unlevered

Unlevered is a financial term describing something that is not financed with debt or not affected by leverage. In corporate finance, unlevered metrics, or figures calculated as if the firm had no debt, are used to isolate the core, business-related aspects of a company from its capital structure.

One common use is unlevered beta, also called the asset beta. This measures the systematic risk of a company’s assets independent of how those assets are financed. It allows comparison of business risk across firms with different debt levels. The relationship between levered beta and unlevered beta is beta_L = beta_U × [1 + (1 − tax) × D/E], so beta_U = beta_L / [1 + (1 − tax) × D/E].

Unlevered free cash flow to the firm (UFCF) represents the cash generated by a company’s operations after taxes and reinvestment, but before any financing decisions. UFCF is used in discounted cash flow valuation to estimate enterprise value, since it reflects cash available to all providers of capital rather than to equity holders alone. Levered cash flow to equity, by contrast, includes debt service and financial risk.

Applications and caveats: Unlevered measures help compare firms with different leverage and support capital-structure analysis. They exclude debt-related tax shields and financial risk, which can be both informative (for assessing pure business risk) and limiting (for comprehensive valuation). The term is often used interchangeably with unleveraged, though some contexts distinguish between the two.