Market value added (MVA) is the difference between the current

market value Market value or OMV (open market valuation) is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with ''open market value'', ''fair value'' or '' fair market value'', although t ...

of a firm and the capital contributed by

investor An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital the investor usually purchases some species of pr ...

s. If MVA is positive, the firm has added value. If it is negative, the firm has destroyed value. The amount of value added needs to be greater so than the firm's investors could have achieved investing in the market portfolio, adjusted for the leverage (

beta coefficient In finance, the beta ( or market beta or beta coefficient) is a statistic that measures the expected increase or decrease of an individual stock price in proportion to movements of the stock market as a whole. Beta can be used to indicate the c ...

) of the firm relative to the market.

Basic formula

The formula for MVA is: :

MVA = V - K

where: * ''MVA'' is market value added * ''V'' is the market value of the firm, including the value of the firm's equity and

debt Debt is an obligation that requires one party, the debtor, to pay money Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

* ''K'' is the capital invested in the firm MVA is the present value of a series of EVA values. MVA is economically equivalent to the traditional NPV measure of worth for evaluating an after-tax cash flow profile of a project if the

cost of capital In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate ne ...

is used for discounting.

References

* G. Bennett Stewart III, ''The Quest for Value'' (HarperCollins, 1991). Financial markets Fundamental analysis {{econ-stub