1. What is Levered vs Unlevered Beta?

Beta measures a stock's volatility relative to the market. Levered beta reflects the company's risk including debt, while unlevered beta shows the business risk without the impact of debt. This calculator converts between the two measures.

2. How Does the Calculator Work?

The calculator uses the unlevering formula:

Where:

• \( \text{Levered Beta} \) — The equity beta including debt effects
• \( \text{Tax Rate} \) — Corporate tax rate (as decimal)
• \( \frac{\text{Debt}}{\text{Equity}} \) — Company's debt-to-equity ratio

Explanation: The formula removes the financial risk component from levered beta to isolate business risk.

3. Importance of Beta Calculation

Details: Unlevered beta is used to compare companies with different capital structures and to estimate beta for private companies or projects. It's essential for capital budgeting and valuation.

4. Using the Calculator

Tips: Enter levered beta (typically from financial databases), tax rate as decimal (e.g., 0.25 for 25%), and debt/equity ratio. All values must be valid (beta > 0, tax rate 0-1, D/E ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: Why convert between levered and unlevered beta?
A: To compare companies with different capital structures or to estimate cost of equity for capital budgeting decisions.

Q2: What's a typical beta range?
A: Most stocks have betas between 0.5 and 1.5. Utilities often have low betas (~0.5), while tech stocks may have higher betas (~1.5).

Q3: Where can I find levered beta?
A: Financial websites (Yahoo Finance, Bloomberg) provide levered betas for public companies.

Q4: What if my company has no debt?
A: If D/E = 0, levered and unlevered beta will be identical.

Q5: Can I use this for private companies?
A: Yes, by using a comparable public company's beta and adjusting for your company's capital structure.