Free Unlevered Beta Calculator

What is Unlevered Beta?

Unlevered beta is a measure of the risk of an asset or portfolio, and it’s used in capital allocation decisions. Unlevered beta can be calculated using either CAPM or APT models. In this post, we’ll explain what unlevered beta means and how to use an unlevered beta calculator to compute it for your portfolio or individual assets.

What is an Unlevered Beta Calculator?

Beta is a measure of the risk of a stock. It’s used to predict how much the stock price will change in relation to an index, such as the S&P 500.

A company with a beta of 1 is expected to rise and fall at the same rate as its industry or market—in other words, if the economy is doing well and everyone’s stocks are going up, then your own should go up too. And if the economy isn’t doing so great and everyone’s stocks are going down, yours should decline by roughly that amount as well.

But this doesn’t take into account borrowing money—which most businesses do when they want to expand their operations or buy other companies—and using debt makes them more risky than they really are

How to Calculate Unlevered Beta?

There are several steps to calculating unlevered beta:

First, you need to calculate the unlevered return on your stock (the return it would have earned if it were not financed). To do this, take the market return and subtract out your required rate of return. 

The market return is the average annualized total return on a specific index or portfolio over a certain period of time. It is usually calculated as an arithmetic mean.

1. For example, if you had invested $100 in an S&P 500 index fund at the beginning of 2019 and withdrew it at the end of 2024, your investment would have grown from $100 to $125 over those five years—an annualized growth rate of 5%. Your required rate of return is any hurdle rate used for discounting cash flows for valuation purposes;
2. In this case let’s say that investors require 10%.
3. In this case, we can find our unlevered beta by dividing 5% by 10%:

Beta = 0.5 / 1 = 0.5

How Does this Unlevered Beta Calculator Work?

The unlevered beta is the most commonly used measure of a company’s risk, especially when comparing it to other companies in the same industry. You can think of it as the market’s prediction for how volatile your company will be compared to others if their prices rise and fall at the same rate. To calculate this, you’ll need:

• The value of your firm’s total assets
• The amount owed by your firm

Example of Unlevered Beta Calculator

The unlevered beta of a company is its probability of bankruptcy, given the overall market risk. The formula for calculating the unlevered beta is:

\begin{align}

Unlevered Beta = \frac{1}{1+E(r_{w})}

\end{align}

This shows that a firm’s beta is equal to 1 divided by the sum of its own risk-free rate (RFR) and expected market return (RMR). If we plug in some numbers for our example, we get:

\begin{align}

Beta1 = 1 / (1+RFR) + RMR – RFR / RMR = 2/3*(\frac{2}{3}.5 – .25)= 2/(3-.25)= 4.67

What is levered vs unlevered beta?

Levered Beta:

Beta is a measure of the volatility of a stock relative to the market. It’s calculated by dividing the stock’s beta by the market’s beta. If a company has a levered beta of 1.5, this means that its returns will be 1.5 times more volatile than what you would expect from an investment in an unleveraged index fund.

In other words, if you’re investing in stocks without leverage on your own (unlevered), you can think about it as being twice as volatile as if you were using leverage (levered).

Unlevered Beta:

The unlevered beta is simply the company’s volatility compared with an unleveraged benchmark like Treasury bonds or cash investments.

For example if ABC had an Unlevered Beta at 2%, this means that ABC was twice as volatile as cash investments but not nearly as risky as stocks overall since they have already factored-in debt when calculating their value based on earnings per share and dividends paid out per share.

What is the difference between WACC and CAPM?

The CAPM is a theoretical model that can be used to estimate the expected return on an investment. The model assumes that investors require a certain level of return from any investment they make, and then determine how much they will invest in it based on its riskiness relative to other investments with similar expected returns.

The WACC is a weighted average cost of capital. This means that you are taking into account all sources of financing (debt and equity) as well as their costs when calculating your overall cost of capital, which can be useful if you have different types of debt or equity financing available to you.

Conclusion

Unlevered beta is a measure of the riskiness of the equity in a company. It is calculated by dividing its market capitalization by its book value. Unlevered beta can also be used to measure the riskiness of an individual stock, as opposed to broad market indexes like the S&P 500 or Dow Jones Industrial Average (DJIA).

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