Economic and Market Value Added

1
Session 1

• Economic and Market Value Added

2
EVA

• Economic Value Added
• EVA Operating Profit less a Charge for
  Capital Used
•   NOPAT - Capital Charge
•   NOPAT (WACC CapitalBeg)
• (ROIC WACC) CapitalBeg

3
MVA

• Market Value Added
• Market Value of the Company
• Less Book Value of Company
• Market value Added .
• Can divide by capital Relative value added
• Can divide by number of shares Value added per
  share

4
EVA and MVA Adjustments

• Capitalize leases
• Use FIFO (reverse out LIFO)
• Capitalize RD
• Add back capital write offs
• Add back good will amortized

5
EVA Example
5
6
EVA Example
7
EVA-Capital
8
8
9
9
10
EVA Numerical Example
11
EVA and Executive Compensation