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Geared and ungeared beta6/7/2023 Particularly in decisions involving acquisitions, return on capital employed is a better measure as ultimately if you take over control of company then you will determine the level of debt to equity with which you wish to finance the operation. It is similar to reason why return on capital employed is generally better metric of comparison between companies than return on equity because a highly geared company will show better return on equity purely based on its decision to debt finance it’s operations. Excluding debt component is useful in this context to get purer idea of risk. Beta is probably best thought of as a measure of volatility for a sector. It’s simpler than it sounds but harder to explain without a question. Mrjonbain wrote:In exam terms and in real world terms, a lot of this involves de-gearing and then re-gearing in order to ultimately get appropriate cost of finance for a given project.
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