Unlevered Beta
Candlefocus EditorUsing Beta as a measure of risk is particularly useful for investors that are interested in buying stocks with less debt, as it can help them quickly identify the stocks with the least amount of debt-related risk. A Beta of 1 means that the stock is as risky as the market, while betas greater or less than 1 reflect risk thresholds higher or lower than the market, respectively.
Unlevered Beta can be calculated in different ways, depending on the type of information available. For a company that has publicly available financial information and equity data, the unlevered beta can be calculated by subtracting the percentage of the company’s total capital that comes from debt from the levered beta. If the levered beta is not available, then the unlevered beta can also be calculated by taking the levered beta for a company that is similar in size and industry to the company in question and then subtracting the amount of debt that the company in question has from the levered beta.
Unlevered Beta is an important tool when it comes to assessing a company’s risk profile. It is a useful measure of how much a company's stock is sensitive to market risk, without the influence of debt factored in. By taking into account the influence of debt, it also offers insight into how the company's assets may perform when compared with the broader market.