Bottom up unlevered beta

Business Revenues EV/Sales Estimated valWeights

Apparel $12,056.00 1.89135 $22,802.17 19.96%
Building Materials $17,090.00 1.60430 $27,417.42 24.00%
Machinery $13,964.00 2.58163 $36,049.89 31.55%
Aerospace/Defense $8,334.00 2.26617 $18,886.28 16.53%
Air Transport $6,791.00 1.33929 $9,095.10 7.96%

Total operating businesses $58,235.00 $114,250.87 100.00%

Other inputs
Cash $4,819
Total Debt $24,020 (See worksheet for converting book value of interest bearing
PV of lease commitments $2,265 ( See worksheet for converting leases)
Market capitalization $84,050
Marginal tax rate 24% (See worksheet for marginal tax rate, by country)

Unlevered beta for operating assets = 1.0021

Unlevered beta for company = 0.9615

D/E ratio = 31.27%

Levered beta for operating assets = 1.2402 This is the beta to use in your cost of capital computation. Co
Levered beta for company = 1.1419 This is the beta to use if you want a cost of equity for your en
You may use this to compare to an overall return on equity o
 Pure play beta Weight* Beta
0.8296 0.16557962
1.0185 0.24442269
1.0985 0.34661939
1.0785 0.17828545
0.8437 0.0671618

1.00206895

g book value of interest bearing debt to market value)

tax rate, by country)

r cost of capital computation. Cost of capital applies only to operating assets.

