Unlevered Beta

Unlevered beta is a measure of a company's systematic risk, or its exposure to market-wide risk. It is calculated by dividing a company's equity beta by its debt-to-equity ratio. A company with an unlevered beta of 1.0 is considered to be as risky as the market as a whole. A company with an unlevered beta of less than 1.0 is considered to be less risky than the market, while a company with an unlevered beta of greater than 1.0 is considered to be more risky than the market.

Unlevered beta is used by investors to compare the risk of different companies and to make investment decisions. It is also used by financial analysts to model the risk of a company's stock.

The formula for calculating unlevered beta is as follows:

Unlevered beta = Equity beta / Debt-to-equity ratio

Where:

* Equity beta is the beta of a company's equity, which is a measure of its stock's volatility relative to the market as a whole.
* Debt-to-equity ratio is the ratio of a company's debt to its equity.

To calculate a company's unlevered beta, you first need to calculate its equity beta. This can be done using a variety of methods, such as the capital asset pricing model (CAPM). Once you have calculated the company's equity beta, you can divide it by its debt-to-equity ratio to get its unlevered beta.

Unlevered beta is a useful tool for investors and financial analysts because it provides a way to compare the risk of different companies on a level playing field. By taking into account a company's debt-to-equity ratio, unlevered beta removes the effect of leverage from the calculation, making it a more accurate measure of a company's systematic risk.

Here are some additional points to keep in mind when using unlevered beta:

* Unlevered beta is only a measure of systematic risk. It does not take into account a company's specific risk, such as the risk of its business or its management team.
* Unlevered beta is based on historical data. It is not a prediction of future performance.
* Unlevered beta is only one factor to consider when making investment decisions. Other factors, such as a company's growth prospects and its financial strength, should also be taken into account.

Overall, unlevered beta is a useful tool for investors and financial analysts to use when evaluating the risk of different companies. However, it is important to keep in mind its limitations and to use it in conjunction with other factors when making investment decisions.