BSRM Steels

A presentation on EVA & MVA

Group MembersSyed Mahmudul Quader 1025075

Yusuful Haque0310128

Md Fazle Rabbi 0310025Ishtiaq Firdous Salam 1035008

EVAEconomic Value Added or EVA is an

estimate of a firm's economic profit which measures the performance for the

operations of the firm.It therefore tells one how much wealth the

company has created for providers of capital (meaning shareholders)

EVA = Net profit after tax – Opportunity cost

MVAis that value which has been created because of the quality of

management to earn superior rates of return above the required return for risk.

 MVA is basically the difference between what investors have put into the company and what they could get for the company if they sold it in today’s market. MVA is affected by the external forces by the market place.

If the value of MVA is positive it indicates that the management has increased the value of its capital, thus creating shareholder wealth.

If the value of MVA is negative it indicates that management has destroyed shareholders wealth.

MVA = The market value of equity + The book value of debt – All of the capital investors have provided

Year Stock Price (JAN)

Stock Price ( DEC)

Return on stock

Index Price ( JAN )

Index Price ( DEC)

Return on Index

2008 100 422 322% 2535 2795 10%

2009 422 996 136% 2795 4535 63%

2010 996 2100 110% 4535 8290 82%

Beta = Sum1/sum= -3.17

Year Stock Price (JAN)

Deviation

DSE Return

Deviation

Index Price ( DEC)

Return on Index

2008

3.22 1.33 .1025 -0.4125 -0.5486 0.17

2009

1.36 -.53 .6225 0.1075 -0.0569 0.01

2010

1.10 -.79 .8225 0.3075 -0.2429 0.09

Avg=1.89

Avg= 0.515 Sum1= -0.858 sum=.27

Total debt, b = 10099mnTotal equity, s= 2134mnEarnings after tax = 964mnTotal Capital = 2134mnTotal Capital contributed = 12234mnRisk Free rate, R(f) = 6.25% = .0625Interest rate, r(b) = 12%

R(wacc) = (s/s+b) * r(s) + ( b/b+s) * r(b) * ( 1- Tc)r(s) =R(f) + Beta * [ R(M) – R(f) ]

Calculation of EVAExpected rate of return : -137 %Weighted Average cost of capital = -16%

EVA = Earning after tax – Weighted average cost of capital * Total Capital

= 964,885,985 – (-16% * 2,134,875,596)= 1220mn

EVA = Net profit after tax – Opportunity costOpportunity cost = Total capital * Percentage of

Index Return=1120mn

MVA Calculation

MVA = the market value of equity + book value of debt – all the capitals have invested= 6.8355 * 10^10+ 10,099,221,899 – 12,234,097,495 = 6.6 * 10^10 = 66220 mn

EVA vs MVAEVA and MVA are both equally important

depending on who you areCompany managers/ board of directors to

them EVA is important as they want to see the economic performance of their company in a given time

On the other hand general investors to them MVA is more important than EVA..