???
Did you solve the problem? Because I'm doing the same, for Microsoft too, year 2023. I have a WACC of 30%.... He uses return of debt and equity, but shouldn't be cost of equity and debt?
@@francesco9751 calculation based on this video is totally wrong I guess, I think you should use CAPM model
@@Dumbledore2234 I see. Since it seems you know about valuation, can I ask you another question?
need excel sheet with calculation and details
Great video on the topic but the market values should be used to find out WACC, not the historical.
nice Sir actually this is the thing something should be applicably explained
Great Lecture!! Can you please email me this excel file? Thank You!
With all due respect, Dr. Harris, the cost of debt is not calculated as net income / debt. The cost of debt is the YTM of the company's long-term bonds.
Similarly, the cost of equity is not calculated as net income / equity.
This stands to reason: you're saying that if my company earns more in one year my cost of debt and equity have both increased. That makes no sense.
Please rethink how you're presenting this. I just had to tell a Level I CFA candidate not to use this approach as it will get her completely confused and ensure that she gets wrong answers on the exam this June.
+Bill Campbell Yes, Your are absolutely correct. I just saw this video and started fishing for comments that criticized this approach. The WACC used required cost of debt and equity (the key word here is required); it is what the company is expected to generate instead of what it is able to generate in any given year.
Unfortunately this is NOT the correct way to calculate WACC. You should be using the cost of debt, not your return on debt. Very misleading video; don't be tricked by this
Can you please explain that please?
Sir the excel is blurred
Thank you!
Thank You sir
It's sad that people will watch this and think you're right but in reality you've completely misinterpreted WACC. The cost of debt and cost of equity are different than the return on debt and return on equity.
I don't think I can trust this to be right.
Even Investopedia, and other sources are showing something very different for this calculation.
interesting
Not clear
The whole approach is totally flawed. Beware - you will fail any serious class, course and job interview using this.
Dr. You are wrong!
thank you!
Hello Dr. Harris
Can i get a copy of the templates used in this video?