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FINANCIAL SERVICES & MANAGEMENT RESEARCH
Vol.1 No. 3, March 2012, ISSN 2277 3622

AN EMPIRICAL STUDY ON EVA AND MVA APPROACH

*M.RAJESH**DR. N R V RAMANA REDDY ***DR.T.NARAYANA REDDY
*Assistant Professor, Annamacharya P.G.College of Computer Studies, Rajampet,
**Principal, Annamacharya P.G.College of Management Studies, Rajampet, Kadapa(Dist), A.P, India.
***Head, Department of H&S,JNTUCollege of Engineering,Anantapur, A.P., India.

ABSTRACT
Economic Value Added (EVA) and Market Value Added (MVA) are the two different
approaches to measure the existing financial status and predicting the future performance of a company.
EVA is an innovating corporate financial metric, which deals with the bench mark of cost of capital and it
provides a road map to the ultimate goal of improving MVA. Economic Value Added measures the
profitability of a company after taking into account the cost of capital. So the present study has been
made an attempt to measure the financial performance of select cement companies in India and rank
them based on their mean EVA and MVA for the period of 10 years (2001-02 to 2010-11). The study
clearly proved that, in two modern measures(EVA, MVA), ACC Ltd and Grasim Cements Ltd is having
satisfactory performance with consistent returns to the shareholders. The two measures (EVA and MVA)
are having relative importance to assess the performance of a company.

Keywords: EVA, MVA, Mean, Standard Deviation and Co-efficient of Variation.

