End Game

Variable
Number of firms

Beta

D/E Ratio

Effective Tax Rate

Unlevered Beta

Cash/Firm Value

Unlevered Beta corrected for cash

HiLo Risk

Standard deviation (equity)

Standard deviation (operating income)

To estimate pure play betas by business, to use in estimating a
bottom up beta for a project or a company.

Explanation
Number of firms in the indusry grouping.
Simple average across firms of each firm's beta, taken as a weighted
average of 2-year and 5-year weekly return regression betas, with 2-year
betas weighted 2/3rds. If the company has only a 2-year beta, it is used.

Total debt, including lease debt/ Market Value of equity. I aggregate each
number across the firms and then compute the aggregate debt to equity
ratio.
Effective tax rate in the most recxent 12 months.
Beta/ (1+ (1-tax rate) (D/E)). You can use either a marginal or effective tax
rate as your option.

Cash & Marketable Securities/ (Market Value of Equity + Total Debt,

including lease debt. Aggregated across companies first ans then
computed.
Unlevered Beta/ (1- Cash/Firm Vaue). Cash has a beta of zero. With this
calculation, I remove its effect to get a pure play beta.

Simple average of (High Price for year - Low Price/ (High Price + Low
Price). It is a non-parametric and simple measure of price risk.

Simple average across firms of each firm's standard deviation in stock

prices in the prior 2 years, using weekly returns.

Simple average across firms of each firm's coefficient of variation in annual

operating income over prior 10 years. (Coefficient of variation is standard
deviation divided by average operating income over the period)
Why?
Law of large numbers?
I average the 2-year and 5-year betas, to remove
some noise at the company level, and then take the
simple average to remove even more. I don't use
weighted averages, since that will make each sector's
beta converge on its largest company or companies.

My definition of debt for all things cost of capital. I

have always treated lease commitments as debt.
Now the accountants will as well.
I need a tax rate.
Interest saves you taxes at the margin. You should
generally use a marginal tax rate, but if you have a
multinational facing different marginal tax rates in
different regions, you may use effective instead,

Cash is usualy invested in liquid, close to riskless

investments and has a beta close to zero.

The standard unlevered beta is an unlevered beta for

the company. If the company holds a large amount of
cash, you need to remove it from the calculation to
get a beta for just the business.

If you don't like making distributional assumptions

and want a simple range-based measure of risk…

This is the total risk. Beta measures only the portion

of this standard deviation that is market-related.

If you don't like price-based measures of risk,

preferring something more intrinsic, this may be your
preferred measure of risk. (Since operating income
levels vary widely across firms, I used the coefficient
of variation.)
Global Companies Betas by Sector January 2016

Date updated: 5-Jan-21 YouTube Video explaining estimation choices and process. Notes
Created by: Aswath Damodaran, adamodar@stern.nyu.edu if you are looking for a pure-play beta, i.e., a beta for a business,
What is this data? Beta, Unlevered beta and other risk measures US companies unlevered beta corrected for cash is your best bet. Since even sec
betas can move over time, I have also reported the average of the
Home Page: http://www.damodaran.com sector beta across time in the last column. This number, for obvio
Data website: http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html reasons, is less likely to be volatile over time.
Companies in each industry: http://www.stern.nyu.edu/~adamodar/pc/datasets/indname.xls
Variable definitions: http://www.stern.nyu.edu/~adamodar/New_Home_Page/datafile/variable.htm
Do you want to use marginal or effective tax rates in unlevering betas? Marginal
If marginal tax rate, enter the marginal tax rate to use 27.00%

Effective Tax
Industry Name Number of firms Beta D/E Ratio rate Unlevered beta Cash/Firm value Unlevered beta corrected for cash HiLo Risk
Food Processing 101 0.64 33.01% 8.56% 0.51 3.64% 0.53 0.5418
 Global Companies Betas by Sector January 2016

Notes
if you are looking for a pure-play beta, i.e., a beta for a business, the
unlevered beta corrected for cash is your best bet. Since even sector
betas can move over time, I have also reported the average of the this
sector beta across time in the last column. This number, for obvious
reasons, is less likely to be volatile over time.

Unlevered beta corrected for cash - Over time

Standard deviation in
operating income Average
Standard deviation of equity (last 10 years) 2016 2017 2018 2019 2020 (2016-21)
32.56% 19.79% 0.74 0.63 0.56 0.61 0.70 0.63
Effective
Marginal