Would a technology company or a consumer conglomerate have a higher Beta?
Answer
Let’s say our examples are Salesforce and General Mills. Salesforce would have a higher beta as their SaaS-driven revenue model can be considered more risky than General Mills’ revenue model, which is built on enormous barriers to entry and a stable of household names.
Why this matters to bankers
It’s crucial to understand the drivers of Beta and apply that to your client (if they’re not public). This type of question means that you can implicitly understand what beta should be before calculating it, which should reduce errors.