Market Value Added
(MVA)

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Market Value Added. Explanation of MVA.


What is Market Value Added? Description

Market Value Added (MVA) is the difference between the equity market valuation of a listed/quoted company and the sum of the adjusted book value of debt and equity invested in the company. In other words: it is the sum of all capital claims held against the company; the market value of debt and the market value of equity.


Calculation of Market Value Added. Formula

     

Market Value Added (MVA) = Market Value - Invested Capital.


The higher the Market Value Added (MVA) is, the better it is.  A high MVA indicates the company has created substantial wealth for the shareholders. MVA is equivalent to the present value of all future expected EVAs. Negative MVA means that the value of the actions and investments of management is less than the value of the capital contributed to the company by the capital markets. This means that wealth or value has been destroyed.


The aim of a firm should be to maximize MVA. The aim should not be to maximize the value of the firm, since this can be easily accomplished by investing ever-increasing amounts of capital.


Limitations of Market Value Added

  1. MVA does not take into account the opportunity costs of the invested capital.
  2. MVA does not take into account the interim cash returns to shareholders.
  3. Market Value Added (MVA) can not be calculated at divisional (Strategic Business Unit) level and can not be used for private held companies.

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Compare with Market Value Added: Economic Value Added  |  P/E Ratio  |  PEG Ratio  |  CFROI  |  EBIT  |  EBITDA  |  Cash Ratio  |  Current Ratio  |  Return on Equity  |  Fair Value  |  TSR  |  PRVit  |  Economic Margin  |  Relative Value of Growth


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