What is Market Value Added?
Market value added (MVA) is a formula showing the relationship between a company's fair market value and invested capital. When the market value added is positive, it means the company is making money for shareholders and is in a strong financial position. If it is negative, the company has destroyed value and is losing money for shareholders. This calculation is one among numerous tools used by investors and others to explore investments and track the markets.
To determine the market value added for a company, the invested capital is subtracted from the fair market value. The fair market value includes all assets and liabilities for the company. The higher the market value added, the better the company's position. High numbers indicate substantial assets and a strong performance, in contrast with a low or negative value, showing that the amount of capital invested in the company is closely approaching or exceeding the value of the company itself.
A number of factors can influence fair market value, and these are not necessarily accounted for when calculating marketing value added. Companies may have temporary dips in profits as a result of expenditures in one quarter designed to produce future profits in another, for example. However, consistently low values are indicative of financial problems at a company. Management may be making poor decisions or there may be other reasons for an unsatisfactory performance.
Companies provide information about their fair market value and invested capital in legal disclosures about their finances they are required by law to file. Determining fair market value can sometimes be challenging, as some assets are difficult to value. Estimates of the value of unique assets can be used, with the understanding that if those assets were actually sold on the open market, they might be worth more or less. The circumstances surrounding the sale could also play a role in the value of those assets.
Finance and investment publications typically go through public filings with a fine toothed comb to learn more about the financial health of the companies they cover. These documents can provide a great deal of information to attentive readers, especially readers who have economics training and can run calculations, compare prior year data, and put the information in context. Reading such publications can provide people with valuable information about prospective investments and other matters of interest. Writeups on companies typically discuss topics like their market value added, both currently and historically, to provide people with information to help them make informed choices about investments.
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