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MVA
Primary goal of financial managers is to
maximize the wealth of shareholders
MVA measures whether the above objective
is achieved or not
MVA is the difference between the market
value of the firms stock and the amount of
equity capital the shareholders supplied
MVA
= EBIT (1 T),
Net assets= Adjusted book value of net capital at the
beginning of the period
Calculating NOPAT
.
Calculating Invested
Capital
.
Total
market
value
Premium
Market
value added
Book
value
debt +
equity
Investment
Total
market
value
Expected
improvement
in EVA
MVA
Book
value
debt +
equity
Slide 16
Current level
of EVA
Market
Value
Market
value
EVA
Year 2
EVA
EVA
Year 3 .... Year n
MVA
Book
value
capital
EVA
Charge
Market
Value
Capital
Im p ro v e m e n t in E V A
S a le s
O p e r a t in g E x p e n s e s
C a p it a l C h a r g e
C u s t o m e r S a t is f a c t i o n
N e w P r o d u c ts
O ve rh e ad
C o m p e n s a tio n
A c q u i s it io n s & D iv e s t it u r e s
W o r k in g C a p i t a l M a n a g e m e n t
V o lu m e
M a r k e t in g
T r a in i n g & D e v e l o p m e n t
A ll i a n c e s
A c c o u n t s R e c e iv a b le
P r o d u c t P r ic in g
G r o w th
M a n u f a c t u r in g C o s t s
R & D D e c is i o n s
I n v e n to ry M a n a g e m e n t
Manufacturing
Research
ManufacturingEVA
EVADrivers
Drivers
Research&
&Development
DevelopmentEVA
EVADrivers
Drivers
Reduce
Reduceinventory
inventory
Reduce
Reducecycle
cycletime
time
Improve
yields
Improve yields
Reduce
Reducescrap/waste
scrap/waste
Maximize
Maximizelabor
laborefficiencies
efficiencies
Improve
vendor
efficiencies
Improve vendor efficiencies
Process
Processimprovements
improvements
Staff
StaffEVA
EVADrivers
Drivers
Work
Workgroup/process
group/processsimplification
simplification
Consistency
monitors
Consistency monitorsaudit
audit
Centralizing
Centralizingresources/synergies
resources/synergies
Best
Bestpractices
practicesbenchmarking
benchmarking
Insourcing/outsourcing
Insourcing/outsourcingdecisions
decisions
Simplify
SimplifyEVA
EVAmeasurements/reporting
measurements/reporting
Ensure
Ensurecompliance
compliancewith
withlegislation
legislation
Improve
Improveto-market
to-marketprocess
process
Reduce
ReduceR&D
R&Dexpenses
expensesas
as%%ofofnew
newproduct
productsales
sales
Strategic
partners
for
R&D
Strategic partners for R&D
Stronger
Strongerlinks
linkstotoproduct
productmarketing
marketing
New
Newproducts
productsvia:
via:
- -Research
Research
- -Formulation
Formulation
- -Development
Development
- - Acquisition
Acquisition
Marketing
MarketingEVA
EVADrivers
Drivers
Increase
Increasemarket
marketshare
share/ /revenue
revenue
New
markets
New markets
More
focused
More focusedchannel
channelprograms
programs
Voice
Voiceofofcustomer
customer/ /consumer
consumer
Leverage
Leverageadvertising
advertising/ /promotion
promotion
Build
Buildbrand
brandawareness
awareness
Slide 19