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
- MVA does not take into account the opportunity costs of the invested
capital.
- MVA does not take into account the interim cash returns to shareholders.
- 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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Corporate Valuation for Businesses
Corporate Valuation, Book Value, Market Value, Intrinsic Value, Fundamental Value, M&A, VBM, Fundamental Investing (...)
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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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