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No. of Recommendations: 1
fbeckner,

You can find the amount of long term and short term debt a company holds by looking at the company's balance sheet. You can find the company's balance sheet by looking through the latest 10Q or 10K, whichever is most recent.

While you can look for these numbers on sites like Morningstar or Yahoo Finance, I'd suggest going to the source documents. You can look these documents up at the SEC's web site at www.sec.gov. When you get to the site go down the "Filings and Forms" section and click on "Search for Company Filings."

As far as WACC goes, I personally don't always use it in valuations and typically just use a cost of capital of 10-12%. However, I do think it's important to at least know what WACC is and how to compute it so you can make your own decision. Investopedia.com has a nice page explaining what WACC is and how to compute it:

http://www.investopedia.com/terms/w/wacc.asp

Basically WACC weights the market value of the equity and the market value of the debt by the percentage that each makes up the total market value of the firm. It then takes these weighted values and multiplies them by the cost of equity and the cost of debt, respectively. Since interest payments on debt receive a tax deduction, the cost of debt is reduced by multiplying the cost of debt by (1 - tax rate). After this modification, the cost of debt and cost of equity are added together to get to the cost of capital.

You might wonder though where the cost of debt and cost of equity come from. :) Cost of debt is fairly straightforward. You can look at what interest rate the company is paying on it's debt, which is disclosed in the 10K's and 10Q's. Cost of equity is trickier. Typically here I would just use 10-12%. Textbooks would tell you to use the CAPM and use beta and the risk free rate to calculate the cost of equity, but many people, myself included, don't think beta (historical volatility of the stock with respect to the index) is necessarily a useful tool for determining what the stock will do with respect to the index in the future.

Might want to double check your ROIC formula. You have:
ROIC =((1 - t)(EBIT)) / ((A - cash) - (ST and LT investment) - (non-interest-bearing current liabilities))

I would use:
ROIC =((1 - t)(EBIT)) / (Total Assets - non-interest-bearing current liabilities)

Cash is an asset invested in the business. You wouldn't want to remove it from the denominator. Same with long and short term debt. The only thing you typically remove is non interest bearing liabilities like account payable or deferred income tax liabilities, as these are not assets invested in the firm.

In practice I generally look for companies that have a return on capital in the low teens or higher or for companies that may currently have a low return on capital but with some fixing could turn themselves around.

Mike
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