As of today (2021-01-19), Dollar General's weighted average cost of capital is 3.36%. Dollar General's ROIC % is 13.88% (calculated using TTM income statement data).
Dollar General 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.
Dollar General WACC % Historical Data
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
* Premium members only.
Dollar General Annual Data
Jan11
Jan12
Jan13
Jan14
Jan15
Jan16
Jan17
Jan18
Jan19
Jan20
WACC %
5.41
6.52
6.50
7.81
3.64
Dollar General Quarterly Data
Jan16
Apr16
Jul16
Oct16
Jan17
Apr17
Jul17
Oct17
Jan18
Apr18
Jul18
Oct18
Jan19
Apr19
Jul19
Oct19
Jan20
Apr20
Jul20
Oct20
WACC %
4.33
3.64
3.32
3.17
3.29
Competitive Comparison
* 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.
Dollar General WACC % Distribution
* The bar in red indicates where Dollar General's WACC % falls into.
Dollar General 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, Dollar General's market capitalization (E) is USD50661.288 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 Oct. 2020, Dollar General's latest two-year average Short-Term Debt & Capital Lease Obligation was USD483.655 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was USD6796.9305 Mil. The total Book Value of Debt (D) is USD7280.5855 Mil.
a) weight of equity = E / (E + D) = 50661.288 / (50661.288 + 7280.5855) = 0.8743
b) weight of debt = D / (E + D) = 7280.5855 / (50661.288 + 7280.5855) = 0.1257
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 1.11000000%. 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. Dollar General's beta is 0.43.
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 = 1.11000000% + 0.43 * 6% = 3.69%
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 Jan. 2020, Dollar General's interest expense (positive number) was USD100.574 Mil. Its total Book Value of Debt (D) is USD7280.5855 Mil.
Cost of Debt = 100.574 / 7280.5855 = 1.3814%.
4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation.
The latest Two-year Average Tax Rate is 21.675%.
Dollar General'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)
=
0.8743
*
3.69%
+
0.1257
*
1.3814%
*
(1 - 21.675%)
=
3.36%
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
Dollar General (NYSE:DG) 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, Dollar General's weighted average cost of capital is 3.36%. Dollar General's ROIC % is 13.88% (calculated using TTM income statement data).
Dollar General 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.
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