Analysts unlever the betas of comparable companies, average them, then relever at the target company’s capital structure to estimate its cost of equity, especially for private companies with no stock price.
How to use the Unlevered Beta Calculator
- Net income
- Pre-tax income
- Total debt
- Total shareholders’ equity
- Levered beta (equity beta)
- Target D/E for relevering
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter net income, pre-tax income, total debt, total equity and the levered (equity) beta, and optionally a target D/E to relever.
Inputs explained
| Field | What to enter |
|---|---|
| Net income | Amount in your currency |
| Pre-tax income | Amount in your currency |
| Total debt | Amount in your currency |
| Total shareholders’ equity | Amount in your currency |
| Levered beta (equity beta) | A number |
| Target D/E for relevering | A number |
What each result means
- Corporate tax rate = (1 – [Net income]÷[Pre-tax income])×100
- D/E ratio = [Total debt]÷[Total shareholders’ equity]
- Unlevered beta = [Levered beta (equity beta)]÷(1 + (1 – [Corporate tax rate]÷100)×[D÷E ratio])
- Relevered beta at target D/E = [Unlevered beta]×(1 + (1 – [Corporate tax rate]÷100)×[Target D÷E for relevering])
Example values
How the main result changes when Net income changes and everything else stays at the example values above:
| Net income | Unlevered beta |
|---|---|
| 39,500,000 | 1.086 |
| 59,250,000 | 1.003 |
| 79,000,000 | 0.932 |
| 98,750,000 | 0.87 |
| 118,500,000 | 0.816 |
| 158,000,000 | 0.726 |
Formula
Tax rate = 1 − net income ÷ pre-tax income
D/E = total debt ÷ total equity
Unlevered beta = levered beta ÷ [1 + (1 − tax) × D/E]
Worked example
Inputs: Net income: $79,000,000; Pre-tax income: $100,000,000; Total debt: $400,000,000; Total shareholders' equity: $800,000,000; Levered beta (equity beta): 1.3; Target D/E for relevering: 0.25.
Results: Corporate tax rate = 21 %; D/E ratio = 0.5; Unlevered beta = 0.932; Relevered beta at target D/E = 1.116.
Frequently asked questions
What is unlevered beta?
Beta without the effect of debt, the risk of the business itself.
Why unlever beta?
To compare companies with different capital structures or value private firms.
What is the Hamada equation?
βu = βL ÷ [1 + (1 − t) × D/E].