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Advance Auto Parts WACC %

:7.74% (As of Today)
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As of today (2021-11-28), Advance Auto Parts's weighted average cost of capital is 7.74%. Advance Auto Parts's ROIC % is 9.97% (calculated using TTM income statement data). Advance Auto Parts generates higher returns on investment than it costs the company to raise the capital needed for that investment. It 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.


Advance Auto Parts WACC % Historical Data

The historical data trend for Advance Auto Parts'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.

* Premium members only.

Advance Auto Parts Annual Data
Trend Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20
WACC %
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 7.41 6.05 10.30 6.79 6.77

Advance Auto Parts Quarterly Data
Dec16 Mar17 Jun17 Sep17 Dec17 Mar18 Jun18 Sep18 Dec18 Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21
WACC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 7.36 6.77 7.72 7.64 7.33

Competitive Comparison

For the Specialty Retail subindustry, Advance Auto Parts'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.

   

Advance Auto Parts WACC % Distribution

For the Retail - Cyclical industry and Consumer Cyclical sector, Advance Auto Parts's WACC % distribution charts can be found below:

* The bar in red indicates where Advance Auto Parts's WACC % falls into.



Advance Auto Parts 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, Advance Auto Parts's market capitalization (E) is $14137.789 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 Sep. 2021, Advance Auto Parts's latest two-year average Short-Term Debt & Capital Lease Obligation was $0 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $2905.981 Mil. The total Book Value of Debt (D) is $2905.981 Mil.
a) weight of equity = E / (E + D) = 14137.789 / (14137.789 + 2905.981) = 0.8295
b) weight of debt = D / (E + D) = 2905.981 / (14137.789 + 2905.981) = 0.1705

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 1.64000000%. 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. Advance Auto Parts's beta is 1.24.
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 = 1.64000000% + 1.24 * 6% = 9.08%

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. 2020, Advance Auto Parts's interest expense (positive number) was $46.886 Mil. Its total Book Value of Debt (D) is $2905.981 Mil.
Cost of Debt = 46.886 / 2905.981 = 1.6134%.

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 23.96%.

Advance Auto Parts'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)
=0.8295*9.08%+0.1705*1.6134%*(1 - 23.96%)
=7.74%

* 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.


Advance Auto Parts  (NYSE:AAP) 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, Advance Auto Parts's weighted average cost of capital is 7.74%. Advance Auto Parts's ROIC % is 9.97% (calculated using TTM income statement data). Advance Auto Parts generates higher returns on investment than it costs the company to raise the capital needed for that investment. It 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.


Be Aware

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.


Related Terms

Advance Auto Parts Business Description

Advance Auto Parts logo
Industry
Consumer Cyclical » Retail - Cyclical NAICS : 441310 SIC : 5531
Traded in Other Exchanges
Address
2635 East Millbrook Road, Raleigh, NC, USA, 27604
Advance Auto Parts is one of the industry's largest retailers of aftermarket automotive parts, tools, and accessories to do-it-yourself customers in North America. Advance operated 4,976 stores as of the end of 2020, in addition to servicing 1,277 independently owned Carquest stores. The company's Worldpac unit is a premier distributor of imported original-equipment parts. Advance derived 57% of its 2020 sales from commercial clients, up from 30%-40% before the General Parts deal.
Executives
Pertz Douglas A director 1801 BAYBERRY COURT RICHMOND VA 23226
Travis Nigel director C/O BLOCKBUSTER INC 1201 ELM ST #2100 DALLAS TX 75270
Bergstrom John F director C/O BERGSTROM CORP 150 NORTH GREEN BAY RD NEENAY WI 54956
Lee Eugene I Jr director 1000 DARDEN CENTER DRIVE ORLANDO FL 32837
Buss Brad W director 198 CHAMPION COURT SAN JOSE CA 95134
Slone Reuben E officer: EVP Supply Chain C/O OFFICEMAX INCORPORATED 263 SHUMAN BLVD. NAPERVILLE IL 60563
Ferraro John Francis director 9 WALNUT AVE CAMBRIDGE MA 02140
Bailo Carla Jean director 1775 SHERMAN STREET SUITE 1200 DENVER CO 80203
Valdez Arthur L Jr director 1000 NICOLLET MALL MINNEAPOLIS MN 55403
Cushing Robert B officer: EVP, Professional 1432 FREEMAN LANE PLEASANTON VA 94566
Mccollam Sharon director C/O OFFICEMAX INCORPORATED 263 SHUMAN BLVD. NAPERVILLE IL 60563
Jones Jeffrey J Ii director ONE H&R BLOCK WAY KANSAS CITY MO 64105
Greco Thomas director, officer: President and CEO PEPSICO, INC. 700 ANDERSON HILL ROAD PURCHASE NY 10577
Finley Tammy M officer: EVP, General Counsel, Corp Sec ADVANCE AUTO PARTS, INC. 5008 AIRPORT RD ROANOKE VA 24012
Page Andrew E officer: SVP, Controller and CAO 2601 PORT COVINGTON DRIVE BALTIMORE MD 21230

Advance Auto Parts Headlines

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