Unlevered Beta Calculator
Remove financial leverage effects to calculate true business risk and systematic beta
Calculate Unlevered Beta
Beta coefficient with financial leverage included
Input Method
Financial Components
After-tax earnings
Earnings before taxes
Total company debt
Total shareholders' equity
Unlevered Beta Results
Risk Analysis
Example: Company Alpha Unlevered Beta
Company Alpha Financial Data
Net Income: $800,000
Pre-Tax Income: $1,000,000
Total Debt: $12,000,000
Shareholders' Equity: $6,000,000
Levered Beta: 1.2
Step-by-Step Calculation
Step 1 - Tax Rate: 1 - ($800,000 ÷ $1,000,000) = 20%
Step 2 - D/E Ratio: $12,000,000 ÷ $6,000,000 = 2.0
Step 3 - Leverage Factor: 1 + (1 - 20%) × 2.0 = 2.6
Step 4 - Unlevered Beta: 1.2 ÷ 2.6 = 0.4615
Result: Business has systematic risk of 0.4615 without leverage
Beta Types
Levered Beta
Includes financial leverage
Equity beta with debt impact
Unlevered Beta
Pure business risk
Asset beta without leverage
Market Beta
Market index reference
S&P 500 benchmark = 1.0
Uses of Unlevered Beta
Compare systematic risk across companies
Estimate beta for private companies
CAPM and valuation models
Capital structure analysis
Cost of equity calculations
Understanding Unlevered Beta
What is Unlevered Beta?
Unlevered beta (asset beta) measures a company's systematic risk without the influence of financial leverage. It represents the pure business risk by removing the effects of debt financing from the levered beta.
Why Remove Financial Leverage?
- •Compare companies with different capital structures
- •Isolate business risk from financial risk
- •Estimate beta for private companies
- •More accurate CAPM applications
Unlevered Beta Formula
βᵤ = βₗ ÷ [1 + (1 - T) × D/E]
Where:
βᵤ = Unlevered Beta
βₗ = Levered Beta
T = Corporate Tax Rate
D/E = Debt-to-Equity Ratio
Key Applications
- Peer Analysis: Compare systematic risk across industry
- Valuation: Input for CAPM and DCF models
- Private Companies: Estimate beta using public peers
- Capital Decisions: Assess impact of leverage changes
Note: Lower unlevered beta indicates lower business risk independent of capital structure