SHAREHOLDERS VALUE ADDED and Market Value Added and Economic vallue added

1. Shareholder Value Added (SVA) is a financial metric
that measures the value a company has added for its
shareholders over time. It is calculated by subtracting
the cost of capital from the net operating profit after
taxes (NOPAT).

2.  SVA=NOPAT−CC
 Here:
 SVA=Sahreholders Value Added
 NOPAT= Net Operating profit After Tax
 CC= Cost of Capital

4.  NOPAT=EBIT×(1−T)
 Where:
 EBIT (Earnings Before Interest and Taxes) is the
company's operating profit.
 T is the corporate tax rate.

5.  Cost of Capital=Capital Employed×Weighted Average
Cost of Capital (WACC)
 Where:
 Capital Employed is the total amount of capital used
by the company (Equity + Debt).
 WACC is the weighted average cost of capital,
calculated as follows:
 WACC=Weight of Equity×Cost of Equity+Weight of Debt×Cost of Debt×(1−T)
Weight of Equity+Weight of Debt

6.  SVA=NOPAT−Cost of Capital

7.  Suppose a company has:
 EBIT = $500,000
 Tax rate (T) = 30%
 Equity = $1,000,000
 Debt = $500,000
 Cost of Equity = 10%
 Cost of Debt = 5%

8.  NOPAT=EBIT×(1−T)
 NOPAT=$500,000×(1−0.30)=$350,000
 NOPAT=$500,000×(1−0.30)=$350,000

9.  WACC=Weight of Equity×Cost of Equity+Weight of Debt×Cost of Debt×(1−T)
Weight of Equity+Weight of Debt
 WACC=$1,000,000×0.10+$500,000×0.05×(1−0.30)
 $1,000,000+$500,000
 WACC= $100,000+$22,500
 $1,500,000
=0.0833 or 8.33%

10.  SVA=NOPAT−Cost of Capital
 SVA=$350,000−($1,500,000×0.0833)
 SVA= $350,000−$124,950
 SVA=$225,050
 So, the Shareholder Value Added (SVA) for this example is
$225,050. This positive value indicates that the company has
added value for its shareholders.


11.  Market Value Added (MVA) is a financial
metric used in financial statement analysis to
assess the value a company has added to its
shareholders' wealth. It is calculated by taking
the difference between the market value of a
company's equity and the total capital invested
in it.

12.  MVA=Market Value of Equity−Total Capital Invested

13.  This is the total market value of a company's
outstanding shares of stock. It is calculated by
multiplying the current market price per share
by the total number of outstanding shares.
 MVE=Current Market Price per Share × Number of Outstanding Shares

14.  This includes the total capital that has been
invested in the company, which is the sum of
equity and debt. The formula for total capital
is:
 Total Capital= Equity + Debt

16.  MVE = Current Market Price of Share X No. of shares outstanding
 MVE = $50 X 1,000,000 = $50,000,000
 Next, calculate the total capital:
 Total Capital =Equity + Debt
 = $30,000,000 + $20,000,000
 = $50,000,000

17.  MVA=Market Value of Equity−Total Capital Invested
 MVA = $50,000,000 - $50,000,000 = $0
 the Market Value Added is $0, indicating that
the market value of equity is equal to the total
capital invested. A positive MVA would
suggest that the company has added value for
its shareholders, while a negative MVA would
imply the opposite.

18.  ECONOMIC VALUE ADDED

19.  Economic Value Added (EVA) is a financial
performance metric that measures the
difference between a company's net operating
profit after taxes (NOPAT) and the opportunity
cost of its capital. EVA is considered a useful
tool for financial statement analysis as it
provides insight into how well a company is
utilizing its capital to generate returns.

20.  The formula for Economic Value Added is:
 EVA=NOPAT−(Capital ∗ WACC)
 where:
 NOPAT (Net Operating Profit After Taxes) is
the company's operating profit after taxes.
 Capital is the total capital employed by the
company.
 WACC (Weighted Average Cost of Capital) is
the weighted average cost of the company's
debt and equity.

