EVA-MVA:Shareholders' Value Measures

Abstract

Maximizing shareholders value is becoming the new corporate standard in India. The corporates, which gave the lowest preference to the shareholders' inquisitiveness, are now bestowing the utmost inclination to it. Shareholders' value is measured in terms of the returns they receive on their investment. The returns can either be in the form of dividends or in the form of capital appreciation or both. Capital appreciation in turn depends on the subsequent changes in the market value of shares. This market value of shares is influenced by a number of factors, which can be company specific, industry specific and macro-economic in nature.

To help corporates to generate value for shareholders, value based management systems have been developed. For measuring the corporate financial performance, there are accounting profitability measures and shareholders' value based measures. Accounting profitability measures include ROI, ROE, EPS, ROCE and DPS etc., Shareholders valued based measures include EVA and MVA. Against this background, this article is an attempt to discuss the concepts of EVA and MVA, evolution and growth of EVA, computation of EVA and MVA, EVA and financial performance, EVA in Indian environment and relationship between EVA (Economic Value Added) and MVA (Market Value Added).