Moreover, using equity capital also helps keep Coca-Cola’s balance sheet healthy since there won’t be any added interest payments that need to be paid out each period. The company can still maximize its profits, while maintaining a healthy financial position. This will build confidence with both investors and stakeholders. use the Capital Asset Pricing Model (CAPM) to evaluate a company’s stock?
The Capital Asset Pricing Model (CAPM) is used to evaluate a company’s stock by calculating its expected return given the risk-free rate and market risk premium. Comparing the expected returns of a company’s stock with those from other companies in the same sector helps investors decide whether or not a particular stock is worthwhile. To calculate an expected return on a stock, you must first determine its required return. This is equal to Risk Free Rate + beta x Market risk premium. The beta coefficient measures how much volatility an individual security has compared to an overall market index such as the S&P 500. Investors can compare the returns of their investments to those from similar companies once this calculation has been made.