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Beta is a securities term tossed around without much thought. How are investors impacted by beta?

Jul 31st, 2015

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Beta can impact a company's share valuation.

Beta is a key component for the capital asset pricing model (CAPM), which is used to calculate cost of equity. Recall that the cost of capital represents the discount rate used to arrive at the present value of a company's future cash flows. All things being equal, the higher a company's beta is, the higher its cost of capital discount rate. The higher the discount rate, the lower the present value placed on the company's future cash flows

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Jul 31st, 2015

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