External Performance Evaluation

D

To properly analyze performance using either economic value-added or market value-added, it is necessary to look for changes over time, the percent change each year.

The correct answer is D. economic value-added, market value-added.

Economic value-added (EVA) is a measure of internal performance that evaluates a company's ability to generate returns above its cost of capital. It is a financial performance measure that takes into account the company's net operating profit after taxes (NOPAT) and the capital invested in the business. EVA represents the value created by a company's operations and is calculated as NOPAT minus the cost of capital multiplied by the capital invested.

On the other hand, market value-added (MVA) is a measure of external performance that assesses the value created for shareholders. It reflects the difference between the market value of a company and the capital contributed by investors. MVA captures the market's perception of the company's ability to generate future cash flows and create value for its shareholders.

Therefore, the contrast between EVA and MVA lies in their focus and the aspects they measure. EVA is primarily concerned with internal performance and evaluates how well a company utilizes its resources to generate profits above the cost of capital. It helps assess whether a company is creating value for its own operations. In contrast, MVA is a measure of external performance as it considers the market's evaluation of the company's value. It reflects investors' expectations and incorporates market sentiment regarding the company's future prospects.

In summary, EVA measures internal performance by assessing a company's ability to generate returns above its cost of capital, while MVA measures external performance by capturing the market's perception of a company's value creation for shareholders.