How is MVA calculated?
The MVA formula:
MVA = Market Value - Capital Value
What is the relationship between MVA and Economic Value Added (EVA)?
Market value added is the present value of any future EVAs.
How is EVA calculated?
EVA formula:
EVA = after tax net operating profit - weighted average cost of capital (WACC) x capital
MVA is the same as calculating net present value of after tax earnings when WACC is utilized for the purpose of discounting.
The greater the market value added the better – this means that the company generates high value for its stakeholders. When MVA is a negative value, this means that the company creates market value which is less than the value of the capital invested.
On the other hand, EVA calculates the company’s value beyond the required return on investments. In simple terms, the value added should exceed the cost of capital employed.
