The beta value estimated according to the volatility of shareholders' income of comparable companies is the beta equity with financial leverage. The capital structure of a comparable company is different from that of the target company, so it is necessary to exclude the capital structure factors and determine the β value of a comparable company without financial leverage, that is, β assets. This process is often called "unloading financial leverage". The formula for unloading is:
β assets = β equity ÷ 1+( 1- tax rate) × (liabilities/shareholders' equity)
Beta assets assume the beta value of all equity capital financing, and there is no financial risk at this time. In other words, the risk of shareholders' equity is the same as the risk of assets at this time, and shareholders only bear the risk of operation, that is, the risk of assets.
The significance of unloading financial leverage
Unloading financial leverage is of great significance to enterprises. First of all, unloading financial leverage can reduce the financial risk of enterprises and improve their operating ability and profitability. Secondly, unloading financial leverage can improve the credit rating and financing ability of enterprises and provide better conditions for their future development. Finally, unloading financial leverage can improve the market competitiveness of enterprises and enhance their long-term development.
Method of unloading financial leverage
1. Debt reduction financing
Enterprises can reduce financial leverage by financing too little debt. Specifically, enterprises can expand the investment scale by increasing equity financing and capital investment, thus reducing the proportion of debt financing and reducing the impact of financial leverage.
2. Strengthen internal control
Enterprises can reduce financial risks by strengthening internal control, thus reducing the impact of financial leverage. Specifically, enterprises can improve their management and risk management capabilities by strengthening financial management, improving internal audit system and strengthening risk control.
3. Capital structure
Enterprises can reduce the influence of financial leverage through super capital structure. Specifically, enterprises can change their capital structure by increasing their share capital, reducing their debts and improving their asset-liability structure, so as to reduce the impact of financial leverage.