Session 9: Bottom Up Betas

This session is a grind with numbers building on top of numbers. In specific, we looked at how to estimate the beta for not only a company but its individual businesses by building up to a beta, rather than trusting a single regression. With Disney, we estimated a beta for each of the five businesses it was in, a collective beta for Disney's operating businesses and a beta for Disney as a company (including its cash). If you got lost at some stage in the class, here are some of the ways you can get unlost:
1. Review the slides that we covered today.
2. Try the post-class test and solution. I think it will really help bring together some of the mechanical issues involved in estimating betas.
3. Read this short Q&A on bottom up betas which highlights the estimation process and some of its pitfalls:

[Goursworld]

In bottom up beta calculation for financial services companies like banks, will we consider debt in firm value as zero? Or we should consider the debt in firm value?

[mathiashauberglysgaard]

How would you use your method for a pharmaceutical company that has narrow business segments. Eg. diabetes and hemophilia. I've found it difficult to find comparable companies that only operates in one of them. Pharma companies tend to have a wide portfolio but all within the pharma business. So do you recommend just finding a beta for the pharma business or do you still recommend using the bottom up method?
Shukria