the firm's CLAIRE: That makes sense. So, what makes this value important to investors is that it is only due to a couple of events, including the payment of . Equally important, it value that can change-but of Treasury stock, the sale of new common or preferred shares, and the change in response to changes in the market prices of the firm's shares. ALEXIS: Right! So, how useful would a firm's book value be for assessing the performance of Western G&E's management? Now, what about "Market Value Added"? CLAIRE: Well, because Western G&E's book value value reflect management's efforts to maximize the shareholder wealth and therefore management's performance. with changes in the market price of the firm's shares, the firm's book be used to evaluate ALEXIS: During the 1990s, the consulting firm Stern, Stewart & Company developed the concept of Market Value Added, or MVA, to better assess management's performance in maximizing their shareholders' wealth. To achieve this, a firm's MVA is computed as the value of Western G&E's shareholders' equity. between (of) the value and the book OK, now here's a question for you: market to the book value, what is the advantage of the MVA as a means of evaluating management's performance? CLAIRE: Well, I would say that because the market value of Western G&E's shareholders' equity is calculated by multiplying the shares' by the number of shares , then it will fluctuate depending on how the market perceives management's market price and MVA. performance. A positive assessment will result in ALEXIS: Nicely done! Does this make your reading of Western G&E's annual report easier?
the firm's CLAIRE: That makes sense. So, what makes this value important to investors is that it is only due to a couple of events, including the payment of . Equally important, it value that can change-but of Treasury stock, the sale of new common or preferred shares, and the change in response to changes in the market prices of the firm's shares. ALEXIS: Right! So, how useful would a firm's book value be for assessing the performance of Western G&E's management? Now, what about "Market Value Added"? CLAIRE: Well, because Western G&E's book value value reflect management's efforts to maximize the shareholder wealth and therefore management's performance. with changes in the market price of the firm's shares, the firm's book be used to evaluate ALEXIS: During the 1990s, the consulting firm Stern, Stewart & Company developed the concept of Market Value Added, or MVA, to better assess management's performance in maximizing their shareholders' wealth. To achieve this, a firm's MVA is computed as the value of Western G&E's shareholders' equity. between (of) the value and the book OK, now here's a question for you: market to the book value, what is the advantage of the MVA as a means of evaluating management's performance? CLAIRE: Well, I would say that because the market value of Western G&E's shareholders' equity is calculated by multiplying the shares' by the number of shares , then it will fluctuate depending on how the market perceives management's market price and MVA. performance. A positive assessment will result in ALEXIS: Nicely done! Does this make your reading of Western G&E's annual report easier?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Yesterday, Western Gas & Electric Co. released its 2018 annual report on the company's website. While reading the report for her boss, Claire came
across several terms about which she was unsure. She leaned around the wall of her cubicle and asked her colleague, Alexis, for help.
CLAIRE: Alexis, do you have a second to help me with my reading of Western G&E's annual report? I've come across several unfamiliar terms,
and I want to make sure that I'm interpreting the data and management's comments correctly.
For example, one of the footnotes to the financial statements uses "the book value of Western G&E's shares," and then in another place, it
uses "Market Value Added." I've never encountered those terms before. Do you know what they're talking about?
ALEXIS: Yes, I do. Let's see if we can make these terms make sense by talking through their meaning and their significance to investors.
The term book value has several uses. It can refer to a single asset or the company as a whole. When referring to an individual asset, such as
a piece of equipment, book value refers to the asset's
, adjusted for any accumulated
depreciation or amortization expense. The
value, or difference between these two values, is called the asset's book value.
In contrast, when the term refers to the entire company, it means the total value of the company's
the firm's
CLAIRE: That makes sense. So, what makes this value important to investors is that it is
only due to a couple of events, including the
payment of
. Equally important, it
value that can change-but
of Treasury stock, the sale of new common or preferred shares, and the
change in response to changes in the market prices of the firm's shares.
ALEXIS: Right! So, how useful would a firm's book value be for assessing the performance of Western G&E's management?
Now, what about "Market Value Added"?
as reported in
CLAIRE: Well, because Western G&E's book value
value
reflect management's efforts to maximize the shareholder wealth and therefore
management's performance.
with changes in the market price of the firm's shares, the firm's book
be used to evaluate
Transcribed Image Text:the firm's
CLAIRE: That makes sense. So, what makes this value important to investors is that it is
only due to a couple of events, including the
payment of
. Equally important, it
value that can change-but
of Treasury stock, the sale of new common or preferred shares, and the
change in response to changes in the market prices of the firm's shares.
ALEXIS: Right! So, how useful would a firm's book value be for assessing the performance of Western G&E's management?
Now, what about "Market Value Added"?
CLAIRE: Well, because Western G&E's book value
value
reflect management's efforts to maximize the shareholder wealth and therefore
management's performance.
with changes in the market price of the firm's shares, the firm's book
be used to evaluate
ALEXIS: During the 1990s, the consulting firm Stern, Stewart & Company developed the concept of Market Value Added, or MVA, to better
assess management's performance in maximizing their shareholders' wealth. To achieve this, a firm's MVA is computed as the
value of Western G&E's shareholders' equity.
between (of) the
value and the
book
OK, now here's a question for you: market to the book value, what is the advantage of the MVA as a means of evaluating management's
performance?
CLAIRE: Well, I would say that because the market value of Western G&E's shareholders' equity is calculated by multiplying the shares'
by the number of shares
▼, then it will fluctuate depending on how the market perceives management's
market price and MVA.
performance. A positive assessment will result in
ALEXIS: Nicely done! Does this make your reading of Western G&E's annual report easier?
1920
de cal
400
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