How to

calculate
the beta
of private
company
Beta is an important metric to calculate and
is used to find Cost of Equity for a
company.

Moreover, Beta calculation requires closing

price data, which is not available for private
companies.

So, how can we calculate beta for private

companies?
For private companies, Beta can also
be calculated by using publicly listed
peers.

These peer companies should operate

in the same (or similar) business /
industry, with similarities in the
revenue model, target customers,
markets, among others .
Step 1: Find 5-7 closest public peers

Step 2: Calculate beta for these 5-7

public peers

Step 3: Un-lever the beta for each peer

using below formula:

Un-Levered Beta = Levered Beta / (1 +

((1 – Tax Rate) x (Total Debt/Equity)))
Step 3 (cont'd): Un-levered betas are
calculated to remove the impacts of capital
structure, as all peers may have different
capital structure mix.

Step 4: Now, calculate the average un-

levered beta of all these 5-7 peers
Step 5: Finally, re-lever the beta with
private company's capital structure mix
using below formula:

Re-Levered Beta = Un-levered Beta * [1 +

(1 – Tax Rate) * (Debt / Equity)]
Conclusion
This method can also be used for public
companies as well for below reasons:

If public company is thinly traded

If it has high price volatility
If a future target capital structure mix is
required to be implemented in beta
If a comparison is required between
original beta vs peer based beta
Clear
 Thanks !!
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