This leads the CFO to ask you team to look at how the market value of ACME is compared to the industry and research how you can show not only this value but come up with justification for the capital investments being made.

Your team discusses this and has determined EVA (Economic Value Added) as well as MVA (Market Value Added) concepts need to be established for the corporation.

Use the following table as a guide:

*12% here is a plug number. This will be different than the number you calculated in Task 3.

Compute the P/E ratio and market capitalization for everyone.

Compute the MVA and EVA for all.

Compare and contrast the ratios; what do the ratios convey to the investing public? How would you present these internally and externally? Make recommendations to management from your analysis.

Concept Check: Market value added focuses on the market price and relation to invested capital while economic value is based on operational profitability compared to invested capital. These measures help us evaluate our organization internally and externally to help identify gaps and opportunities.

Helpful Hint: Ratios, by themselves, tell us very little; it is only when they are placed in context of the market, industry or competition that they truly can be powerful.