I understand that when doing a DCF for a private company, we usually have to calculate an estimate of the company's beta. Correct me if I am wrong, but I also understand that the most common method is to find comparable companies, deleverage their equity beta to find their asset betas, average for industry beta and relever to the private co's capital structure (or more commonly, their target capital structure) for their implied equity beta.
On the other hand, I've heard of people building bottom-up betas. I vaguely remember (probably from some Damodaran slides) that the components of beta are, 1. Operational leverage (% of fixed costs), 2. Financial leverage (capital structure) and 3. Nature of the industry.
Although these all sound great in theory, but in reality, how to people calculate bottom-up betas? I'm assuming there's some metric people follow or some method people use to calculate bottom up betas? Would love to hear more opinions on this.
Cheers, and happy Friday everyone!
page 10 of pdf ... 72 of presentation
http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/discrate2.pdf
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