By Sebastian Gomez
The portfolio manager for NorthPoint Group, Kimi Ford was deciding if she should pitch in and draw Nike within NorthPoint Large-Cap Fund. Nike, which did not have the strongest fiscal year results in 2001, was implementing new strategies to heighten its revenue and income. Kimi Ford, after having carefully read reports by analyst, and their input within this publicly traded company decided to emphasize its attention in the cost of capital and the financial stability of the company. Before one invests in a company, it is important for the investor to be aware of the company’s cost of capital, and to know what is the firm weighted average cost of capital (WACC).
Within this report I emphasize the importance of WACC and why it is an important financial mechanism that all investors should utilize before investing in a company. I calculated Nike’s weighted average cost of capital into two separate parts to truly understand the pros and the cons within this firm. Having deeply analyzed the company’s cost of capital into different segments, I will make a recommendation if it is a wise decision for NorthPoint Group to include Nike within its outperforming portfolio.
A company finances its assets either by debt or equity. The Weighted Average Cost of Capital (WACC) is a financial estimate that equally evaluates the company’s cost of capital. Bonds, common and preferred stock are sources, which are comprised within this computation. Countless financial investors use this mechanism to arrive to a meaningful decision prior to making an investment. As recently mentioned, this mechanism is so heavily prioritized before investing within a publicly traded company to gain a greater knowledge of the firm’s distribution towards the way it finances its assets. By calculating the firm’s cost of debt capital, I can analyze and examine precisely by how much interest the firm would...