The Definition of Market Value Added (MVA)
Market Value Added (MVA) is a calculation that measures the difference between the current market value of a company and the capital contributed to the company by its investors. The market value added is the current market value of company debt and equity, less the total of all capital claims held against the company. Generally speaking, the higher the market value added the better as it demonstrates the creation of wealth for the company’s shareholders. Negative market value added indicates an erosion of wealth.
What is the Difference Between Market Value Added and Economic Value Added?
In contrast to the market value added, Economic Value Added (also known as “economic profit”) measures company financial performance by deducting the company’s cost of capital from its operating profits to provide an indication of the residual wealth created for investors. Economic value added is determined by making corrective adjustments to GAAP accounting.
Calculate the Market Value Added
The formula for market value added can be written as:
MVA = Company Market Value – Invested Capital
A company’s invested capital is a measure of the sum of cash investments that shareholders and debt holders have made in the company.
It is worth noting that market value added cannot be calculated at a company division level and is not applicable to privately-held companies.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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