HBR Article on Market Value Added
Dear Covers:
Sal881vw's article on goodwill reminded me of a recent article in the July/Aug 2004 issue of the Harvard Business Review, by G. Bennett Stewart III. The author defines Market Value Added (MVA), which is sort of like a goodwill, if we look at goodwill as being defined by the equation
Goodwill = Asking Price - Market Value
Stewart defines MVA by the equation,
Market Value Added (MVA) = Market Value - Total Capital Invested
He then ranks companies according to their composite Revenues Growth score, over the period 1983 to 2003, and the Ratio of MVA/2003 Revenue. To make a long story short, the following are the top five companies from the US, ranked according to these criteria.
1. GE
2. Walmart
3. Altria Group
4. Home Depot
5. Microsoft
Intel, which holds a rank of 12 in this list of US companies, had a very high ratio MVA/2003 Revenue = 5.59, second only to Microsoft, whose ratio was 7.07. But it ranked relatively low because of its lower revenue growth. I see a connection between this article and the idea of goodwill discussed by Sal.
Charmed