What Is Market Value Added?
The market value added (MVA) is the difference between the market value of a company and the capital that investors have contributed into it.
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How to calculate
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The simple formula for MVA is as follows: Market Value added = Market Value Capital -- Capital Invested.
The market value capital includes the value of the company's equity as well as its debt.
Implications
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The higher the MVA, the better it is for the company because when the company has a negative MVA, it means that the company or firm has destroyed value rather than added to it.
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Complications
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It can be difficult to determine the market value of some corporations and their debt, if the company is not being traded, or not being a publicly-traded. It is also difficult to get a market value for outstanding shares that a company currently has. The MVA doesn't account for any immediate cash returns to the investors of the company.
Significance
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The MVA is important for an investor to know so the investor can determine whether or not the company is properly utilizing funds. No investor wants to invest in a company that just destroys value or runs on debt alone.
A company needs to be adding to its MVA rather than destroying it. If it is destroying value, it is important for the company to find out exactly why exactly is happening and to fix the problem.
Function
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Over everything else, MVA is a wealth metric rather than a performance metric (like economic value added).
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