want a cost of equity for your entire firm.
to an overall return on equity or to discount any cashflow that includes interest income in it.
 Effective
Industry Name Number of firms Beta D/E Ratio Tax rate Unlevered beta Cash/Firm value Unlevered beta corrected for cash EV/Sales
Advertising 47 1.44 85.08% 4.13% 0.88 6.00% 0.93 1.94
Aerospace/Defense 77 1.23 24.28% 8.54% 1.04 3.40% 1.08 2.27
Air Transport 18 1.44 103.43% 18.47% 0.81 4.19% 0.84 1.34
Apparel 51 1.06 41.77% 11.11% 0.80 3.16% 0.83 1.89
Auto & Truck 13 1.10 164.93% 5.93% 0.49 6.89% 0.53 1.26
Auto Parts 46 1.21 50.86% 7.25% 0.88 7.44% 0.95 0.75
Bank (Money Center) 7 1.00 177.75% 19.36% 0.43 23.33% 0.56 7.28
Banks (Regional) 611 0.57 62.92% 17.46% 0.39 10.69% 0.43 5.95
Beverage (Alcoholic) 21 1.13 31.28% 6.62% 0.91 0.72% 0.92 4.62
Beverage (Soft) 34 1.22 19.24% 4.00% 1.07 2.34% 1.09 4.88
Broadcasting 27 1.21 98.45% 13.31% 0.70 4.35% 0.73 2.72
Brokerage & Investment 39 1.46 268.39% 12.83% 0.48 14.58% 0.57 6.17
Building Materials 42 1.23 32.07% 16.26% 0.99 2.52% 1.02 1.60
Business & Consumer Ser 165 1.07 30.31% 8.32% 0.87 2.95% 0.89 2.39
Cable TV 14 1.11 60.17% 14.55% 0.77 1.11% 0.78 3.44
Chemical (Basic) 43 1.37 61.09% 6.66% 0.94 5.60% 0.99 1.30
Chemical (Diversified) 6 1.85 78.66% 11.89% 1.17 4.06% 1.21 1.35
Chemical (Specialty) 94 1.14 28.53% 11.01% 0.94 3.08% 0.96 2.09
Coal & Related Energy 22 1.40 79.69% 0.97% 0.87 16.68% 1.05 0.62
Computer Services 106 1.20 44.65% 8.92% 0.90 5.42% 0.95 1.28
Computers/Peripherals 48 1.75 15.49% 6.21% 1.57 4.51% 1.64 3.23
Construction Supplies 44 1.36 40.14% 15.82% 1.05 5.03% 1.10 1.68
Diversified 23 1.40 31.16% 6.68% 1.14 8.99% 1.25 2.45
Drugs (Biotechnology) 503 1.43 14.58% 0.61% 1.29 6.99% 1.39 7.33
Drugs (Pharmaceutical) 267 1.36 14.93% 1.36% 1.22 4.76% 1.29 5.44
Education 35 1.61 33.68% 6.56% 1.28 5.47% 1.36 2.59
Electrical Equipment 113 1.44 21.00% 3.94% 1.25 4.51% 1.31 2.56
Electronics (Consumer & O 20 1.28 20.67% 5.45% 1.10 11.72% 1.25 0.91
Electronics (General) 153 1.15 18.24% 6.65% 1.01 5.46% 1.07 1.99
Engineering/Construction 54 1.60 39.27% 9.44% 1.23 6.88% 1.33 0.70
Entertainment 107 1.33 20.07% 1.93% 1.16 3.57% 1.20 4.72
Environmental & Waste S 82 1.27 31.69% 4.14% 1.02 2.25% 1.05 3.08
Farming/Agriculture 31 0.89 62.39% 5.91% 0.61 2.98% 0.63 1.08
Financial Svcs. (Non-bank 232 0.73 882.21% 14.42% 0.10 2.14% 0.10 30.15
Food Processing 88 0.88 37.38% 6.44% 0.68 1.89% 0.70 2.30
Food Wholesalers 17 0.87 43.95% 7.79% 0.65 0.75% 0.66 0.60
Furn/Home Furnishings 35 1.08 48.35% 8.15% 0.79 3.45% 0.82 1.11
Green & Renewable Ener 22 1.07 112.64% 1.52% 0.58 2.10% 0.59 9.94
Healthcare Products 242 1.04 13.25% 3.52% 0.95 3.37% 0.98 5.94
Healthcare Support Servi 128 1.17 39.91% 8.26% 0.90 4.81% 0.95 0.69
Heathcare Information a 129 1.24 14.67% 3.84% 1.12 2.70% 1.15 5.41
Homebuilding 32 0.83 44.20% 17.02% 0.62 6.39% 0.66 1.21
Hospitals/Healthcare Facil 36 1.22 130.18% 7.50% 0.62 1.18% 0.63 1.63
Hotel/Gaming 65 1.26 56.41% 12.52% 0.89 3.05% 0.91 3.78
Household Products 127 1.03 17.17% 5.93% 0.91 2.62% 0.94 3.74
Information Services 69 1.09 11.89% 8.34% 1.00 2.70% 1.03 9.17
Insurance (General) 19 0.74 41.41% 16.10% 0.57 4.40% 0.59 1.95
Insurance (Life) 24 1.08 97.50% 14.78% 0.62 15.14% 0.73 1.36
Insurance (Prop/Cas.) 51 0.68 26.36% 14.03% 0.57 3.86% 0.59 1.49
