EVA and Cash Value Added Do NOT Measure Shareholder Value Creation

10 Pages Posted: 5 Jun 2001 Last revised: 22 Nov 2015

Pablo Fernandez

University of Navarra - IESE Business School

Date Written: November 19, 2015

Abstract

We analyze 582 American companies using EVA, MVA, NOPAT and WACC data provided by Stern Stewart. For each of the 582 companies, we have calculated the 10-year correlation between the increase in the MVA (Market Value Added) each year and each year's EVA, NOPAT and WACC. For 296 (of the 582) companies, the correlation between the increase in the MVA each year and the NOPAT was greater than the correlation between the increase in the MVA ach year and the EVA. There are 210 companies for which the correlation with the EVA has been negative! The average correlation between the increase in the MVA and EVA, NOPAT and WACC was 16%, 21% and -21.4%. The average correlation between the increase in the MVA and the increases of EVA, NOPAT and WACC was 18%, 22.5% and -4.1%.

We also find that the correlation between the shareholder return in 1994-1998 and the increase in the CVA (according to the Boston Consulting Group) of the world's 100 most profitable companies was 1.7%.

Keywords: Shareholder value creation, Shareholder return, Value creation, EVA, Cash value added, Economic profit, Management performance indicator, Valuation

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, EVA and Cash Value Added Do NOT Measure Shareholder Value Creation (November 19, 2015). Available at SSRN: https://ssrn.com/abstract=270799 or http://dx.doi.org/10.2139/ssrn.270799

Pablo Fernandez (Contact Author)

University of Navarra - IESE Business School ( email )

Camino del Cerro del Aguila 3
28023 Madrid
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/

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