INTRODUCTION attempted to divert management focus away from

Modern value-based performance measures, such as
Shareholder Value Added (SVA), Economic Value
Added (EVA), Market Value Added (MVA), Economic
Profit (EP), Cash Flow Return on Investment (CFROI)
and Cash Value Added (CVA) have attempted to
divert management focus away from earnings and
towards cash flows. Modern measures gained their
popularity since the late 1980s (Rappaport, 1986;
Stewart, 1991; Stern, Stewart and Chew, 1995;
Copeland, Koller and Murrin, 1996; Black, Wright and
Bachman, 1998; Madden, 1999).These measures
recognise that capital invested in a corporation is not
free, and make a charge for the use of the capital
employed by the corporation in its operations
(O'Hanlon and Peasnell, 1998). Modern value-based
performance measures, such as Shareholder Value
Added (SVA), Economic Value Added (EVA), Market
Value Added (MVA), Economic Profit (EP), Cash Flow
Return on Investment (CFROI) and Cash Value
Added (CVA) have
earnings and towards cash flows. Modern measures
gained their popularity since the late 1980s (Rappaport,
1986; Stewart, 1991; Stern, Stewart and Chew, 1995;
Copeland, Koller and Murrin, 1996; Black, Wright and
Bachman, 1998; Madden, 1999).These measures
recognise that capital invested in a corporation is not
free, and make a charge for the use of the capital
employed by the corporation in its operations (O'Hanlon
and Peasnell, 1998). Within a business, there are seven
drivers (e.g. sales growth rate, operating profit margin,
income tax rate, working capital investment, fixed capital
investment, cost of capital, and forecast duration) that
can be managed to create value (Rappaport ,1986).
Improvement in these value drivers leads to an increase
in shareholder value. A common theme of the value-
based performance measures is that they take these
drivers and summarise them into a single measure, be it
EVA, MVA, or any of the other value-based measures
that have been developed.
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 M.RAJESH, DR. N R V RAMANA REDDY, DR.T.NARAYANA REDDY
Review of Literature
Stewart (1990) has first studied EVA and MVA
relationship with market data of 618 U.S. companies. He
examined the relationship between EVA and MVA of US
companies and found a stronger correlation between EVA
and MVA. Grant(1996) studied the relationship between
MVA divided by capital and EVA divided by capital for 983
companies selected from the Stern Stewart Performance
1000 for 1993 and 1994.He concluded that his empirical
results indicate that EVA has a significant impact on a
company's MVA. Milunovich and Tsuei(1996) reviewed
the correlation between MVA and several conventional
performance measures, in the computer industry. They
found EVA to correlate somewhat better with MVA, than
the other measures. Uyemura, Kantor and Pettit(1996)
present findings on the relationship between EVA and
MVA with 100 bank holding companies. They calculate
regressions to 5 performance measures including EPS,
Net Income, ROE, ROA and EVA. According to their study
the correlations between these performance measures
and MVA are: EVA 40%, ROA 13%, ROE 10%, Net
income 8% and EPS 6%. The data is from the ten-year
period 1986 through 1995. Kramer and Pushner(1997)
tested the hypothesis that EVA is highly correlated with
MVA. The study concluded that no clear evidence to
support the contention that EVA is the best internal
measure of corporate success in adding value to
shareholder investments. On the contrary, the market
seems more focused on 'Profit' than EVA. The study
found that there is no clear advantage to shareholders in
looking at EVA, as the accounting return on their
investment is NOPAT. Lehn and Makhija(1997) study EVA
and MVA as performance measures and signals for
strategic change. Their data consists of 241 U.S.
companies and cover years 1987, 1988, 1992 and 1993.
The researchers first find out that both measures
correlate positively with stock returns and that the
correlation is slightly better than with
traditional performance measures like return on assets
(ROA), return on equity (ROE) and return on sales
(ROS). Anand, et.al.(1999) made a study on EVA and
MVA. The Study revealed that EVA and MVA are better
measures of business performance than NOPAT and EPS
in terms of shareholders' value creation and competitive
advantage of a firm. Banerjee(1999) made a study of nine
industries in India over a period of six years (1992 - 93 to
1997 - 98). He tested the relationship of MVA with
variables such as EVA, adjusted Return on Net Worth
(RONW), EPS, Capital productivity (Cp) and Labor
productivity (Lp). The study failed to conclude
convincingly about the superiority of EVA over other
independent variables in explaining MVA. The study,
however, singled out EVA as the most common significant
variable across the industries. Fernandez(2001)
examined the correlation between EVA and MVA of 582
American companies for the period 1983-97. It was
shown that for 296 firms in the sample the changes in the
NOPAT had higher correlation with changes in MVA than
the EVA, while for 210 sample firms the correlation
between EVA and MVA was negative. Hall(2001)
investigated the relationship between MVA and EVA, as
well as other financial ratios such as ROA, ROE and EPS
for listed South African companies. The study was done
on the top 200 companies listed on the JSE for the period
from 1987 to 1996 and found that the highest correlation
was that between MVA and EVA found relatively low
correlation coefficients on the whole. Panigrahi(2001)
examined how the Economic Value Added (EVA) is
superior to Market Value Added (MVA). This has been
examined by financial performance of ITC Ltd, which has
adopted the EVA as its performance measurement. This
study found that by increasing Economic Value Added
(EVA), Shareholder Wealth is created and established the
fact that the Economic Value Added (EVA) is superior to
the Market Value Added (MVA). Ghanbari(2003)analyzed
the relationship between
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 AN EMPIRICAL STUDY ON EVA AND MVA APPROACH

