As of today (2024-04-26), St Jude Medical's weighted average cost of capital is 9.01%%. St Jude Medical's ROIC % is 0.00% (calculated using TTM income statement data).
St Jude Medical earns returns that do not match up to its cost of capital. It will destroy value as it grows.
*Note: The beta of this company cannot be obtained because it has a price history shorter than 3 years. It will thus be set to 1 as default to calculate WACC.
For a comprehensive WACC calculation, please access the WACC Calculator.
St Jude Medical WACC % Historical Data
The historical data trend for St Jude Medical's WACC % can be seen below:
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD. * For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
Competitive Comparison of St Jude Medical's WACC %
For the Medical Devices subindustry, St Jude Medical's WACC %, along with its competitors' market caps and WACC % data, can be viewed below:
* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.
St Jude Medical's WACC % Distribution in the Medical Devices & Instruments Industry
For the Medical Devices & Instruments industry and Healthcare sector, St Jude Medical's WACC % distribution charts can be found below:
* The bar in red indicates where St Jude Medical's WACC % falls into.
St Jude Medical WACC % Calculation
The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances.
WACC
=
E
/
(E + D)
*
Cost of Equity
+
D
/
(E + D)
*
Cost of Debt
*
(1 - Tax Rate)
1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap". As of today, St Jude Medical's market capitalization (E) is $22911.600 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest one-year quarterly average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together. As of Sep. 2016, St Jude Medical's latest one-year quarterly average Book Value of Debt (D) is $5875 Mil.
a) weight of equity = E / (E + D) = 22911.600 / (22911.600 + 5875) = 0.7959
b) weight of debt = D / (E + D) = 5875 / (22911.600 + 5875) = 0.2041
2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The current risk-free rate is 4.684%. Please go to Economic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. St Jude Medical's beta cannot be obtained because it has a price history shorter than 3 years. It will thus be set to 1 as default to calculate WACC.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.
Cost of Equity = 4.684% + 1 * 6% = 10.684%
3. Cost of Debt:
GuruFocus uses latest TTM Interest Expense divided by the latest one-year quarterly average debt to get the simplified cost of debt.
As of Sep. 2016, St Jude Medical's interest expense (positive number) was $159 Mil. Its total Book Value of Debt (D) is $5875 Mil.
Cost of Debt = 159 / 5875 = 2.7064%.
4. Multiply by one minus TTM Tax Rate:
GuruFocus uses the most recent TTM Tax Expense divided by the most recent TTM Pre-Tax Income to calculate the tax rate. The calculated TTM tax rate is limited to between 0% and 100%. If the calculated tax rate is higher than 100%, it is set to 100%. If the calculated tax rate is less than 0%, it is set to 0%.
The latest calculated TTM Tax Rate = 58 / 716 = 8.1%.
St Jude Medical's Weighted Average Cost Of Capital (WACC) for Today is calculated as:
WACC
=
E / (E + D)
*
Cost of Equity
+
D / (E + D)
*
Cost of Debt
*
(1 - Tax Rate)
=
0.7959
*
10.684%
+
0.2041
*
2.7064%
*
(1 - 8.1%)
=
9.01%
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD. * For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
St Jude Medical (NYSE:STJ) WACC % Explanation
Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.
As of today, St Jude Medical's weighted average cost of capital is 9.01%%. St Jude Medical's ROIC % is 0.00% (calculated using TTM income statement data).
St Jude Medical earns returns that do not match up to its cost of capital. It will destroy value as it grows.
*Note: The beta of this company cannot be obtained because it has a price history shorter than 3 years. It will thus be set to 1 as default to calculate WACC.
Be Aware
1. GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding latest one-year quarterly average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together.
For companies that report quarterly, GuruFocus combines all of the most recent year's quarterly debt data from the beginning of the year to the year-end and calculates the average.
For companies that report semi-annually, GuruFocus combines all of the most recent year's semi-annual debt data from the start of the year to the year-end and calculates the average.
For companies that report annually, GuruFocus combines the beginning and ending annual debt data from the most recent year and then calculates the average.
2. The WACC formula discussed above does not include Preferred Stock. Please adjust if preferred stock is considered.
3. (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.
4. GuruFocus uses the latest TTM Interest Expense divided by the latest one-year quarterly average debt to get the simplified cost of debt.
Related Terms
St Jude Medical (St Jude Medical) Business Description
St Jude Medical Inc was incorporated in Minnesota in 1976. It develops, manufactures and distributes cardiovascular medical devices for the cardiac rhythm management, cardiovascular and atrial fibrillation therapy areas and neurostimulation medical devices for the management of chronic pain. The Company's two segments are the Implantable Electronic Systems Division and the Cardiovascular and Ablation Technologies Division. The Company's principal products in each business unit are as follows: Implantable Electronic Systems Division (IESD) - tachycardia implantable cardioverter defibrillator systems (ICDs), bradycardia pacemaker systems (pacemakers) and neurostimulation products (spinal cord and deep brain stimulation devices); and Cardiovascular and Ablation Technologies Division (CATD) - vascular products (vascular closure products, pressure measurement guidewires, optical coherence tomography (OCT) imaging products, vascular plugs and other vascular accessories), structural heart products (heart valve replacement and repair products and structural heart defect devices) and atrial fibrillation (AF) products (electrophysiology (EP) introducers and catheters, cardiac mapping, navigation and recording systems and ablation systems). Implantable Electronic Systems Division (IESD): IESD is focused on the cardiac rhythm management and neuromodulation therapy areas. Cardiac rhythm management devices include ICDs that provide life-saving therapy to patients suffering from lethal heart conditions, such as sudden cardiac arrest; cardiac resynchronization therapy (CRT) devices to save and improve the lives of patients suffering from heart failure (HF); pacemakers to help patients whose hearts beat too slowly or who suffer from other debilitating cardiac arrhythmias; leads (wires that connect devices to the heart) to carry electrical impulses to the heart and provide information from the heart to the device; and programmers and remote monitoring equipment which are used by physicians and healthcare professionals to program is cardiac rhythm management devices and analyze device data to improve patient management. Neuromodulation product offerings provide neurostimulation treatment in which an implantable device delivers electrical current directly to targeted nerve sites. The Company's commercialized neurostimulation therapies include spinal cord stimulation (SCS) for the treatment of chronic pain, deep brain stimulation (DBS) for treating the symptoms of Parkinson's disease and peripheral nerve stimulation (PNS) for the treatment of chronic migraine headache. A neurostimulation system typically consists of four components: a pulse generator that produces the electrical current and is implanted under the patient's skin; implanted leads that carry the electrical impulses to the targeted nerve sites; an external patient remote control that enables the patient to control his or her therapy within prescribed ranges; and an external clinician pro
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