21. NOPAT is a company's operating profit adjusted
for taxes. It represents the profit generated from a
company's core operations.
 NOPAT=OperatingIncome×(1−TaxRate)

22.  Capital employed is the total amount of capital
used by a company to generate profits. It
includes both equity and debt. The formula for
capital employed is:
 Capital=Equity + Debt − Cash
 where Equity is the shareholders' equity, Debt
is the total debt, and Cash is the cash and cash
equivalents.

23.  WACC represents the average cost of the
company's capital, taking into account the cost of
both debt and equity. The formula for WACC is:
 WACC=(E × Re)+(D × Rd×(1−TaxRate)
V V
 where
 E is the market value of equity,
 D is the market value of debt,
 V is the total market value of equity and debt,
 Re is the cost of equity,
 Rd is the cost of debt, and the
 Tax rate is the corporate tax rate.

24.  Let's say Company ABC has an NOPAT of $5
million, total equity of $20 million, total debt of
$10 million, and a cash balance of $2 million.
The corporate tax rate is 30%, the cost of equity
is 10%, and the cost of debt is 5%.

25.  Ca[pital Employed = Equity + Debt - Cash
 Capital Employed = 20M + 10M - 2M =28M
 WACC=(E × Re)+(D × Rd×(1−TaxRate)
V V
= (20M/28M X0.10) + (10M/28M X 0.05 X (1 –
0.30)
= (0.071M + 0.018 M) + (0.018M X 0.70)
= 0.089 M + 0.0126M
=0.1016 M (OR ) 101600


26.  EVA=NOPAT−(Capital∗WACC),
= 5M –(28M *0.1016M)
= 5M -2.8448 M
= 2.1552 M
This will give you the Economic Value Added for
Company ABC. A positive EVA indicates that the
company is generating returns above the cost of
capital, while a negative EVA suggests that the
company is not covering its capital costs.

27.  Financial statement analysis involves the
examination of a company's financial
statements to assess its financial health and
performance. Wealth generation and
distribution are key aspects of financial
statement analysis, and they can be understood
through various financial metrics and
statements. Here's how wealth generation and
distribution are reflected in financial
statements:

28.  Wealth Generation:
 The income statement, also known as the profit
and loss statement, provides information about
a company's revenues, expenses, and profits
over a specific period. Positive net income
indicates wealth generation, as it represents the
profit earned by the company.

29.  Wealth Distribution:
 Dividends paid to shareholders are a form of
wealth distribution. The income statement does
not explicitly show dividends, but retained
earnings (net income minus dividends) on the
statement of changes in equity reflects the
portion of wealth retained for business growth
rather than distributed to shareholders.

30.  Wealth Generation:
 The balance sheet provides a snapshot of a
company's assets, liabilities, and equity at a
specific point in time. Positive equity,
represented by assets exceeding liabilities,
indicates wealth generation.
 Wealth Distribution:
 Dividends paid are also reflected in the
balance sheet under the equity section as a
reduction in retained earnings.

31.  Wealth Generation:
 Positive cash flow from operating activities
indicates the generation of cash wealth from
the company's core business operations.
 Wealth Distribution:
 Cash payments for dividends are reported in
the financing activities section, reflecting the
distribution of wealth to shareholders.

32.  Wealth Generation:
 This statement shows changes in equity
accounts over a specific period. Net income
contributes to wealth generation, increasing
equity.
 Wealth Distribution:
 Dividends paid reduce retained earnings,
representing the distribution of wealth to
shareholders.

33.  Return on Equity (ROE):
 This ratio indicates how effectively a company
generates profit from shareholders' equity,
providing insights into wealth generation.
 Dividend Payout Ratio:
 This ratio measures the proportion of earnings
paid out as dividends, indicating the extent of
wealth distribution.

34.  Financial statement analysis allows
stakeholders to assess a company's ability to
generate wealth through profitability and
efficient use of resources. It also helps in
understanding how the company distributes
wealth, whether through dividends or retained
earnings for future growth. By analyzing
various financial metrics and statements,
investors and analysts can gain insights into a
company's overall financial performance and
health.