EVA and MVA of automobile industry in India and Bombay Stock Exchange as the population. Further
results indicate that there are strong evidences to from the list of 154 companies 60 companies are
support Stern- Stewart's claim. Singh(2005) examined an identified based on the availability of historical share
appropriate way of evaluating bank's performance and also
prices of the companies to suite the objectives of the
found out which Indian banks have been able to create (or
study. Finally the study considered 10 companies from
destroy) shareholders' wealth since 1998-1999 to 2002-2003.
This study is based on 28 Indian private and public sector banks
the identified 60 companies with the assumption that
that are listed on the Bombay Stock Exchange (BSE). The study minimum 10 years of historical data (2001-02 to 2010-
suggested that the relationship between EVA and MVA is 11) as a constraint for the study.
statistically significant. The study showed impressive
The following are the selected sample companies for the
performance in terms of EVA by banks such as State Bank of
Bikaner and Jaipur, Jammu and Kashmir Bank, Global Trust present study.
Bank and Indusind Bank. Wet (2005) conducted a study on EVA- 1. ACC Cement 2. Ambuja Cements
MVA relationship of 89 Industrial firms of South Africa and found 3. Anjani Cements 4. Grasim Cements
that EVA did not show the strongest correlation with MVA. 5. India Cements 6. Madras Cements
Ramachandra Reddy and Yuvaraja Reddy(2007) examined the
7. Panyam Cements 8. Sagar Cements
effect of selected variables on MVA. This study was conducted
9. Shree Cements 10. UltraTech Cements.
with 10 cement companies in India and the objective of this study
was to examine the effect of select variables on MVA. The study
found that none of the factors is found to have impact on MVA TOOLS OF ANALYSIS
and EPS is found to have negative and significant impact on EVA = NOPAT - COCE
MVA. The study concluded that the performance of select Where NOPAT = Net operating profits after tax
cement companies in terms of profitability cannot be increased COCE = W1.Kd + W2. Ke
unless the improved problems like modernization, cost reduction,
W1, W2 = Weights assigned to individual
control taxes etc., are solved. Therefore, the present paper made
an attempt to analyze the financial performance of select cement
sources in the capital structure
companies with the value added measures-Economic value Kd = I (1-t)
added (EVA) and Market value added(MVA) and to rank them K = Cost of Debt
d
based on their performance.
I = Interest rate
t = tax rate
K
STUDY OBJECTIVES e = Divident +g
Po
To evaluate the performance of select cement
K = Cost of Equity
companies in India through value added measures e

