What Does Unlevered Beta Mean?
A type of metric that compares the risk of an unlevered company with the risk of the market in general; the unlevered beta is equal to 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 shown here:
Where B = the firm's beta with leverage, T= the corporate tax rate, D/E = the company's debt/equity ratio.
Investopedia explains Unlevered Beta
This measure shows the amount of systematic risk inherent in a firm's equity compared with the overall market. Unlevering the beta removes any beneficial effects gained by adding debt to the firm's capital structure. Comparing companies' unlevered betas gives investors a better idea of the amount of risk associated with a firm's stock.
Related Terms:
• Beta
• Capital Structure
• Debt/Equity Ratio
• Leverage
• Systematic Risk
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