I´m trying to calculate the beta of a company that has high operating leverage . If I create a proxy for measuring the operating leverage, how can I make the proper adjustments to it´s final beta?

Question

anonymous · Answer

Can't you try to adjust it by using the company's P/E ratios and its share price performance? I think that is a better proxy, since those indicators tell you the risk profie of that company.

anonymous · Answer

You can use the unlevered beta, which takes leverage into consideration. http://www.investopedia.com/terms/u/unleveredbeta.asp#axzz1lLM4HYH9

anonymous · Answer

I agree with eversuhoshin, but the unleveraged beta has to be corrected for cash.

anonymous · Answer

The problem with unlevered beta is that it deals with financial leverage not specifically operational leverage. If the operational leverage is linked with promised payments, then only can unlevered beta be used because promised payments become a liability (short term debt).

Your best bet for now is to calculate operational leverage (% change in EBIT / % change in Sales).