Unlevered Beta Calculator
Use this calculator to convert levered equity beta to unlevered (asset) beta using the Hamada equation, or to re-lever an asset beta to a new capital structure. Enter the equity beta, corporate tax rate, and debt-to-equity ratio. Switch to Relever mode to apply a target D/E ratio. Results update instantly and include a worked steps panel, a risk gauge, and an industry reference table.
Formula
Worked example
A company has a levered equity beta of 1.35, a corporate tax rate of 25%, total debt of $500M, and a market cap of $1,200M. D/E = 500/1200 = 0.4167. Leverage factor = 1 + (1 - 0.25) x 0.4167 = 1.3125. Unlevered beta = 1.35 / 1.3125 = 1.0286. To relever this asset beta for a new 40% debt / $1,000M equity structure (D/E = 0.8): re-levered beta = 1.0286 x [1 + (0.75 x 0.8)] = 1.0286 x 1.6 = 1.6457.
What is unlevered beta?
Unlevered beta, also called asset beta, measures a company's systematic risk stripped of the amplifying effect of financial leverage. When a company borrows money, its equity holders bear not only the operating risk of the business but also the additional risk of fixed interest obligations - so the observed equity beta (levered beta) is always higher than the underlying asset beta for any firm with debt. Unlevering beta removes that financial risk component, leaving a number that reflects only the sensitivity of the company's core business cash flows to broad market movements. This makes unlevered beta directly comparable across companies with different capital structures, which is why it is so useful in valuation and WACC analysis.
The Hamada equation explained
The Hamada equation, derived by Robert Hamada in 1972, links levered (equity) beta, unlevered (asset) beta, the corporate tax rate (T), and the debt-to-equity ratio (D/E). To unlever: betaU = betaL / [1 + (1 - T) x D/E]. To relever: betaL = betaU x [1 + (1 - T) x D/E]. The term (1 - T) captures the tax shield benefit of debt - because interest is tax-deductible, the government effectively subsidises part of the debt risk, which reduces the leverage multiplier. A company with zero debt has betaU = betaL. Each additional unit of D/E amplifies the equity beta by (1 - T) per unit. For example, at a 25% tax rate, every 1.0 increase in D/E raises the equity beta by 0.75 times the unlevered beta.
How to use unlevered beta in WACC and DCF valuation
In a discounted cash flow (DCF) model, the discount rate must reflect the risk of what is being valued. In a comparable company (comps) analysis you collect equity betas from peers, unlever each one to remove their individual leverage effects, average the resulting asset betas (which now reflect pure business risk), and then relever using your target capital structure. The re-levered beta goes into CAPM to get the cost of equity: Ke = Rf + betaL x ERP, where Rf is the risk-free rate and ERP is the equity risk premium. That cost of equity, combined with the after-tax cost of debt, feeds into WACC = (E/V) x Ke + (D/V) x Kd x (1 - T). Using an unlevered beta directly as an asset-level discount rate is also valid when valuing unlevered firm cash flows (free cash flows before financing).
Limitations and practical considerations
The Hamada equation assumes constant debt (dollar-amount debt rebalanced each period to maintain a fixed D/E ratio), which implies the Miles-Ezzell or Modigliani-Miller framework depending on interpretation. If a company maintains a fixed dollar amount of debt rather than a fixed ratio, the Harris-Pringle or Fernandez formula may be more appropriate. Betas estimated from regression are also noisy - most practitioners average across a peer group of at least five to ten companies to reduce firm-specific estimation error. Book-value debt is often used when market prices are unavailable, which is an acceptable approximation for most investment-grade firms but can distort results for distressed companies. Finally, betas are backward-looking; they reflect the historical risk structure, which may not match the future if the company's leverage or business mix is changing.
