Why do we unlever and re-lever beta?

Comparable companies have different capital structures, which affects their equity beta. To compare apples-to-apples, unlever each comparable to get asset beta, then re-lever to your target D/E ratio.

What is the Hamada equation?

Levered beta = Unlevered beta x [1 + (1-T) x (D/E)]. To unlever: Unlevered beta = Levered beta / [1 + (1-T) x (D/E)]. T is tax rate, D is market value of debt, E is market value of equity.

What is the difference between equity beta and asset beta?

Asset beta (unlevered) reflects business risk only. Equity beta (levered) reflects both business and financial risk. Higher leverage amplifies equity beta, increasing both expected return and volatility.

Beta Leverage and Unlever Calculator

Convert between levered and unlevered beta using the Hamada equation. Unlever to remove capital structure effects; re-lever to match a target D/E ratio for valuation.

Use the full interactive calculator below, or

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Frequently Asked Questions

Why do we unlever and re-lever beta?

What is the Hamada equation?

What is the difference between equity beta and asset beta?