Unlevered beta estimates operating-market risk after removing a modeled financing effect.
Unlevered Beta Calculator
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Unlevered beta
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Table of Contents
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What is Unlevered Beta?
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How to Use This Calculator
- Enter or select Net income, Pre-tax income, Total debt, Total shareholders' equity, Levered beta (equity beta).
- Check the unit beside each measurement. For a percentage or rate, use the scale and time period stated in the form.
- Choose Calculate, then compare the output with the formula and example below. If you change a value or option, calculate again to update the result.
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Formula Used
βᵤ = βₗ/(1+(1−tax rate) × debt/equity)
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Variables Explained
| Input | What it means |
|---|---|
| Net income | Earnings after the relevant expenses, interest and taxes for the reporting period. |
| Pre-tax income | Use the measured or stated value for this item, with the unit or category shown beside the field. |
| Total debt | Borrowing included in the ratio’s debt definition, measured on the same valuation date as equity. |
| Total shareholders' equity | The shareholder funding or residual ownership value used in the selected ratio. |
| Levered beta (equity beta) | The shareholder funding or residual ownership value used in the selected ratio. |
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Worked Example
Levered beta 1.2, tax 25% and debt/equity 0.5 give unlevered beta about 0.873.
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Why Use This Calculator?
Compare the result with the underlying statement, budget or proposed transaction. It is most useful when every amount uses the same reporting period and the same accounting definition.
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Common Mistakes
- The formula assumes a simplified debt-risk treatment; market-value capital weights may differ from book values.
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Frequently Asked Questions
Should I use monthly or annual figures?
Use one consistent period for every amount and rate in the relationship. If a form specifies an annual rate or a monthly amount, follow that label rather than mixing time periods.
Does the result include fees and tax?
Only the costs and taxes represented by the inputs and formula are included. A real transaction can include other charges, so compare the estimate with the underlying agreement or statement.
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Sources & References
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