Shareholder And Mva

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shareholder and mva by jim

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Shareholder And Mva

  1. 1. INTRODUCTION TO SHAREHOLDER VALUE AND MVA
  2. 2. Shareholder value <ul><li>Shareholder value is a business buzz term, which implies that the ultimate measure of a company's success is to enrich shareholders. </li></ul>
  3. 3. <ul><li>The term used in several ways: </li></ul><ul><li>To refer to the market capitalization of a company </li></ul><ul><li>To refer to the concept that the primary goal for a company is to increase the wealth of its shareholders (owners) by paying dividends and/or causing the stock price to increase </li></ul>
  4. 4. <ul><li>Two types are there </li></ul><ul><li>MVA(MARKET VALUE ADDED) </li></ul><ul><li>EVA(ECONOMIC VALUE ADDED) </li></ul>
  5. 5. MVA <ul><li>A calculation that shows the difference between the market value of a company and the capital contributed by investors. </li></ul><ul><li>In other words, it is the sum of all capital claims held against the company plus the market value of debt and equity. </li></ul><ul><li>MVA = total market value - total capital supplied. </li></ul>
  6. 6. <ul><li>The higher the MVA, the better. A high MVA indicates the company has created substantial wealth for the shareholders. A negative MVA means that the value of management's actions and investments are less than the value of the capital contributed to the company by the capital market. </li></ul>
  7. 7. Example <ul><li>To illustrate MVA as a measure of financial performance, it is helpful to consider the performance of a healthcare organization, Columbia/HCA Healthcare in 1994, Columbia/HCA Healthcare's total market value was $15.8 billion, while investors had supplied $9.4 billion in capital. Thus, Columbia/HCA's MVA was $15.8 billion - $9.4 billion = $6.4 billion. The $6.4 billion represents the difference between the funds, including retained earnings, that Columbia/HCA's equity investors put into the corporation since its founding and the cash value they could get by selling the business. </li></ul>

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