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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:
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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Investopedia explains '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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Search results for 'Unlevered Beta'
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http://www.investopedia.com/articles/fundamental-analysis/11/valuing-private-companies.asp
... The next step would be to estimate the target firm's unlevered beta by gathering
industry average betas, tax rates and debt/equity ratios. ...
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http://www.investopedia.com/articles/fundamental/03/061103.asp
... the most commonly accepted method for calculating cost of equity comes from the
Nobel Prize-winning capital asset pricing model (CAPM): Re = Rf + Beta (Rm-Rf). ...
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