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MARKET VALUE ADDED (MVA)Group 10Aditi Chavan (F09)Rohan Doshi (F11)Akshay Gharat (F15)Aditya Thakare (F49)Niyati Vora (F51)Priyanka Patil (F76)Nikhil Rao (F77)

MVA

Measure of wealth of company has created for its investors

Cumulative measure of corporate performance that looks at how much a companys stock has added to (or taken out of) investors pocketbooks over its lift and compares it with the capital those same investors put into the firm

Company has objective to maximize MVARepresentation

MVA

It is difference between current market value of firm and capital contributed by investors

If MVA > 0 Firm has added valueIf MVA < 0 Firm has destroyed value

Amount of value added needs to be greater than the firms investors could have achieved investing in market portfolio, adjusted for the leverage of the firm relative to market

MVA

MVA = (Shares outstanding * Stock price ) + Market value of preferred stock + Market value of debt Total Capital

Example

Calculate the market value added using the following information: Total number of shares issued20,000,000, Number of shares held as treasury stock1,100,000, Current share price35.5, Total invested capital plus retained earnings$453,503,000, Cost of treasury stock$39,050,000 Assume that the market value of debt equals its book value.

Example

SolutionNumber of Shares Outstanding = 20,000,000 1,100,000 = 18,900,000Market Capitalization = 18,900,000 $35.5 = $670,950,000Total Shareholders' Equity= Total Invested Capital + Retained Earnings Cost of Treasury Stock= $453,503,000 $39,050,000 = $414,453,000Market Value Added for Shareholders = $670,950,000 $414,453,000 = $256,497,000Market Value Added for all Investors= Market Value of Equity Total Shareholders' Equity + Market Value of Debt Book Value of Debt= $256,497,000 + 0 = $256,497,000THANK YOU