Unleveraged Beta, also known as Asset Beta, measures the risk of a company’s assets without considering the impact of debt. It reflects the company’s sensitivity to market movements based purely on its business operations, excluding financial leverage. In simple terms, it tells investors how risky a company’s core business is compared to the overall market.

In finance, Beta helps assess a stock’s volatility relative to the market. A company with debt has a Leveraged Beta, which includes financial risk due to borrowing. To isolate the business risk, analysts calculate Unleveraged Beta using the formula:

Unleveraged Beta = Leveraged Beta / [1 + (1 – Tax Rate) _ (Debt/Equity)]

This metric is widely used in valuation models such as the Capital Asset Pricing Model (CAPM), which estimates a firm’s cost of equity. By removing the impact of debt, investors can compare companies within the same industry on an equal footing, regardless of their capital structures. For example, two firms in the same sector may have different debt levels; unleveraged beta helps reveal which one carries more inherent business risk.

Understanding Unleveraged Beta is crucial for equity analysts, investors, and financial planners. It aids in portfolio diversification and helps estimate how a company’s performance might react to economic changes. A higher unleveraged beta indicates greater exposure to market fluctuations, while a lower beta suggests stability and lower market sensitivity.

In summary, Unleveraged Beta provides a clearer picture of a firm’s true business risk by stripping out financial effects. It’s an essential concept in corporate finance, valuation, and investment analysis, enabling data-driven and risk-aware decision-making aligned with SEBI’s fair and transparent investment principles.