eva vs mva
EBIT(1-T)-[total capital-(a/p+accr.)](WACC)
eva formula
economic value added
focuses on a firm's managerial effectiveness in a specific year
(shares outstanding)(stock price)- total common equity
mva
the stock price falls
mva is negative when
total operating capital
net operating wc + net FA
how is eva useful?
-good measure of addition to shareholder value -can be used for divisions as well as for entire company -provides useful basis for determining managerial compensation -very strong correlation between EVA and a firm's stock price -if EVA is positive, then ROE exceeds cost of equity -if positive, good job!
market value added
shareholder wealth is maximized by maximizing the cumulative difference between the market value of the firm's equity and the amount of equity capital that was supplied by investors
