Basics of MVA and EVA

The market Value added concept by Mr.Stern and his group is one of the most influential and most practical invention in the financial era. MVA talks about the criteria of valuation of a corporation and how the management tends to play a vital role in the creation of value. MVA is also abbreviated as Management Value added, which in simple terms mean that all the smart management principles used in governing the 'output value creation' and how it affects the factor that actually increases the value of the shareholder's wealth.
When management practices all the tools smartly to increase the shareholder's wealth, it simply reflects on the value of the firm in the market and thus it can help the evaluators to distinguish between the inceptional value and 'today's' value.
MVA equates the market value of the total equity of the corporation in the market along with it's debt structure that is reflected in its book and how this stand off result affects the investors' capital. In simple terms, MVA is the sum of market value of the equity and total debt shown in the book and its difference with the investors' capital investment. If the latter is greater than the former, then the company is said to have a favorable 'value' position. MVA always tries to maximize the return on the shareholders by smart management techniques to increase the amount of returns which the investors will get by keeping the market value of the equity and the debt structure under the scanner.

Economic Vale added or EVA on the other hand is just a reflection of the MVA and it explains that the 'value' creation or the value of the company is not decided based on the management's efficiency of itself, but on the economic factors, mostly macro such as Economic expectations, Industry conditions, Inflation, Market trend, interest rates and so on and so forth. EVA is decided by the equation of the NOPAT or the Net operating profit after tax and the opportunity cost of all capital invested in the company. Thus usage of EVA is much more easier to implement as it is insulated at with in the company level and is a direct operating measure.

Risk and Business, an Introduction.

Profits are the basic and the mere outcome of any business activity but it sometimes isn’t the case. ‘Bread’ is the term that’s an analogy to the bottom-line. In most cases, risk, the business and its profits come together as a trinity factor more often than the ‘trilogy’ feature of some promised movie packs but the critical thing upon which most businesses slip is on the risk which is like a hidden land mine or a known thrown away peel of a banana skin. Today’s many ‘safe Investment Vehicles’ tend to break down in the mid way of even after a few seconds after their take off leaving a many of the investors to get into the bilateral drama of the ‘banana – bread’ relationship, that is leaving the investors fight for their bread.
This can be backed by live examples of firms whose claims such as ‘well risk managed professionals’ continues to experience losses on a significant scale. Many investors believe that ‘wall street’, the financial hub of arguably the money capital of stock field, is that is a road that lies in between the shores with komodo’s lurching and the grave that’s filled with monsters from Michael Jackson’s ‘Thriller’ 
Investors aim at keeping away from the attack of neither the dragon nor the chase from the ghosts but its poignant that ‘Investing” has become akin to playing golf with the dragons.
A risk in business flows from a vulnerability to a mechanism and then to a Risk result.

Capital Market Line

It is a line used in the CAPITAL ASSET PRICING MODEL or simply the CAPM model proposed by William Sharpe to illustrate the rates of return for the EFFICIENT PORTFOLIO depending on its risk-free rate of return and the level of risk (Standard deviation) for a particular portfolio.

In simple words, Capital market Line or the CML represents the equilibrium relationship between the expected return and the standard deviation for the efficient portfolios.