Beta: how to find one!

Another course completed and another post for the blog just suggests itself naturally.

This week a delegate wanted to know how to find the weighted average cost of capital for his company: not just an academic view but a real WACC value. One of the aspects of WACC that is often a bit tricky is to find the value of Beta. It’s easy to find Beta values for listed companies in the UK, Europe and the USA but this company is in Saudi Arabia and I could not find the Beta value on the Saudi stock exchange web site.

What I did was to go and find a sample of the changes in the index of the entire stick exchange and the changes in the price of the share. I found the information I needed at bloomberg.com and here is the table I prepared in the Excel file:

savola_1

 

All we need to do then is to create this formula: =SLOPE(C5:C12,B5:B12) … in cell E16 and the estimate of Beta this gives is 0.8314 … with a market Beta of 1, this tells us that Savola is rather a conservative company as far as the Saudi stock market is concerned.

If I have time over the next week I will try to expand this table to 70 prices and changes to give us a more reliable estimate of Savola’s Beta.

Watch this space!