Shareholder Value Added (SVA)

Shareholder Value Added (SVA) is a measure of a company's financial performance that takes into account the cost of capital. It is calculated by subtracting a company's weighted average cost of capital (WACC) from its net operating profit after tax (NOPAT).

SVA is a more comprehensive measure of performance than return on equity (ROE) because it takes into account the cost of capital, which is the minimum return that investors require in order to invest in a company. ROE, on the other hand, does not take into account the cost of capital.

SVA can be used to compare the performance of different companies or to track the performance of a single company over time. It can also be used to evaluate management decisions and to make strategic planning decisions.

There are a few limitations to SVA. First, it can be difficult to calculate the WACC, which is a complex calculation that requires information about a company's capital structure, its risk profile, and the current market rate of return on debt and equity. Second, SVA is a backward-looking measure of performance. It measures the value that a company has created over a period of time, but it does not provide any information about the future value of the company.

Despite these limitations, SVA is a valuable tool for measuring and evaluating corporate performance. It is a more comprehensive measure of performance than ROE and it can be used to compare the performance of different companies or to track the performance of a single company over time.