Economic value added (EVA), Market value added Po = Price of share

g = growth in a share
(MVA) and to rank them based on these measures.
g = Ke X Retention Ratio (b)
b = Earnings per share-Divident per share
SAMPLE SELECTION AND DATA SOURCE
Earnings per share
Sample cement companies for the study are selected
MVA = (Closing Share Price x Number of
from listed companies in Bombay Stock Exchange.
Outstanding Shares) - Net Worth
Initially 154 cement companies are listed from the
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 M.RAJESH, DR. N R V RAMANA REDDY, DR.T.NARAYANA REDDY
DATA ANALYSIS
The collected financial data (2001 - 02 to 2010-11) are
analyzed with value added measures EVA and MVA and
results were depicted in Table 4.1 and Table 4.3 along
with relevant statistics -Mean, Variance, Standard
Deviation (SD) and Co-efficient of Variation (CV). The co-
efficient of correlation between EVA and MVA of select
cement companies depicted in Table-4.5
Economic Value Added
Table 4.1 shows the Economic Value Added (EVA)
of select cement companies of the study from the
year 2001-02 to 2010-11.
Associated Cement Companies (ACC) Ltd:
The EVA of ACC Ltd is negative (Rs.-667.64, Rs.-
281.76, Rs.-383.88 and Rs.-84.85 lakhs) in the year
2001-02, 2002-03, 2003-04 and 2004-05. The
negative EVA reflects that the company performance
is negative in terms of Economic Value Added.The
calculated Mean EVA is (Rs. 590.32 lakhs) high in the
study period and the Co-efficient of Variation (CV)
shows inconsistent EVA of the company. The linear
growth rate is (0.96) statistically significant. Over all
the company performance is satisfactory with positive
EVA in the study period.
Ambuja Cements Ltd:
The EVA of Ambuja Cements Ltd is high (Rs. 593.05
Lakhs) in the year 2010-11 and negative (Rs.-1389.93,
Rs.-1118.57, Rs.-1326.78 and Rs.-1794.37 lakhs) in the
years 2001-02, 2002-03, 2003-04 and 2004-05. The
calculated Mean EVA is Rs. -357.53 lakhs and the Co-
efficient of Variation (CV) is. -259.00%. The mean EVA is
negative indicates the Economic Value Added is
destroyed in the study period and the CV shows
inconsistent EVA of the company. Even though the linear
growth is (0.84) statistically significant the company
performance is not satisfactory with negative
EVA.
Anjani Cements Ltd:
The EVA of Anjani Cements Ltd values are very low
during the study period. The EVA is negative from the
year 2001-02 to 2007-08 reveals that almost all the
study period the EVA is negative. The calculated
Mean EVA (Rs.-9.92 lakhs) is also negative. The Co-
efficient of Variation (CV) (-96.00%) is negative. The
linear growth rate is (0.77) statistically significant. The
performance of the company is unsatisfactory as it
performs negative Mean EVA in the study period.
Grasim Cements Ltd:
Except in the year 2001-02 and 2002-03, the EVA
of Grasim Cements Ltd is positive during the study
period. The calculated Mean EVA is (Rs.883.90
lakhs) positive and high. The Co-efficient of
Variation (CV) is 93.00%.The linear growth rate is
(0.95) statistically significant. The company
performance is satisfactory with high positive EVA.
India Cements Ltd
The EVA of India Cements is negative from the
year 2001-02 to 2009-10 reflects that the Economic
Value Added is destroyed during the study period
except in the year 2010-11.The calculated Mean
EVA is (Rs.-8376.15 lakhs) negative and very high
indicates that the company performance is
unsatisfactory during the study period. The linear
growth rate is (0.40) statistically significant.
Madras Cements Ltd
The EVA of Madras Cements Ltd is high (Rs. 281.80
Lakhs) in the year 2007-08 and is negative (Rs.-175.36,
Rs.-166.14, Rs.-84.59, Rs.-105.95, and Rs.-324.34
lakhs) in the year 2001-02, 2003-04, 2004-05, 2005-06
and 2008-09. The calculated Mean EVA is (Rs. -58.73
lakhs) negative and inconsistent. The linear growth rate is
(0.47) statistically insignificant. The company
performance is poor during the study period.
Panyam Cements Ltd
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 AN EMPIRICAL STUDY ON EVA AND MVA APPROACH
The EVA of the company is negative from the year
2006-07, 2007-08 and 2010-11, the remaining years
of the study the EVA is positive during the study
period. It is high( Rs.460.79 Lakhs) in the year 2001-
02.The calculated Mean EVA is (Rs. 66.77 lakhs)
positive and low but its variation is consistent. The
linear growth rate is (-0.43) negative and statistically
insignificant, indicates negative growth of EVA. The
performance is satisfactory with positive EVA.
Sagar Cements Ltd
The EVA is negative in the study period except in
