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Economic Value Added And Market Value Added - Modern Indicators For Assessment The Firm’S Value

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  • NICOLAE SICHIGEA

    (UNIVERSITY OF CRAIOVA)

  • LAURA VASILESCU

    (UNIVERSITY OF CRAIOVA)

Abstract

The financial theory developed different categories of indicators - traditional and modern - in order to evaluate the firm’s value creation. The shareholders are directly interested by the value added in the company. The value creation is a complex process that implies correct decisions, common responsibility (managers and shareholders) and actions towards an efficient and profitable activity. The traditional indicators of performance are not teoritically correlated with the the value creation and in these circumstances, should be used appropriate financial indicators in order to reflect the value of the company. Therefore, the modern indicators used in the value based management framework offer a greater flexibility and efficiency and represent a good alternative for companies. Such performance indicators used to measure the financial results correlated with shareholder wealth are the Economic Value Added (EVA), as a measure of internal performance and the Market Value Added (MVA) as a measure of external performance of the company. Starting from the main deficiencies of the accounting indicators, the objective of this this study is to present the relationship between EVA and MVA and their implications on firms’valuation. Thus, the presentation and analysis of these indicators – EVA and MVA - will underline the main features, their correlations, and influence factors but also the main advantage and disadvantage of each indicator, which will enable the managers to make the correct choice and subsequently the best decision regarding the performance measures.

Suggested Citation

  • Nicolae Sichigea & Laura Vasilescu, 2015. "Economic Value Added And Market Value Added - Modern Indicators For Assessment The Firm’S Value," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 488-493, December.
    • Handle: RePEc:cbu:jrnlec:y:2015:v:6special:p:488-493
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    References listed on IDEAS

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    1. Verrecchia, Robert E., 1986. "Managerial discretion in the choice among financial reporting alternatives," Journal of Accounting and Economics, Elsevier, vol. 8(3), pages 175-195, October.
    2. Laura VASILESCU & Ana POPA, 2011. "Economic Value Added: Pros and Cons," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(13), pages 60-65, December.
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    2. Mihaela Brindusa Tudose & Valentina Diana Rusu & Silvia Avasilcai, 2021. "Performance Management for Growth: A Framework Based on EVA," JRFM, MDPI, vol. 14(3), pages 1-19, March.

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