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.
Tips
- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.
Common mistakes to avoid
- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.
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 incomeD/E = total debt ÷ total equityUnlevered 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].
What formula does the Unlevered Beta Calculator use?
Tax rate = 1 − net income ÷ pre-tax income.