the year 2010-11.The calculated Mean EVA is (Rs.
-74.71 lakhs) also negative along with negative
CV . The linear growth rate is (0.42) low and
insignificant reveals that the performance of the
company is poor with negative EVA.
Table-4.1 EVA Values of Select Cement Companies from 2001-02 to 2010-11
*Indicates significant at 5% probability level
Shree Cements Ltd
The EVA of Shree Cements Ltd is negative in seven
years out of ten years of study. The calculated Mean
EVA is (Rs.49.90 lakhs) positive and low. The CV
shows inconsistent EVA of the company. The linear
growth rate is (0.73) statistically significant implied
that the company performance is satisfactory with
positive Mean EVA.
Ultra Tech Cements Ltd
The EVA of Ultra Tech Cements Ltd is negative from the
year 2001-02 to 2006-07, the calculated Mean EVA is
(Rs.-149.95 lakhs) negative. The linear growth rate is
(0.97) statistically significant with negative Mean EVA.
4.4.3 Market Value Added (MVA)
Table 4.3 shows the Market Value Added (MVA) of
select cement companies of the study from the year
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 M.RAJESH, DR. N R V RAMANA REDDY, DR.T.NARAYANA REDDY
2001-02 to 2010-11.
Associated Cement Companies (ACC) Ltd:
The MVA of ACC Ltd is lowest (Rs.1,07,190.00 l a
k h s ) i n t h e y e a r 2 0 0 9 - 1 0 a n d
highest(Rs.6,49,495.90lakhs) in the year 2005-
06.The calculated Mean MVA is Rs. 2,91,764.99
lakhs and the Co-efficient of Variation (CV) is
65.00%. The MVA is satisfactory and the CV shows
consistent MVA of the company. The linear growth
rate is (-0.15) negative and is statistically
significant. Ambuja Cements Ltd:
The MVA of Ambuja Cements Ltd is fluctuated
during the study period. The calculated Mean MVA
is (Rs.2,77,692.48 lakhs) high and satisfactory with
consistent variation in MVA. The linear growth rate
is - 0.36. It indicates negative growth in MVA and
statistically insignificant during the study period.
Anjani Cements Ltd:
The MVA of Anjani Cements Ltd is decreased from
Rs.33,19,322 Lakhs in the year 2002-03 to Rs.
7,10,757.00 Lakhs in the year 2010-11.The calculated
Mean MVA is (Rs. 7,01,700.04 lakhs) high with
inconsistent CV. The linear growth rate is -0.32 and is
statistically insignificant indicates the MVA is showing
negative growth during the study period.
Madras Cements Ltd
The MVA of Madras Cements Ltd is lowest
(Rs.8,373.80 lakhs) in the year 2008-09 and is
highest (Rs.5,46,849.60 lakhs) in the year 2007-
08. The calculated Mean MVA is Rs.1,92,379.10
lakhs and the Co-efficient of Variation (CV) is
94.00% . The MVA is satisfactory and the CV
shows consistent MVA of the company. The linear
growth rate is (-0.71) statistically significant.
Panyam Cements Ltd
The MVA of Panyam Cements Ltd is lowest
(Rs.440.30 lakhs) in the year 2003-04 and is highest
(Rs.2,916.60 lakhs) in the year 2008-09. The
calculated Mean MVA is Rs. 1,502.18 lakhs and
the Co-efficient of Variation (CV) is 58.00%. The
MVA is satisfactory and the CV shows consistent
MVA of the company. The linear growth rate is (-
0.80) statistically significant.
Sagar Cements Ltd
The MVA of Sagar Cements Ltd is varied from Rs.
48,903.80 lakhs in the year 2001-02 to Rs. 29,989
lakhs in the year 2010-11with an average of Rs.
1,65,582.17 lakhs. The CV is consistent and the
linear growth rate is( -0.19) negative, implies
statistically insignificant growth during the study
period. . Shree Cements Ltd
The MVA of Shree Cements Ltd is negative (Rs.-
1,03,232.20 lakhs) in the year 2001-02. The calculated
Mean MVA is Rs.2,73,654.06 lakhs and the CV is
105.00% . The MVA is satisfactory and the CV shows
inconsistent MVA of the company. The linear growth rate
is -0.32 and is statistically insignificant.
Ultra Tech Cements Ltd
The MVA of Ultra Tech Cements Ltd is lowest
(Rs.55,635.00 lakhs) in the year 2003-04 and highest
(Rs.14,36,497.00 lakhs) in the year 2006-07. The
calculated Mean MVA is Rs. 7,82,897.00 lakhs and
the CV is 66.00% .The MVA is satisfactory. The CV
shows consistent MVA of the company. The linear
growth rate is -0.15 and is statistically insignificant.
4.4.6 RANKING OF COMPANIES BASED ON
EVA AND MVA WITH RESPECT TO MEAN
Table 4.6 shows the calculated ranks of select cement
companies of the study based on Mean EVA and MVA
ACC Limited is at 1st rank. Anjani Cements Limited
is at 2nd rank and Grasim Cements Limited is at 3rd rank
based on the Mean EVA and MVA. The ranking
procedure reveals that ACC Limited is more in the study
period followed by Anjani Cements Limited
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 AN EMPIRICAL STUDY ON EVA AND MVA APPROACH

