Beta is a measure of risk, if the stock market goes up by 10 and my profits go up by 15 then my profits are quite volatile Because if the stock market goes down 10, my stock profits could also go down by 15 My profits are more volatile than the market, my profits are more risky than the market The opposite is also true, if the stock market goes up 10 and my profits go up 2 And the stock market goes down 10 and my profits go down 2 Then my profits are very stable, they're very low in risk We then ask ourselves, where does that risk come from? Unlevered beta, that comes from two things It firstly comes from the industry or the asset that the company owns We might think that an airline industry or the hotel industry would be more risky I.e. the profits will be more volatile than those of a bread manufacturer or a potato manufacturer The second source of risk comes from the effect of financial leverage Because if I've got a lot of debt, then when the stock market rises my profits really rise Because debt exaggerates returns But at the same time, if the stock market goes down because again debt exaggerates returns So we need to put these two risk factors together to get to our Beta So the unlevered beta is driven by the riskiness of the operations (the industry) Whereas the equity beta (when they've both been put together) reflects the risk to equity holders of both the riskiness of operations and a financial leverage Now the formula on screen, seems to suggest you can just multiply the two together to get to your equity beta Sadly not quite that easy but here's out formula To get to your levered beta i.e. your equity beta. You take your unlevered beta And you times it by one plus open brackets, one minus tax close brackets Times by debt over equity Debt and equity should be using market values and the tax should be your marginal tax rate So that's if you want to take your unlevered beta and find out the levered beta or the equity beta However you can go in the opposite direction To go in the opposite direction, you take your levered beta, divide it by one plus open brackets, one minus the marginal tax rate Close brackets, times debt over equity And that will get you your unlevered beta So you might notice that those formulas are very similar One of them multiplies brackets by beta unlevered and the other divides into the levered beta