BSRM Steels

A presentation on EVA & MVA

Group Members Syed Mahmudul Quader 1025075 Yusuful Haque 0310128 Md Fazle Rabbi 0310025 Ishtiaq Firdous Salam 1035008

EVA
Economic Value Added or EVA is an estimate of a

firm's economic profit which measures the performance for the operations of the firm. It therefore tells one how much wealth the company has created for providers of capital (meaning shareholders)

EVA = Net profit after tax Opportunity cost

MVA
is that value which has been created because of the quality of

management to earn superior rates of return above the required return for risk. MVA is basically the difference between what investors have put into the company and what they could get for the company if they sold it in todays market. MVA is affected by the external forces by the market place. If the value of MVA is positive it indicates that the management has increased the value of its capital, thus creating shareholder wealth. If the value of MVA is negative it indicates that management has destroyed shareholders wealth.
MVA = The market value of equity + The book value of debt All

of the capital investors have provided

Year

Stock Price (JAN) 100

Stock Retur Price ( n on DEC) stock 422 322%

Index Price ( JAN ) 2535

Index Retur Price n on ( DEC) Index 2795 10%

2008

2009

422

996

136%

2795

4535

63%

2010

996

2100

110%

4535

8290

82%

Year

Stock Price Deviat (JAN) ion

DSE Return

Deviat ion

Index Price ( DEC)

Return on Index

2008 3.22

1.33

.1025

-0.4125 -0.5486

0.17

2009 1.36

-.53

.6225

0.1075 -0.0569

0.01

2010

1.10

-.79

.8225

0.3075 -0.2429

0.09

Avg=1.89

Avg= 0.515

Sum1= -0.858 sum=.27

Beta = Sum1/sum= -3.17

 Total debt, b = 10099mn Total equity, s= 2134mn Earnings after tax = 964mn

Total Capital = 2134mn

Total Capital contributed = 12234mn Risk Free rate, R(f) = 6.25% = .0625

Interest rate, r(b) = 12%

R(wacc) = (s/s+b) * r(s) + ( b/b+s) * r(b) * ( 1- Tc) r(s) =R(f ) + Beta * [ R(M) R(f) ]

Calculation of EVA
Expected rate of return : -137 % Weighted Average cost of capital = -16%
EVA = Earning after tax Weighted average cost of capital

* Total Capital = 964,885,985 (-16% * 2,134,875,596) = 1220mn EVA = Net profit after tax Opportunity cost Opportunity cost = Total capital * Percentage of Index Return =1120mn

MVA Calculation
MVA = the market value of equity + book value of debt all the capitals have invested = 6.8355 * 10^10+ 10,099,221,899 12,234,097,495 = 6.6 * 10^10 = 66220 mn

EVA vs MVA
EVA and MVA are both equally important depending

on who you are Company managers/ board of directors to them EVA is important as they want to see the economic performance of their company in a given time On the other hand general investors to them MVA is more important than EVA..