Market Cap : 18.15 B | Enterprise Value : 20.41 B | PE Ratio : 36.60 | PB Ratio : 9.82 |
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As of today (2022-08-12), LPL Financial Holdings's weighted average cost of capital is 8.71%. LPL Financial Holdings's ROIC % is 0.00% (calculated using TTM income statement data). LPL Financial Holdings earns returns that do not match up to its cost of capital. It will destroy value as it grows.
The historical data trend for LPL Financial Holdings'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.
For the Capital Markets subindustry, LPL Financial Holdings'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.
For the Capital Markets industry and Financial Services sector, LPL Financial Holdings's WACC % distribution charts can be found below:
* The bar in red indicates where LPL Financial Holdings's WACC % falls into.
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, LPL Financial Holdings's market capitalization (E) is $18154.008 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 two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together. As of Jun. 2022, LPL Financial Holdings's latest two-year average Short-Term Debt & Capital Lease Obligation was $45 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $2776.315 Mil. The total Book Value of Debt (D) is $2821.315 Mil.
a) weight of equity = E / (E + D) = 18154.008 / (18154.008 + 2821.315) = 0.8655
b) weight of debt = D / (E + D) = 2821.315 / (18154.008 + 2821.315) = 0.1345
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 2.84200000%. 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. LPL Financial Holdings's beta is 1.13.
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 = 2.84200000% + 1.13 * 6% = 9.622%
3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
As of Dec. 2021, LPL Financial Holdings's interest expense (positive number) was $104.414 Mil. Its total Book Value of Debt (D) is $2821.315 Mil.
Cost of Debt = 104.414 / 2821.315 = 3.7009%.
4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation. The calculated average tax rate is limited to between 0% and 100%. If the calculated average tax rate is higher than 100%, it is set to 100%. If the calculated average tax rate is less than 0%, it is set to 0%.
The latest Two-year Average Tax Rate is 24.02%.
LPL Financial Holdings'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) |
= | 0.8655 | * | 9.622% | + | 0.1345 | * | 3.7009% | * | (1 - 24.02%) | |
= | 8.71% |
* 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.
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, LPL Financial Holdings's weighted average cost of capital is 8.71%. LPL Financial Holdings's ROIC % is 0.00% (calculated using TTM income statement data). LPL Financial Holdings earns returns that do not match up to its cost of capital. It will destroy value as it grows.
1. GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together.
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 last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
Sethi Kabir | officer: Managing Director | C/O LPL FINANCIAL 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 |
Gates Greg | officer: Managing Director | C/O LPL FINANCIAL 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 |
Simonich Brent | officer: EVP, CAO and Treasurer | C/O E*TRADE FINANCIAL CORP. 11 TIMES SQUARE, 32ND FLOOR NEW YORK NY 10036-9992 |
Fandrey Edward | officer: Managing Director | C/O LPL FINANCIAL 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 |
Bernard Edward C | director | T ROWE PRICE GROUP INC 100 E PRATT ST BALTIMORE MD 21202 |
Enyedi Matthew | officer: Managing Director | C/O LPL FINANCIAL HOLDINGS, INC. 75 STATE STREET, 22ND FLOOR BOSTON MA 02109 |
Thomas Corey E. | director | C/O RAPID7, INC. 100 SUMMER STREET BOSTON MA 02110 |
Semerjian Dayton | officer: Managing Director | 600 NICKERSON RD. MARLBORO MA 01752 |
Steinmeier Richard | officer: Managing Director | C/O LPL FINANCIAL HOLDINGS, INC. 75 STATE STREET, 22ND FLOOR BOSTON MA 02109 |
Mnookin Allison | director | C/O INTUIT 150 CAMBRIDGE PARK DRIVE CAMBRIDGE MA 02140 |
Seese Scott | officer: MD, Chief Information Officer | C/O LPL FINANCIAL HOLDINGS, INC. 75 STATE STREET, 22ND FLOOR BOSTON MA 02109 |
Glavin William Francis Jr | director | 6803 SOUTH TUCSON WAY CENTENNIAL CO 80112 |
Hellman Marco | director | BLACKBAUD INC 2000 DANIEL ISLAND DRIVE CHARLESTON SC 29492 |
Calder Tracy | officer: MD, Deputy Chief Risk Officer | C/O LPL FINANCIAL HOLDINGS, INC. 75 STATE STREET, 22ND FLOOR BOSTON MA 02109 |
Dinh Viet D | director | GEORGETOWN UNIVERSITY LAW CENTER 600 NEW JERSEY AVENUE NW WASHINGTON DC 20001 |
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