Controladora Vuela Compania de AviacionB de CV (NYSE:VLRS) WACC %

:10.67% (As of Today)

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As of today (2023-06-08), Controladora Vuela Compania de AviacionB de CV's weighted average cost of capital is 10.67%. Controladora Vuela Compania de AviacionB de CV's ROIC % is 0.39% (calculated using TTM income statement data). Controladora Vuela Compania de AviacionB de CV earns returns that do not match up to its cost of capital. It will destroy value as it grows.

Controladora Vuela Compania de AviacionB de CV WACC % Historical Data

The historical data trend for Controladora Vuela Compania de AviacionB de CV'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.

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Controladora Vuela Compania de AviacionB de CV Annual Data

Trend

Dec13

Dec14

Dec15

Dec16

Dec17

Dec18

Dec19

Dec20

Dec21

Dec22

WACC %

8.21

10.12

9.97

12.81

5.97

Controladora Vuela Compania de AviacionB de CV Quarterly Data
	Jun18	Sep18	Dec18	Mar19	Jun19	Sep19	Dec19	Mar20	Jun20	Sep20	Dec20	Mar21	Jun21	Sep21	Dec21	Mar22	Jun22	Sep22	Dec22	Mar23
WACC %																13.04	10.18	5.61	5.97	3.77

Competitive Comparison

For the Airlines subindustry, Controladora Vuela Compania de AviacionB de CV'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.

Annual Data Quarterly Data

Controladora Vuela Compania de AviacionB de CV WACC % Distribution

For the Transportation industry and Industrials sector, Controladora Vuela Compania de AviacionB de CV's WACC % distribution charts can be found below:

* The bar in red indicates where Controladora Vuela Compania de AviacionB de CV's WACC % falls in comparison to its industry or sector. The grey bar indicates the WACC %'s extreme value range as defined by GuruFocus.

Controladora Vuela Compania de AviacionB de CV 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 + D)

Cost of Equity

(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, Controladora Vuela Compania de AviacionB de CV's market capitalization (E) is $1667.703 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 Mar. 2023, Controladora Vuela Compania de AviacionB de CV's latest two-year average Short-Term Debt & Capital Lease Obligation was $464.2545 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $2385.1615 Mil. The total Book Value of Debt (D) is $2849.416 Mil.
a) weight of equity = E / (E + D) = 1667.703 / (1667.703 + 2849.416) = 0.3692
b) weight of debt = D / (E + D) = 2849.416 / (1667.703 + 2849.416) = 0.6308

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 8.89000000%. 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. Controladora Vuela Compania de AviacionB de CV's beta is 2.01.
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 = 8.89000000% + 2.01 * 6% = 20.95%

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. 2022, Controladora Vuela Compania de AviacionB de CV's interest expense (positive number) was $191.482 Mil. Its total Book Value of Debt (D) is $2849.416 Mil.
Cost of Debt = 191.482 / 2849.416 = 6.72%.

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 30.85%.

Controladora Vuela Compania de AviacionB de CV'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)
	=	0.3692	*	20.95%	+	0.6308	*	6.72%	*	(1 - 30.85%)
	=	10.67%

Controladora Vuela Compania de AviacionB de CV (NYSE:VLRS) 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, Controladora Vuela Compania de AviacionB de CV's weighted average cost of capital is 10.67%. Controladora Vuela Compania de AviacionB de CV's ROIC % is 0.39% (calculated using TTM income statement data). Controladora Vuela Compania de AviacionB de CV 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

Controladora Vuela Compania de AviacionB de CV (NYSE:VLRS) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Industrials » Transportation » Controladora Vuela Compania de Aviacion SAB de CV (NYSE:VLRS) » Definitions » WACC %

Traded in Other Exchanges

VOLARA:Mexico 2CDA:Germany

Address

Av. Antonio Dovali Jaime Number 70, 13th Floor, Tower B, Colonia Zedec Santa Fe, Mexico, DF, MEX, 01210

Website

https://www.volaris.com

Controladora Vuela Compania de Aviacion SAB de CV is a low-cost airline flying to Mexico, the United States, Central and South America. It currently operates up to 500 average daily flight segments on routes that connect 44 cities in Mexico as well as 22 cities in the United States, four in Central America and two in South America. It uses promotional fares to stimulate demand and the base fares are priced to compete with long-distance bus fares in Mexico. Revenues from the air transportation of passengers are recognized earlier when the service is provided or when the non-refundable ticket expires at the date of the scheduled travel. Non-passenger revenues include revenues generated from other non-passenger revenues and cargo services.