Unlevering/relevering beta
Principles of Finance glossary · Cost of Capital & Capital Structure
Definition
Adjusting a comparable firm's equity beta for differences in leverage in order to apply it to a different firm.
Unlevering/relevering beta in plain English
When a company borrows money ("leverage"), its stock swings more wildly, because debt magnifies both gains and losses. "Beta" is just a number for how much a stock bounces around compared to the whole market. So if you want to guess the risk of a company that isn't publicly traded, you find a similar public company, strip out the effect of ITS borrowing ("unlevering") to see the pure business risk, then add back the borrowing level of YOUR company ("relevering"). It's like comparing two cyclists' fitness by first removing the tailwind each one had, then re-adding the wind your rider will actually face.
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