EVA and the market value of a company

• Theoretically EVA is much better than conventional measures in explaning the market value of a company. Financial theory suggests that the market value of a company depends directly from the future EVA-values:
• The market value of a company = Book value of equity + present value of future EVA
  • The above formula is mathematically equivalent to the standard Discounted Cash Flow (DCF)
  • Investors and equity analysts use EVA (e.g. CS First Boston, Goldman Sachs, Opstock, Merita Securities)
  • This means that the valuation of a company is similar to the valuation of a bond (premium if the coupon rate is more than the prevailing interest rate)

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