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. Investopedia Says:
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:
Beta
Capital Structure
Debt/Equity Ratio
Leverage
Systematic Risk |