Question

As you know Beta: is a measure of volatility with the market, so I ask you , what are the factors that affect Beta, in other words what are the factors that increases the sensitivity to changes in the market?

Answer 1

Factors affecting beta are

1: Cyclical revenues: Higher the variability of revenues higher will be the volatility of the business.

2: Operating leverage: Higher the leverage, higher the risk and greater the beta.

3: Amount of Investment: Higher the investment in plant and machinery higher will be the operating leverage and hence higher will be the volatility.

4: Financial leverage: Greater the debt component in the capital structure higher will be the beta.