calculate_unlever_beta
Unlever a (levered) equity beta to its asset beta using the Hamada formula — removing the financial-risk effect of debt so betas of companies with different capital structures can be compared. Formula: Beta(unlevered) = Beta(levered) / (1 + (1 - tax rate) x Debt/Equity). WHEN TO USE: Use when valuing a private company or a deal with a different capital structure than the public comparable — unlever the comps’ betas, average them, then relever at your target structure. WHEN NOT TO USE: Do NOT unlever with an inconsistent tax rate or debt/equity ratio — the result is only as clean as its inputs; for companies with significant non-debt liabilities consider a more advanced formula. BEHAVIOUR: pure deterministic calculation — no side effects, no network or storage access; idempotent and non-destructive; identical inputs always produce identical outputs. Division by zero, non-finite inputs, or mathematically undefined combinations return an explicit error instead of a number. RETURNS: JSON object { unlevered_beta: number (e.g. 0.85), inputs }. PARAMETERS: levered_beta (required): The observed (levered) equity beta of the comparable company, e.g. 1.2. Must be > 0. tax_rate (required): Corporate tax rate as a decimal between 0 and 1, e.g. 0.25 = 25%. debt_to_equity (required): Debt-to-equity ratio of the company whose beta is being unlevered (market values preferred), e.g. 0.5 = 0.5x. Must be >= 0.
Input Schema
| Name | Required | Description | Default |
|---|---|---|---|
| tax_rate | Yes | Corporate tax rate as a decimal between 0 and 1, e.g. 0.25 = 25%. | |
| levered_beta | Yes | The observed (levered) equity beta of the comparable company, e.g. 1.2. Must be > 0. | |
| debt_to_equity | Yes | Debt-to-equity ratio of the company whose beta is being unlevered (market values preferred), e.g. 0.5 = 0.5x. Must be >= 0. |