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Using MVA and EVA to measure financial performance
1University of Florida, Gainesville, USA.
Summary
Market Value Added (MVA) and Economic Value Added (EVA) are increasingly used financial performance measures in healthcare. MVA suits investor-owned groups, while EVA is best for not-for-profits, offering a fuller financial picture.
Area of Science:
- Healthcare Financial Management
- Accounting and Finance
- Organizational Performance Measurement
Background:
- Traditional profitability measures in healthcare often overlook the cost of equity capital.
- Market Value Added (MVA) and Economic Value Added (EVA) are emerging as advanced financial performance metrics.
- These metrics are gaining traction in both investor-owned and not-for-profit healthcare sectors.
Purpose of the Study:
- To introduce and differentiate Market Value Added (MVA) and Economic Value Added (EVA) as financial performance tools.
- To highlight the specific applicability of MVA for investor-owned healthcare organizations.
- To emphasize the suitability of EVA for not-for-profit healthcare organizations.
Main Methods:
- Comparative analysis of financial performance measures.
- Discussion of the theoretical underpinnings of MVA and EVA.
- Application context for different healthcare organizational structures.
Main Results:
- MVA and EVA incorporate the cost of equity capital, offering a more comprehensive view than traditional metrics.
- MVA is identified as the most appropriate measure for investor-owned healthcare entities.
- EVA is determined to be the optimal measure for not-for-profit healthcare entities.
Conclusions:
- MVA and EVA represent significant advancements in healthcare financial performance assessment.
- Wider adoption of MVA and EVA is anticipated as financial managers gain familiarity.
- These measures can enhance the evaluation of financial health in diverse healthcare organizations.
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