Live data
AAPL — Debt/Equity, Market Cap. Open AAPL on the Ledge to see current values.
Formula
β Unlevered = β Levered / [1 + (1 − Tax) × (D/E)]
Compare
| Step | What You’re Doing | Formula |
|---|---|---|
| 1. Unlever | Remove financial risk from peer betas | βu = βL / [1 + (1−T)(D/E)] |
| 2. Average | Take median unlevered beta of peers | Median(βu) |
| 3. Relever | Add target company’s financial risk back | βL = βu × [1 + (1−T)(D/E)] |
Key point
Using an industry unlevered beta and relevering to your target’s capital structure is more reliable than using the target’s own levered beta, which is noisy and unstable.
Try it
Take 3–5 peers in the same industry. Unlever each beta using their D/E ratios. The median unlevered beta should be more stable than any individual company’s levered beta.
Check-in
Two companies in the same industry: Company A has beta 1.5 and D/E of 1.0. Company B has beta 0.9 and D/E of 0.2. Which has higher business risk?
Key insight
Check-in
Company A's levered beta is 1.4 (D/E = 1.0). You're valuing a similar-industry company (D/E = 0.3). How do you adjust beta?
Check your understanding
Sit with the ideas.
Three restaurant chains have: (A) Beta 1.2, D/E 0.5x; (B) Beta 1.5, D/E 1.0x; (C) Beta 0.95, D/E 0.1x. Tax rate is 25% for all. What are their unlevered betas, and what do they tell you?
Why: