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AAR WACC %

:12.28% (As of Today)
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As of today (2022-08-12), AAR's weighted average cost of capital is 12.28%. AAR's ROIC % is 6.84% (calculated using TTM income statement data). AAR earns returns that do not match up to its cost of capital. It will destroy value as it grows.


AAR WACC % Historical Data

The historical data trend for AAR'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.

AAR Annual Data
Trend May13 May14 May15 May16 May17 May18 May19 May20 May21 May22
WACC %
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 10.68 5.92 8.23 11.10 12.73

AAR Quarterly Data
Aug17 Nov17 Feb18 May18 Aug18 Nov18 Feb19 May19 Aug19 Nov19 Feb20 May20 Aug20 Nov20 Feb21 May21 Aug21 Nov21 Feb22 May22
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 11.10 10.45 10.95 11.99 12.73

Competitive Comparison

For the Aerospace & Defense subindustry, AAR'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.

   

AAR WACC % Distribution

For the Aerospace & Defense industry and Industrials sector, AAR's WACC % distribution charts can be found below:

* The bar in red indicates where AAR's WACC % falls into.



AAR 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, AAR's market capitalization (E) is $1667.598 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 May. 2022, AAR'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 $174.95 Mil. The total Book Value of Debt (D) is $174.95 Mil.
a) weight of equity = E / (E + D) = 1667.598 / (1667.598 + 174.95) = 0.905
b) weight of debt = D / (E + D) = 174.95 / (1667.598 + 174.95) = 0.095

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. AAR's beta is 1.77.
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% + 1.77 * 6% = 13.462%

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 May. 2022, AAR's interest expense (positive number) was $2.4 Mil. Its total Book Value of Debt (D) is $174.95 Mil.
Cost of Debt = 2.4 / 174.95 = 1.3718%.

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 26.765%.

AAR'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)
=0.905*13.462%+0.095*1.3718%*(1 - 26.765%)
=12.28%

* 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.


AAR  (NYSE:AIR) 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, AAR's weighted average cost of capital is 12.28%. AAR's ROIC % is 6.84% (calculated using TTM income statement data). AAR earns returns that do not match up to its cost of capital. It will destroy value as it grows.


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

AAR Business Description

AAR logo
Traded in Other Exchanges
Address
1100 North Wood Dale Road, One AAR Place, Wood Dale, IL, USA, 60191
AAR Corp is engaged in providing products and services to aviation, government, and defense market. It operates in two segments namely Aviation Services and Expeditionary Services. The Aviation Services segment consists of aftermarket support and services businesses that provide spares and maintenance support for aircraft operated by it's commercial and government/defense customers. The Expeditionary Services segment consists of businesses that provide products and services supporting the movement of equipment and personnel by the U.S. Department of Defense, foreign governments, and non-governmental organizations. It generates a majority of its revenue from the Aviation Services Segment.
Executives
Lord Ellen M. director 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Leduc Robert F director UNITED TECHNOLOGIES CORP 10 FARM SPRINGS ROAD FARMINGTON CT 06032
Gilbertson H John Jr director 3005 HIGHLAND PARKWAY SUITE 200 DOWNERS GROVE IL 60515
Mcnabb Duncan J. director C/O ATLAS AIR WORLDWIDE HOLDINGS, INC. 2000 WESTCHESTER AVENUE PURCHASE NY 10577
Garascia Jessica A. officer: Vice President and Secretary 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Jessup Christopher A. officer: Vice President-CCO 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Gillen Sean M. officer: VP-CFO 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Milligan Michael D officer: Chief Financial Officer 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Pachapa Eric officer: VP, Controller and CAO 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Vogel Jennifer L director C/O AAR CORP. 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Fortson John C. officer: VP, CFO & Treasurer 5255 VIRGINIA AVE NORTH CHARLESTON SC 29406
Anderson Anthony director 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Holmes John Mcclain Iii officer: Group Vice President 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Pace Peter director C/O AAR CORP. 1100 N. WOOD DALE ROAD WOOD DALE IL 60191
Martinez Randy J officer: Group Vice President HLH BUILDING 101 WORLD DRIVE PEACHTREE CITY GA 30269

AAR Headlines

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