Calculate unlevered (asset) beta from levered beta using the Hamada equation. Re-lever to target D/E ratios, decompose business vs financial risk, and compare industry betas.
Unlevered beta (asset beta) strips out the effect of debt to reveal a company's pure business risk. Observed stock betas include both business risk and financial risk from leverage. The Hamada equation separates these two components: β_U = β_L / [1 + (1 − T) × D/E].
This separation is essential for three common finance tasks. First, comparing business risk across companies with different capital structures — a tech company with β_L of 1.6 and D/E of 0.5 has the same business risk as one with β_L of 1.27 and zero debt. Second, estimating the cost of equity for an acquisition target under your planned financing. Third, calculating industry betas for WACC estimates in DCF valuations.
This calculator performs the full unlever-relever workflow: start with an observed levered beta, strip out the current D/E ratio's financial risk, then re-lever to any target capital structure. The visual decomposition shows exactly how much of the observed beta comes from business fundamentals versus leverage amplification.
Use unlevered beta when capital structure is distorting the comparison you actually care about. It is the cleanest way to compare operating risk across companies, rebuild a target company's beta under a proposed financing mix, and estimate WACC from peer data without mixing leverage into the result.
Unlevered Beta = β_L / [1 + (1 − T) × D/E] (Hamada Equation) Re-Levered Beta = β_U × [1 + (1 − T) × D/E_target] Financial Risk = β_L − β_U CAPM Expected Return = Rf + β × (Rm − Rf)
Result: Unlevered Beta: 1.152, Financial Risk: 0.448
With β_L = 1.60 and D/E = 0.50 at 21% tax: β_U = 1.60 / (1 + 0.79 × 0.50) = 1.152. The financial risk component of 0.448 (28%) comes purely from leverage. The underlying business risk is moderate at 1.15.
The unlevered beta reflects business risk before financing effects. Use it to compare firms in the same industry, then re-lever it only after you decide on a target debt-to-equity ratio. That keeps acquisition models, peer screens, and WACC estimates anchored to the same operating baseline.
Use market-value debt and equity when possible, and verify whether lease obligations should be added to debt before you calculate D/E. Very high leverage can make the Hamada adjustment swing sharply, so sanity-check the output against peer betas and published industry ranges.
Last updated:
This worksheet applies the standard Hamada-style leverage adjustment: it un-levers the observed equity beta using the current debt-to-equity ratio and tax rate, then re-levers that asset beta at a target debt-to-equity ratio. It also translates the current, unlevered, and re-levered betas into CAPM-style required returns using the user-entered risk-free rate and market return.
The industry-beta comparison table is illustrative rather than a live market data feed. It uses fixed reference values on the page, so it should be treated as a quick sense check and not as a substitute for a current peer-beta comp set.
β_L = β_U × [1 + (1 − T) × D/E]. It relates a levered (observed) beta to unlevered (asset) beta, accounting for the tax shield benefit of debt. Named after Robert Hamada.
Debt creates fixed obligations. In bad times, equity holders absorb all the loss after debt payments. This amplifies the volatility (and beta) of equity returns. More debt = more financial risk = higher beta.
Market values are theoretically correct — use market cap for equity and market value (or book value as proxy) for debt. Damodaran recommends market-value-weighted debt/equity.
In M&A: you unlever the target's beta, then re-lever to YOUR planned capital structure. Also for WACC calculations when evaluating projects with different risk profiles.
A negative D/E means the company has more cash than debt. This makes the unlevered beta slightly higher than levered beta. The Hamada equation still applies.
No — Fernandez and Miles-Ezzell offer alternatives with different assumptions about tax shield risk. Hamada assumes the tax shield has the same risk as debt. For most purposes, Hamada is standard.