Unlevered Beta

Loading the player...

What is '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.

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.

RELATED TERMS
  1. Beta

    Beta is a measure of the volatility, or systematic risk, of a ...
  2. Unlevered Free Cash Flow - UFCF

    A company's cash flow before interest payments are taken into ...
  3. High Beta Index

    An index composed of companies with high betas trading on the ...
  4. Unlevered Cost Of Capital

    An evaluation that uses either a hypothetical or actual debt-free ...
  5. International Beta

    Better known as "global beta", international beta is a measure ...
  6. Smart Beta

    Smart beta defines a set of investment strategies that emphasize ...
Related Articles
  1. Personal Finance

    How To Calculate Beta Of A Private Company

    We explain two methods for calculating the beta of a private company.
  2. Mutual Funds & ETFs

    Beta

    Beta
  3. Investing Basics

    Unlevered Beta

    Learn about how this number provides a measure of how much systematic risk a firm's equity has compared to the market.
  4. Professionals

    Systematic And Unsystematic Risk

    Understanding these types of risks will help you make better investing and business decisions.
  5. Investing Basics

    Beta: Know The Risk

    Beta says something about price risk, but how much does it say about fundamental risk factors? Find out here.
  6. Fundamental Analysis

    High Beta – Low Beta Stocks Define Volatility Trades

    We compare the Beta values obtained from financial sources. Also, how to compute Beta using Excel.
  7. Professionals

    Required Rate on Equity: CAPM, Fama-French & Build-up Model

    Once analysts estimate risk premiums, they need models to estimate required return on equity. We will cover the following models among many: Capital Asset Pricing Model (CAPM) Multi Factors - ...
  8. Investing Basics

    How AQR Places Bets Against Beta

    Learn how the bet against beta strategy is used by a large hedge fund to profit from a pricing anomaly in the stock market caused by high stock prices.
  9. Investing Basics

    What is a Security Market Line?

    The security market line graphs the systematic risk versus return of the whole market at a certain time, and shows all risky marketable securities.
  10. Forex

    Understanding Beta

    Beta is a measure of volatility. Find out what this means and how it affects your portfolio.
RELATED FAQS
  1. How do I unlever beta?

    Learn how to calculate the unlevered beta of a company and understand the differences between standard beta versus unlevered ... Read Answer >>
  2. How does unlevered beta help in risk management?

    Find out how unlevered beta can be used in risk identification and management, specifically as it relates to the CAPM valuation ... Read Answer >>
  3. How should investors interpret unlevered beta?

    Learn what unlevered beta is, how it is calculated, and how investors can interpret the unlevered betas of companies within ... Read Answer >>
  4. What are the practical uses for unlevered beta?

    Understand the practical uses for a security's unlevered beta, and learn why investors should rely on a security's unlevered ... Read Answer >>
  5. When is it better to use unlevered beta than levered beta?

    Understand what a security's unlevered beta and levered beta measure, and learn which one is more accurate in measuring a ... Read Answer >>
  6. Why do I need to unlever beta when making WACC calculations?

    Dive into weighted average cost of capital calculations, and see why firms both unlever and re-lever beta to compare debt ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center