Market Value Added
What it is:
How it works/Example:
The formula used to find market value added is:
Market Value Added = Capital Invested-
Increasing MVA or increasing shareholder wealth is the primary goal of any business and the reason for its existence.
MVA ($1,000,000) + Capital invested ($1,000,000) =($2,000,000)
Why it matters:
This measures the performance of management. It also reflects the general market. Management has a part in it but not entirely. In a bull stock market, the amount contributed by management may even be negative, but the overall market may be driving the MVA into positive territory. This calculation does not take into consideration any cash payments that have been paid out to stockholders in the interim nor does it measure the opportunity costs in relation to alternative investments.