Aswath Damodaran 154
Using comparable firms to estimate beta for Bookscape
Assume that you are trying to estimate the beta for a independent bookstore in
New York City.
Firm Beta Debt Equity Cash
Books-A-Million 0. 532 $ 45 $ 45 $ 5
Borders Group 0. 844 $ 182 $ 1 , 430 $ 269
Barnes & Noble 0. 885 $ 300 $ 1 , 606 $ 268
Courier Corp 0. 815 $ 1 $ 285 $ 6
Info Holdings 0. 883 $ 2 $ 371 $ 54
John Wiley &Son 0. 636 $ 235 $ 1 , 662 $ 33
Scholastic Corp 0. 744 $ 549 $ 1 , 063 $ 11
Sector 0. 7627 $ 1 , 314 $ 6 , 462 $ 645
Unlevered Beta = 0. 7627 /( 1 +( 1 -. 35 )( 1314 / 6462 )) = 0. 6737
Corrected for Cash = 0. 6737 / ( 1 – 645 /( 1314 + 6462 )) = 0. 7346
This is the bottom-up beta for a private book store. The beta can be estimated
assuming that the business has the same or different leverage as comparable
firms. (All you have for private firms is book value debt and equity)
