Thursday, September 24, 2009

Market Value Added and Economic Value Added

What are the differences between Market Value Added and Economic Value Added? 

Market Value Added (MVA) is the difference between the fair market value of the company and actual amount of capital invested by the company's shareholders and bond holders.  MVA is calculated to know the FMV that a company has earned over the current accounting period. If Market Value Added is positive it will increase the book value of company stock.

Furthermore, Economic Value Added (EVA) measures the net economic profit earned by the com pay over the accounting period.  The Economic Value Added equation is considered one of the best performance measure by the investors. It is also termed as “Economic Profit”.

Calculate the Economic Value Added with this equation:

Economic Value Added (EVA) equation = Net Operating Profit – (Capital Invested * Cost of Capital) 

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