Market Value Added (MVA)
Market value added (MVA) is the difference between a firm fair value and its invested capital. MVA is a measure of the value a company has created in excess of the resources already committed to the enterprise.
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Cummins Inc. pages available for free this week:
- Common-Size Income Statement
- Analysis of Liquidity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
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MVA
Cummins Inc., MVA calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Fair value of debt. See details »
2 Invested capital. See details »
- Market (fair) value of Cummins
- The market value exhibited a general upward trend over the five-year period, starting at approximately 28.5 billion US dollars at the end of 2019 and increasing sharply to around 41.8 billion by the end of 2020. This represents a significant rise amid this timeframe. However, there was a decline in 2021, with the value dropping to about 37.1 billion. Following this dip, the market value rebounded in 2022, reaching nearly 43.8 billion, and then stabilized in 2023 with a marginal increase to 43.8 billion US dollars. Overall, the market value demonstrated resilience and growth potential despite the intermediate decrease.
- Invested Capital
- Invested capital showed a consistent increase from 15.2 billion US dollars at the end of 2019 to 17.5 billion in 2020, and remained relatively stable in 2021 at approximately 17.5 billion. A notable increase occurred in 2022, when invested capital rose sharply to about 22.7 billion. However, this was followed by a decrease in 2023 to around 20.8 billion. The fluctuation in invested capital, particularly the rise in 2022 and subsequent decline in 2023, suggests changes in the company's investment strategies or asset base during these years.
- Market Value Added (MVA)
- MVA increased significantly from around 13.3 billion US dollars in 2019 to a peak of approximately 24.3 billion in 2020, indicating strong value creation during this period. In 2021, MVA declined to nearly 19.6 billion but recovered somewhat in 2022 to 21.1 billion. In 2023, MVA rose further to about 23.0 billion. These fluctuations reflect the variations in market perception of the company’s value above its invested capital. The general trend suggests sustained market confidence with some volatility likely tied to external or internal factors influencing the company’s performance or outlook.
MVA Spread Ratio
Cummins Inc., MVA spread ratio calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Market value added (MVA)1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| MVA spread ratio3 | ||||||
| Benchmarks | ||||||
| MVA Spread Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 MVA. See details »
2 Invested capital. See details »
3 2023 Calculation
MVA spread ratio = 100 × MVA ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Market Value Added (MVA)
- The market value added exhibited a fluctuating trend over the observed period. Beginning at 13,278 million USD in 2019, it increased substantially in 2020 to 24,297 million USD. Following this peak, MVA declined to 19,563 million USD in 2021 and then showed recovery with incremental increases to 21,140 million USD in 2022 and 23,047 million USD in 2023. This pattern suggests periods of volatility but generally positive value creation over the five years.
- Invested Capital
- Invested capital demonstrated a steady upward trajectory from 15,235 million USD in 2019 to 17,479 million USD in 2020, and it maintained a similar level at 17,518 million USD in 2021. A more pronounced rise occurred in 2022, reaching 22,657 million USD, followed by a slight reduction to 20,768 million USD in 2023. This indicates a significant capital deployment in 2022, with a modest contraction in the subsequent year.
- MVA Spread Ratio
- The MVA spread ratio reflected notable variability, with a value of 87.16% in 2019, escalating sharply to 139.01% in 2020. It then decreased to 111.67% in 2021 and further declined to 93.3% in 2022 before rising again to 110.97% in 2023. These fluctuations imply changes in the efficiency with which the invested capital translated into market value added, with peak efficiency observed in 2020.
- Summary of Trends
- The data reveal a strong value creation in 2020, marked by peaks in both MVA and the MVA spread ratio, despite only moderate increases in invested capital. Subsequent years show some volatility and partial retrenchment in these metrics, although levels remain above the 2019 baseline by 2023. The significant increase in invested capital in 2022 combined with a relative dip in MVA spread ratio suggests that the additional capital was not fully converted into market value added during that year, but improved performance resumed in 2023.
MVA Margin
Cummins Inc., MVA margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Market value added (MVA)1 | ||||||
| Net sales | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted net sales | ||||||
| Performance Ratio | ||||||
| MVA margin2 | ||||||
| Benchmarks | ||||||
| MVA Margin, Competitors3 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 MVA. See details »
2 2023 Calculation
MVA margin = 100 × MVA ÷ Adjusted net sales
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial data reveals several key trends over the five-year period ending December 31, 2023. Market value added (MVA) initially shows a substantial increase from 13,278 million US dollars in 2019 to a peak of 24,297 million US dollars in 2020, followed by a decline to 19,563 million in 2021. Subsequently, MVA rises again to 21,140 million in 2022 and further to 23,047 million in 2023, indicating some recovery after the 2021 drop but not surpassing the 2020 high.
Adjusted net sales exhibit a generally upward trajectory throughout the period. Starting at 23,769 million US dollars in 2019, sales decreased in 2020 to 19,988 million, possibly reflecting external economic pressures. From 2020 onwards, net sales increased consistently, reaching 24,195 million in 2021, 28,217 million in 2022, and 34,403 million in 2023. This pattern suggests a strong recovery and growth trend in sales volumes or pricing power over the last three years.
The MVA margin, which measures market value added relative to adjusted net sales, shows significant fluctuations. It moves from 55.86% in 2019 to a sharp peak of 121.56% in 2020, before declining to 80.85% in 2021 and further to 74.92% in 2022. The margin reaches its lowest point in the observed period at 66.99% in 2023. Despite a strong market valuation relative to sales in 2020, the decreasing trend in MVA margin over subsequent years indicates that the growth in market value added did not keep pace proportionally with the increase in net sales.
Overall, the data indicates a company experiencing a volatile market valuation relative to sales, with a notable dip in 2021 likely attributable to external challenges. The rebound in both market value added and net sales in recent years suggests a recovery phase, though the declining MVA margin points to differences in market perceptions or profitability dynamics relative to sales growth. Continuous monitoring of these metrics will be essential to assess sustained value creation aligned with sales performance.