Definition of Hamada equation:
The Hamada equation is a fundamental analysis method of analyzing a firm's cost of capital as it uses additional financial leverage, and how that relates to the overall riskiness of the firm. The measure is used to summarize the effects this type of leverage has on a firm's cost of capital—over and above the cost of capital as if the firm had no debt.
A method used to determine how well a company handles the payment of liabilities.
Robert Hamada is a former professor of finance at the University of Chicago Booth School of Business. Hamada started teaching at the university in 1966 and served as the dean of the business school from 1993 to 2001. His equation appeared in his paper, "The Effect of the Firm's Capital Structure on the Systemic Risk of Common Stocks" in the Journal of Finance in May 1972.
How to use Hamada equation in a sentence?
- It draws upon the Modigliani-Miller theorem on capital structure.
- The Hamada equation is a method of analyzing a firm's cost of capital as it uses additional financial leverage.
- The higher the Hamada equation beta coefficient, the higher the risk associated with the firm.
Meaning of Hamada equation & Hamada equation Definition