Unlevered beta by industry sector (US, January 2026)
| Industry | Firms | Levered beta | D/E ratio | Tax rate | Unlevered beta |
|---|---|---|---|---|---|
| Advertising | 52 | 1.21 | 40.2% | 5.0% | 0.93 |
| Aerospace/Defense | 79 | 0.95 | 15.6% | 11.6% | 0.85 |
| Air Transport | 23 | 1.19 | 91.2% | 8.3% | 0.7 |
| Auto & Truck | 33 | 1.46 | 19.7% | 3.7% | 1.27 |
| Banks (Regional) | 568 | 0.4 | 52.1% | 17.6% | 0.29 |
| Biotechnology | 496 | 1.14 | 13.0% | 1.1% | 1.03 |
| Building Materials | 41 | 1.11 | 26.0% | 18.0% | 0.93 |
| Chemical (Specialty) | 59 | 0.97 | 29.9% | 13.7% | 0.79 |
| Computers/Peripherals | 36 | 1.35 | 4.6% | 5.9% | 1.31 |
| Electrical Equipment | 112 | 1.25 | 12.0% | 4.8% | 1.15 |
| Entertainment | 92 | 0.83 | 15.9% | 3.3% | 0.74 |
| Food Processing | 78 | 0.61 | 43.7% | 10.4% | 0.46 |
| Healthcare Products | 204 | 0.91 | 12.8% | 4.9% | 0.83 |
| Hotel/Gaming | 63 | 1.08 | 39.8% | 8.3% | 0.83 |
| Machinery | 105 | 0.96 | 14.7% | 13.4% | 0.87 |
| Metals & Mining | 73 | 1.04 | 11.0% | 2.5% | 0.96 |
| Pharmaceutical | 228 | 0.98 | 14.5% | 3.0% | 0.89 |
| Power/Utility | 46 | 0.48 | 74.2% | 12.8% | 0.31 |
| Retail (Building Supply) | 14 | 1.54 | 23.3% | 11.8% | 1.31 |
| Semiconductor | 66 | 1.52 | 2.6% | 5.1% | 1.49 |
| Software (Internet) | 29 | 1.69 | 12.3% | 3.1% | 1.55 |
| Software (System & Application) | 309 | 1.28 | 5.6% | 5.5% | 1.23 |
| Telecom Services | 39 | 0.63 | 96.1% | 3.4% | 0.37 |
| Utility (General) | 14 | 0.24 | 81.5% | 12.8% | 0.15 |
| Total Market | 5994 | 0.91 | 35.2% | 8.3% | 0.72 |
Source: Damodaran Online, NYU Stern. Unlevered betas are computed from average levered betas, D/E ratios, and effective tax rates for each sector.
Frequently asked questions
What is the difference between levered and unlevered beta?
Levered beta (equity beta) measures the systematic risk of a company's equity, including both business risk and the extra risk created by financial leverage. Unlevered beta (asset beta) isolates only the business risk by mathematically removing the effect of the company's debt. For a firm with no debt, they are identical. For a firm with debt, the levered beta is always higher - the more debt, the larger the gap.
Why do analysts unlever beta before comparing companies?
Two companies in the same industry can have very different equity betas simply because they have different amounts of debt, even if their underlying businesses are equally risky. Unlevering strips out that financing noise so you can compare the true operating risk. In a WACC analysis, you typically unlever peer betas, take an average, and then relever to your own target capital structure.
What is a typical unlevered beta value?
Unlevered betas vary widely by industry. Defensive sectors like utilities and food processing often have asset betas below 0.5, reflecting stable, low-cyclicality cash flows. Consumer staples and healthcare typically fall between 0.5 and 0.9. Cyclical industrials and technology companies commonly range from 0.9 to 1.3. High-growth software and semiconductor companies can exceed 1.4. The Damodaran industry table on this page shows average values across 24 sectors.
What inputs do I need for the Hamada equation?
You need three things: the levered equity beta (from a financial data provider like Bloomberg, Refinitiv, or Yahoo Finance), the corporate tax rate (use the effective rate from the income statement or the marginal statutory rate), and the debt-to-equity ratio calculated using market values - total interest-bearing debt divided by market capitalisation.
Can unlevered beta be negative?
Yes, though it is very unusual. A negative beta means the asset tends to move opposite to the market, which can happen for gold miners, certain short-biased funds, or assets with strong inverse correlations to economic cycles. Most operating businesses have positive unlevered betas. A result near zero typically means the company's cash flows are largely uncorrelated with the overall market.
Does the Hamada equation assume a fixed D/E ratio or fixed dollar debt?
The standard Hamada formula as commonly applied assumes debt is rebalanced to maintain a constant D/E ratio each period (the Miles-Ezzell framework). In this case, the full (1 - T) tax shield adjustment is appropriate. If debt is held constant in dollar terms (Modigliani-Miller framework), a slightly different adjustment applies. In practice the standard Hamada formula is used almost universally in industry because the difference is small and the inputs are already approximations.