Investments & Asset Ma 192 1.03 54.41% 7.47% 0.73 15.18% 0.86 4.58
Machinery 120 1.25 23.86% 12.32% 1.06 3.71% 1.10 2.58
Metals & Mining 92 1.31 38.21% 1.96% 1.02 6.27% 1.09 2.04
Office Equipment & Servi 22 1.65 54.88% 15.29% 1.17 6.32% 1.24 1.20
Oil/Gas (Integrated) 4 1.30 26.82% 24.54% 1.08 3.10% 1.12 1.61
Oil/Gas (Production and E 269 1.48 56.39% 3.70% 1.04 3.51% 1.08 2.71
Oil/Gas Distribution 24 1.02 89.69% 5.46% 0.61 1.63% 0.62 4.44
Oilfield Svcs/Equip. 136 1.58 48.65% 5.06% 1.16 5.06% 1.22 0.74
Packaging & Container 24 0.99 65.94% 12.18% 0.66 2.29% 0.68 1.59
Paper/Forest Products 15 1.54 39.45% 10.41% 1.19 5.46% 1.25 0.77
Power 52 0.58 72.51% 13.27% 0.37 1.44% 0.38 4.11
Precious Metals 83 1.44 18.37% 1.75% 1.26 5.31% 1.33 5.05
Publishing & Newspapers 31 1.07 67.57% 8.10% 0.71 6.38% 0.76 1.07
R.E.I.T. 234 0.68 84.38% 1.92% 0.42 1.60% 0.43 13.48
Real Estate (Development 20 1.24 70.02% 2.19% 0.81 9.04% 0.89 5.37
Real Estate (General/Diver 12 1.63 45.43% 6.55% 1.22 18.91% 1.50 6.57
Real Estate (Operations & 57 0.93 58.80% 5.58% 0.65 4.13% 0.68 1.39
Recreation 63 0.90 33.68% 8.21% 0.72 4.52% 0.75 2.35
Reinsurance 2 0.82 29.01% 17.55% 0.67 12.62% 0.77 1.12
Restaurant/Dining 77 0.97 41.65% 6.57% 0.74 1.40% 0.75 4.26
Retail (Automotive) 26 1.33 72.87% 14.04% 0.86 0.79% 0.87 1.19
Retail (Building Supply) 17 1.36 25.71% 14.90% 1.14 1.03% 1.15 2.03
Retail (Distributors) 80 1.28 60.86% 11.96% 0.88 1.74% 0.89 1.40
Retail (General) 18 1.14 32.10% 15.49% 0.92 2.53% 0.95 0.88
Retail (Grocery and Food) 13 0.59 96.66% 12.78% 0.34 1.26% 0.35 0.49
Retail (Online) 70 1.23 12.87% 2.92% 1.12 3.24% 1.16 3.42
Retail (Special Lines) 89 1.03 70.57% 11.89% 0.67 2.41% 0.69 1.19
Rubber& Tires 4 0.98 178.03% 20.75% 0.42 7.11% 0.45 0.74
Semiconductor 72 1.29 11.80% 6.15% 1.18 4.44% 1.24 5.38
Semiconductor Equip 39 1.28 12.17% 9.71% 1.17 6.54% 1.25 4.00
Shipbuilding & Marine 10 2.17 55.71% 4.89% 1.53 2.44% 1.57 1.98
Shoe 11 0.87 8.80% 13.98% 0.81 2.30% 0.83 3.55
Software (Entertainment) 86 1.29 3.80% 2.58% 1.25 2.58% 1.29 6.76
Software (Internet) 30 1.67 20.41% 1.23% 1.45 3.49% 1.50 7.64
Software (System & Appli 363 1.20 9.67% 2.60% 1.12 2.93% 1.15 8.77
Steel 32 1.62 46.97% 9.25% 1.20 6.89% 1.29 0.70
Telecom (Wireless) 18 1.14 131.19% 5.89% 0.58 3.49% 0.60 2.43
Telecom. Equipment 91 0.89 17.22% 4.31% 0.79 5.25% 0.84 3.50
Telecom. Services 67 1.05 79.19% 4.17% 0.66 1.35% 0.67 2.85
Tobacco 17 1.68 28.56% 11.48% 1.38 2.98% 1.43 5.19
Transportation 18 1.31 54.23% 12.76% 0.93 3.08% 0.96 1.35
Transportation (Railroads 8 2.24 26.24% 12.24% 1.87 1.05% 1.89 6.32
Trucking 33 1.37 57.88% 16.73% 0.96 8.09% 1.04 1.93
Utility (General) 16 0.28 66.95% 13.45% 0.19 0.35% 0.19 4.26
Utility (Water) 17 0.68 35.75% 10.01% 0.54 4.52% 0.57 8.83
 Inputs
Book value of debt $23,221.00
Interest expense 893 (Gross interest expense, if you can get it)
Average maturity 12.45
Pre-tax cost of debt 3.50%
Book interest rate = 3.85%
Estimated market value of debt $24,019.94
 Operating Lease Converter
Operating lease expenses are really financial expenses, and should be treated as such. Accounting standards allow th
be treated as operating expenses. This program will convert commitments to make operating leases into debt and
adjust the operating income accordingly, by adding back the imputed interest expense on this debt.

