Levered beta
A company's beta as it stands, debt included. The more debt, the more strongly the shareholder's profit reacts to a move in the market.
Formula
\beta_L = \beta_U \times \left(1 + (1 - t) \frac{D}{E}\right)The debt-to-equity ratio is taken at market values and t is the tax rate as a fraction of one. The formula converts unlevered beta into levered beta.
How to read the number
This is what goes into the pricing model when the cost of equity of a specific company is being calculated.
When the metric lies
The beta observed in the market is already levered and reflects the past capital structure. If the company has changed it, the old beta describes a company that no longer exists.
Also known as: equity beta