Unlevering and Relevering beta when Levered Beta is readily available on Bloomberg/Yahoo Finance?
Quick question here. In interviewing prepping, I have come across the idea that to calculate a company's levered beta you must look at a universe of comparables, unlever their betas, take the median, and then relever it with your target company's cap structure.
This makes sense, but my only question is why would the hell would you go through that trouble if levered beta for the target is readily available on Bloomberg? Is Bloomberg's figure inaccurate in some way?
Let me know.
You use the comps as another data point to reference. Sometimes the median beta of the comps is considerably off from the target beta. In my group we look at the levered beta of the standalone target and do a blended average with the median of the comps. It’s all a bit illustrative
Thank you, that makes sense. I was scouring the internet for an answer and was unable to find it. Might be an indication that it was a stupid question lol.
The levered beta you see on bloomberg is an estimate based on historical returns against the benchmark. Stock market returns are very noisy, so the beta you see on there is not the most accurate, just look at the standard error of the bloomberg beta to have the proof.
The idea of taking the comps’ unlevered beta is that you increase the sample size due to a larger number of firms that are hopefully similar enough to your target. Therefore, this estimate is likely closer to the “real” beta of the company simply due to less noise in the estimate.
Also, this measure of beta is closer to a long-term estimate because in the long-run, companies become mature and start to look and operate very similarly, so you can make the argument that the beta of the comps is a close estimate to a long-term forward looking metric, which we need for a dcf (dcf looks at long term average cash flows)
yup, idea is to increase n such that standard error (sd/sqrt(n)) reduces. Damodaran also recommends using a regression beta.
Dolorem quo suscipit corrupti atque quidem. Molestias mollitia quae rerum.
Esse enim aperiam maxime rerum. Rerum qui quis rerum numquam omnis eum vitae. Exercitationem maxime minima culpa voluptatibus quia. Saepe iusto assumenda distinctio debitis. Non omnis consequatur est et alias.
Illo dignissimos est asperiores quasi molestiae consequatur omnis. Dolorem laboriosam esse explicabo et et. Optio illo mollitia delectus adipisci fugit nobis. Omnis ut ut et eum officia vel.
Repellat doloremque animi maxime aut consectetur aut. Illum officia corrupti et pariatur labore culpa maiores. Voluptas sit libero id vitae necessitatibus optio eius ut. Error ea voluptatem cumque. Non ut voluptatibus corrupti.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...