Unlevered Beta

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DEFINITION of 'Unlevered Beta'

A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta of a company without any debt. Unlevering a beta removes the financial effects from leverage.

The formula to calculate a company's unlevered beta is:

Unlevered Beta



Where:
BL is the firm's beta with leverage.
Tc is the corporate tax rate.
D/E is the company's debt/equity ratio.

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BREAKING DOWN 'Unlevered Beta'

This number provides a measure of how much systematic risk a firm's equity has when compared to the market. Unlevering the beta removes any beneficial effects gained by adding debt to the firm's capital structure. Comparing companies' unlevered betas gives an investor a better idea of how much risk they will be taking on when purchasing a firms' stock.

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RELATED FAQS
  1. Why should I register as a Limited Liability Company (LLC) if I am self-employed ...

    Debt affects a company's levered beta in that increasing the total amount of a company's debt will increase the value of ... Read Full Answer >>
  2. What are the practical uses for unlevered beta?

    A security's unlevered beta measures the volatility and performance of that security in relation to the performance of the ... Read Full Answer >>
  3. When is it better to use unlevered beta than levered beta?

    It is better to use an unlevered beta over a levered beta when a company or investor wishes to measure a publicly traded ... Read Full Answer >>
  4. How does unlevered beta help in risk management?

    Financial analysts and statisticians use unlevered beta to compare the risk of a single investment against the risk of investing ... Read Full Answer >>
  5. How should investors interpret unlevered beta?

    Unlevered beta is the beta of a company that focuses only on its assets. It removes the amount of debt a company has in order ... Read Full Answer >>
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    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>

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