Hong Life CalculatorsUnderstanding the market value added (MVA) calculator — concept and principle
Market value added (MVA) shows how much wealth a company has created for its investors: the difference between what the market says the firm is worth and the capital that shareholders and lenders have put in. Analysts use it alongside economic value added (EVA) to judge whether management has used capital well.
How it is calculated
- Market value of the firm = market capitalization + market value of debt (book debt is used if you enter 0).
- Invested capital = book value of interest-bearing debt + book value of shareholders' equity.
- MVA = market value of the firm − invested capital.
- Market value ÷ invested capital and price-to-book (market cap ÷ book equity) are shown as ratios.
The principle
Investors hand a company capital. If the company earns more than the cost of that capital, the market values it above the amount invested and MVA is positive. If it earns less, the market values it below the capital invested and MVA is negative. In theory MVA equals the present value of all expected future EVA, which links a company's share price to its ability to earn returns above its cost of capital. If debt trades near book value, MVA is simply market cap minus book equity.
Worked example
Default inputs: market cap 1,200,000,000 USD, market value of debt 0 (use book), book debt 300,000,000 USD, book equity 700,000,000 USD.
- Market value of the firm = 1,200 m + 300 m = 1,500,000,000 USD.
- Invested capital = 300 m + 700 m = 1,000,000,000 USD.
- MVA = 1,500 m − 1,000 m = 500,000,000 USD: Value created for investors.
- Market value ÷ invested capital = 1.5×; price-to-book = 1,200 ÷ 700 ≈ 1.71.
| Market value of equity (market capitalization) | Market value added (MVA) |
|---|---|
| 3e+08 | -$400,000,000 |
| 6e+08 | -$100,000,000 |
| 9e+08 | $200,000,000 |
| 1.2e+09 | $500,000,000 |
| 1.5e+09 | $800,000,000 |
| 1.8e+09 | $1,100,000,000 |
| 2.4e+09 | $1,700,000,000 |
How to read the result
Positive and growing MVA suggests the company is investing in projects that earn more than their cost of capital. Because MVA uses share prices, it rises and falls with the whole market, so compare it over time and with peers. A large company can have a large MVA in absolute terms; the ratio to invested capital makes companies of different size comparable.
Common mistakes
- Using total liabilities instead of interest-bearing debt.
- Ignoring accounting distortions, such as goodwill write-offs or expensed R&D, that understate capital invested.
- Treating a market-driven jump in MVA as proof of good management.
- Comparing MVA across firms of very different size without a ratio.
Frequently asked questions
What is the difference between MVA and EVA?
EVA measures one year's profit above the cost of capital; MVA reflects the market's view of all future EVA.
Can MVA be negative?
Yes, when the market values the firm below the capital invested in it.
Who developed MVA?
It was popularised by Stern Stewart & Co. together with EVA.
Sources: Stewart, G. B. (1991). The Quest for Value. HarperBusiness · Brigham & Ehrhardt, Financial Management: Theory and Practice (MVA and EVA)