What does Unlevered Beta indicate?

Unlevered Beta, also known as asset beta, represents the beta of a firm assuming it has no debt in its capital structure. This metric is essential because it provides an insight into the intrinsic business risk of a company's assets without the influence of leverage. By stripping away the effects of debt, Unlevered Beta focuses solely on the operational risk of the firm, allowing investors to evaluate the organization's risk in comparison to others in the same industry or to assess the risk of new investment opportunities without the added variable of debt load.

In contrast, the other options do not accurately capture the specific definition of Unlevered Beta. For example, a firm's beta with all debts included refers to Levered Beta, which does account for the financial risk introduced by debt financing. The risk associated with the firm's debts pertains to the impact that leverage has on overall risk but doesn’t reflect Unlevered Beta’s purpose. Lastly, while the average beta of the industry could provide context for risk comparisons, it is not directly related to the concept of Unlevered Beta itself.