Short Definition

The regression of stock market returns versus the return of the market (also called the market beta). Beta should be forward looking for valuation purposes, because an investment's value is the discounted future cash flow.

• Unlevered Beta: is the beta of the target company minus the affects of debt leverage.
  • Equation: Beta (market) equals beta (observed in the stock market) divided by [1 + (debt/equity) times (1 minus taxes)]
• Relevered Beta: is the beta of the target company plus the affects of debt leverage.
  • Beta (unlevered) equals beta (observed in the stock market) times [1 + (debt/equity) times (1 minus taxes)]

Long Definition

See also

• Alpha
• Required Return of Equity
• Weight Average Cost of Capital (WACC)

See Related Analysis

• Stock Beta Data

See Related Resources

• Beta Calculator
• Beta Estimate
• Leverage Beta
• Jensen, Alpha Risk Calculator

Source: http://en.wikipedia.org/wiki/Beta_coefficient