and Grasim Cements Limited. Grasim Cements Limited is at 3rd rank. The
4.4.7 RANKING OF COMPANIES BASED ON ranking procedure reveals that ACC Limited is
EVA AND MVA WITH RESPECT TO consistent in the study period followed by Panyam
COEFFICIENT OF VARIATION (CV) Cements Limited and Grasim Cements Limited.
Table 4.7 shows the calculated ranks of select cement
companies of the study based on EVA and MVA of CV. CONCLUSIONS
With CV of EVA and MVA, ACC Limited is at From the analysis made on ten select cement companies

1st rank. Panyam Cements Limited is at 2nd rank and in India using modern value based measures such as
Table 4.3 MVA values of select cement companies from 2001-02 to 2010-11

*indicates significant at 5% probability level

Economic Value Added (EVA) and Market Value Added
(MVA), it is clearly observed that, EVA of ACC Ltd, Grasim
Cements Ltd, Panyam Cements Ltd and Shree Cements
Ltd is satisfactory with consistent returns whereas Anjani
Cements Ltd, Ambuja Cements
Ltd, Madras Cements Ltd, India Cements Ltd,
Sagar Cements Ltd, and Ultratech Cements Ltd is
unsatisfactory. The linear growth rate of ACC Ltd,
Ambuja Cements Ltd, Anjani Cements Ltd, Grasim
Cements Ltd, Shree Cements Ltd and Ultratech
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 M.RAJESH, DR. N R V RAMANA REDDY, DR.T.NARAYANA REDDY

Table 4.6 Ranking of companies based on EVA and MVA With respect to Mean

Cements Ltd is statistically significant and the remaining
companies India Cements Ltd, Madras Cements Ltd,
Panyam Cements Ltd, and Sagar Cements Ltd linear
growth rate is statistically insignificant. The Mean EVA
reveals that, Grasim Cements Ltd is at 1st rank. ACC Ltd
is at 2nd rank and
Panyam Cements Ltd is at 3rd rank.
Under MVA, all select cement companies (ACC
Ltd, Ambuja Cements Ltd, Anjani Cements Ltd,
Grasim Cements Ltd, India Cements Ltd, Madras
Cements Ltd, Panyam Cements Ltd, Sagar Cements
Ltd, Shree Cements Ltd and Ultratech Cements Ltd)
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 AN EMPIRICAL STUDY ON EVA AND MVA APPROACH

Table 4.7 Ranking of companies based on EVA and MVA With respect to Coefficient of Variation (CV)

are showing satisfactory performance with consistent
returns. The linear growth rate of all companies is
negative.ACC Ltd, Grasim Cements Ltd, Madras
Cements Ltd and Panyam Cements Ltd is statistically
significant. The Mean MVA reveals that, UltraTech
Cements Ltd is at 1st rank. Anjani Cements Ltd is at
2nd rank and Grasim Cements Ltd is at 3rd rank.
Based on Mean EVA and MVA, ACC Ltd is at 1st
rank. Anjani Cements Ltd is at 2nd rank and Grasim
Cements Ltd is at 3rd rank. The adopted ranking
procedure reveals that ACC Ltd is more in the study
period followed by Anjani Cements Ltd and Grasim
Cements Ltd. Based on CV of EVA and MVA, ACC Ltd is
at 1st rank. Panyam Cements Ltd is at 2nd rank and
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 M.RAJESH, DR. N R V RAMANA REDDY, DR.T.NARAYANA REDDY

Grasim Cements Ltd is at 3rd rank. The ranking Dinca M. Sis temul de indicatori ai rezultatelor
procedure made a conclusion that ACC Ltd is economico-financiare ale firmei, Ed. Scrisul
consistent in the study period followed by Romanesc, Craiova, 2001
Panyam Cements Ltd and Grasim Cements Ltd. Erasmus, P.D. (2008), "The Relative and Incremental
Overall in this study, it is observed that, the Information Content of the Value Based Financial
modern measures (EVA and MVA) of the study Performance Measure Cash Value Added (CVA)",
showing same results regarding performance of Management Dynamics, Vol.17, No. 1, pp.2-15.
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