What is Levered Beta ?
Levered beta, also known as equity beta, is a measure of a company's market risk that accounts for the impact of its capital structure, including debt. It reflects the volatility of the company's equity relative to the overall market, capturing both business risk and the additional risk introduced by financial leverage. Levered beta is crucial for investors and analysts as it provides insight into how sensitive a company's stock is to market movements, factoring in the amplification of risk due to debt. This metric is used in the Capital Asset Pricing Model (CAPM) to estimate the expected return on equity, helping investors understand the risk-return profile of an investment. Higher levered beta indicates greater volatility and risk, while lower levered beta suggests less sensitivity to market changes.
How to Calculate Levered Beta?
Levered Beta calculator uses Levered Beta = Unlevered Beta*(1+((1-Tax Rate)*(Debt/Equity))) to calculate the Levered Beta, The Levered Beta measures a company's market risk, including the impact of its debt, indicating the volatility of its equity relative to the overall market. Levered Beta is denoted by β_{L} symbol.
How to calculate Levered Beta using this online calculator? To use this online calculator for Levered Beta, enter Unlevered Beta (β_{UL}), Tax Rate (t), Debt (D) & Equity (E) and hit the calculate button. Here is how the Levered Beta calculation can be explained with given input values -> 0.729 = 0.3*(1+((1-0.35)*(22000/10000))).