Market Value Added Analysis - 2061 Words

Market Value Added and Economic Value Added Salahuddin K. Shameem Market Value Added (MVA) is the difference between the current market value of a company and the original amount of capital contributed by investors. MVA = market value of stock - shareholder-supplied equity = (shares outstanding)(stock P) - Total common equity Economic Value Added (EVA) measures managerial effectiveness (economic profit). EVA = NOPAT - after-tax dollar cost of K for operations = EBIT(1-T) - amount of operating K * WACC where T = corporate tax rate WACC = weighted average cost of capital K = capital or EVA = operating K (ROIC - WACC) where ROIC = return on invested capital if ROICgt;WACC, new investments add value EVA is an estimate of economic†¦show more content†¦Like an ordinary stock trade, two parties will work through their respective brokers, to transact a futures trade. An investor can only trade in the futures contracts that are supported by each exchange. In contrast, forwards are entirely customized and all the terms of the contract are privately negotiated between parties. They can be keyed to almost any conceivable underlying asset or measure. The settlement date, notional amount of the contract and settlement form (cash or physical) are entirely up to the parties to the contract. * Forwards entail both market risk and credit risk. Those who engage in futures transactions assume exposure to default by the exchanges clearing house. For OTC derivatives, the exposure is to default by the counterparty who may fail to perform on a forward. The profit or loss on a forward contract is only realized at the time of settlement, so the credit exposure can keep increasing. * With f utures, credit risk mitigation measures, such as regular mark-to-market and margining, are automatically required. The exchanges employ a system whereby counterparties exchange daily payments of profits or losses on the days they occur. Through these margin payments, a futures contracts market value is effectively reset to zero at the end of each trading day. This all but eliminates credit risk. * The daily cash flows associated with margining can skew futures prices, causing them to diverge fromShow MoreRelatedThe Impact of Offshoring on the U.S. Economy1154 Words   |  5 Pageseither branch out as a horizontal multinational or vertical multinational. Horizontal multinational’s produce the same good or services as abroad. This foreign direct investment (FDI) is done to strategically place production closer to the target market. Doing this provides advantages surrounding transportation cost while enhancing learning associated with local needs. A vertical multinational is one that fragments a portion of its good to take advantage of lower cost (i.e. cheap labor). MarkusenRead MoreMarketing Strategies1137 Words   |  5 Pagestheir customers. 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