Inputs
Operating lease expense in current year = $ 646.00
Operating Lease Commitments (From footnote to financials)
Year Commitment ! Year 1 is next year, ….
1 $ 646.00
2 $ 444.00
3 $ 444.00
4 $ 206.50
5 $ 206.50
6 and beyond $ 539.00

Pre-tax Cost of Debt = 3.00%

From the current financial statements, enter the following

Reported Operating Income (EBIT) = $ 10,000.00 ! This is the EBIT reported in the current income statement
Reported Debt = $ 25,000.00 ! This is the interest-bearing debt reported on the balance sheet
Reported Interest Expenses = $ 2,000.00
Output
Number of years embedded in yr 6 estimate = 1 ! I use the average lease expense over the first five years
to estimate the number of years of expenses in yr 6
Converting Operating Leases into debt
Year Commitment Present Value
1 $ 646.00 $ 627.18
2 $ 444.00 $ 418.51
3 $ 444.00 $ 406.32
4 $ 206.50 $ 183.47
5 $ 206.50 $ 178.13
6 and beyond $ 539.00 $ 451.40 ! Commitment beyond year 6 converted into an annuity for ten years
Debt Value of leases = $ 2,265.03
 verter
Accounting standards allow them to
perating leases into debt and
e on this debt.

urrent income statement

ported on the balance sheet

er the first five years

xpenses in yr 6

uity for ten years

Country 2019
Afghanistan 20.00%
Albania 15.00%
Algeria 26.00%
Andorra 10.00%
Angola 30.00%
Anguilla 0.00%
Antigua and Barbuda 25.00%
Argentina 30.00%
Armenia 20.00%
Aruba 25.00%
Australia 30.00%
Austria 25.00%
Azerbaijan 20.00%
Bahamas 0.00%
Bahrain 0.00%
Bangladesh 25.00%
Barbados 5.50%
Belarus 18.00%
Belgium 29.00%
Benin 30.00%
Bermuda 0.00%
Bolivia 25.00%
Bonaire, Saint Eustatiu 25.00%
Bosnia and Herzegovin 10.00%
Botswana 22.00%
Brazil 34.00%
Brunei Darussalam 18.50%
Bulgaria 10.00%
Burkina Faso 28.00%
Burundi 30.00%
Cambodia 20.00%
Cameroon 33.00%
Canada 26.50%
Cayman Islands 0.00%
Chile 27.00%
China 25.00%
Colombia 33.00%
Congo (Democratic Repu 35.00%
Costa Rica 30.00%
Croatia 18.00%
Curacao 22.00%
Cyprus 12.50%
Czech Republic 19.00%
Denmark 22.00%
Djibouti 25.00%
Dominica 25.00%
Dominican Republic 27.00%
Ecuador 25.00%
Egypt 22.50%
El Salvador 30.00%
Estonia 20.00%
Ethiopia 30.00%
Fiji 20.00%
Finland 20.00%
France 31.00%
Gabon 30.00%
Gambia 31.00%
Georgia 15.00%
Germany 30.00%
Ghana 25.00%
Gibraltar 10.00%
Greece 28.00%
Grenada 28.00%
Guatemala 25.00%
Guernsey 0.00%
Honduras 25.00%
Hong Kong SAR 16.50%
Hungary 9.00%
Iceland 20.00%
India 30.00%
Indonesia 25.00%
Iraq 15.00%
Ireland 12.50%
Isle of Man 0.00%
Israel 23.00%
Italy 24.00%
Ivory Coast 25.00%
Jamaica 25.00%
Japan 30.62%
Jersey 0.00%
Jordan 20.00%
Kazakhstan 20.00%
Kenya 30.00%
Korea, Republic of 25.00%
Kuwait 15.00%
Kyrgyzstan 10.00%
Latvia 20.00%
Lebanon 17.00%
Libya 20.00%
Liechtenstein 12.50%
Lithuania 15.00%
Luxembourg 24.94%
Macau 12.00%
Macedonia 10.00%
Madagascar 20.00%
Malawi 30.00%
Malaysia 24.00%
Malta 35.00%
Mauritius 15.00%
Mexico 30.00%
Moldova 12.00%
Monaco 33.00%
Mongolia 25.00%
Montenegro 9.00%
Morocco 31.00%
Mozambique 32.00%
Myanmar 25.00%
Namibia 32.00%
Netherlands 25.00%
New Zealand 28.00%
Nicaragua 30.00%
Nigeria 30.00%
Norway 22.00%
Oman 15.00%
Pakistan 30.00%
Palestinian Territory 15.00%
Panama 25.00%
Papua New Guinea 30.00%
Paraguay 10.00%
Peru 29.50%
Philippines 30.00%
Poland 19.00%
Portugal 21.00%
Qatar 10.00%
Romania 16.00%
Russia 20.00%
Rwanda 30.00%
Saint Kitts and Nevis 33.00%
Saint Lucia 30.00%
Saint Vincent and the 30.00%
Samoa 27.00%
Saudi Arabia 20.00%
Senegal 30.00%
Serbia 15.00%
Sierra Leone 30.00%
Singapore 17.00%
Sint Maarten (Dutch par 35.00%
Slovakia 21.00%
Slovenia 19.00%
Solomon Islands 30.00%
South Africa 28.00%
Spain 25.00%
Sri Lanka 28.00%
St Maarten 35.00%
Sudan 35.00%
Suriname 36.00%
Swaziland 27.50%
Sweden 21.40%
Switzerland 18.00%
Syria 28.00%
Taiwan 20.00%
Tanzania 30.00%
Thailand 20.00%
Trinidad and Tobago 35.00%
Tunisia 25.00%
Turkey 22.00%
Turkmenistan 20.00%
Turks and Caicos Islan 0.00%
Uganda 30.00%
Ukraine 18.00%
United Arab Emirates 55.00%
United Kingdom 19.00%
United States 27.00%
Uruguay 25.00%
Uzbekistan 7.50%
Vanuatu 0.00%
Venezuela 34.00%
Vietnam 20.00%
Yemen 20.00%
Zambia 35.00%
Zimbabwe 25.00%
Africa average 28.24%
Americas average 27.21%
Asia average 21.09%
EU average 21.12%
Europe average 19.35%
Global average 23.79%
Latin America average 27.24%
North America average 26.75%
Oceania average 28.43%
OECD average 23.35%
South America average 27.24%