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RafaelaKhouri Group Title

I´m trying to calculate the beta of a company that has high operating leverage . If I create a proxy for measuring the operating leverage, how can I make the proper adjustments to it´s final beta?

  • 2 years ago
  • 2 years ago

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  1. Themba Group Title
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    Can't you try to adjust it by using the company's P/E ratios and its share price performance? I think that is a better proxy, since those indicators tell you the risk profie of that company.

    • 2 years ago
  2. eversuhoshin Group Title
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    You can use the unlevered beta, which takes leverage into consideration. http://www.investopedia.com/terms/u/unleveredbeta.asp#axzz1lLM4HYH9

    • 2 years ago
  3. Vinicius_Caldas Group Title
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    I agree with eversuhoshin, but the unleveraged beta has to be corrected for cash.

    • 2 years ago
  4. siddiquera Group Title
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    The problem with unlevered beta is that it deals with financial leverage not specifically operational leverage. If the operational leverage is linked with promised payments, then only can unlevered beta be used because promised payments become a liability (short term debt). Your best bet for now is to calculate operational leverage (% change in EBIT / % change in Sales).

    • 2 years ago
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