Market value added

Market value added

Market Value Added (MVA) is the difference between the current market value of a firm and the capital contributed by investors. If MVA is positive, the firm has added value. If it is negative, the firm has destroyed value. The amount of value added needs to be greater than the firm's investors could have achieved investing in the market portfolio, adjusted for the leverage (beta coefficient) of the firm relative to the market.

The formula for MVA is:

MVA = V - K \,

where:

  • MVA is market value added
  • V is the market value of the firm, including the value of the firm's equity and debt
  • K is the capital invested in the firm

MVA is the present value of a series of EVA values. MVA is economically equivalent to the traditional NPV measure of worth for evaluating an after-tax cash flow profile of a project if the cost of capital is used for discounting.

References

  • G. Bennett Stewart III, The Quest for Value (HarperCollins, 1991).

See also

v · d · eCorporate finance and investment banking
Capital structure Met life tower crop.jpg
Transactions
(terms / conditions)
Valuation



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