Unlevered beta

Beta with the effect of debt stripped out, so it reflects the risk of the business rather than of the financing.

A company with an equity beta of 1.1, a debt-to-equity ratio of 0.43 and a 25% tax rate has an unlevered beta of 0.832.

The procedure is standard in valuation. Take the equity betas of comparable companies, unlever each by its own capital structure, average the results to get an industry business risk, then relever at the target company's structure. That average is far more stable than any single company's regression.

It also isolates a real distinction. A hotel company and a software company can share an equity beta while carrying completely different business risks and completely different debt loads.

Unlever before averaging. Averaging levered betas mixes two things.