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.
MVA
Illinois Tool Works Inc., MVA calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Fair value of debt. See details »
2 Invested capital. See details »
The company's Market Value Added (MVA) demonstrates a strong positive trajectory over the analyzed five-year period, indicating substantial value creation for shareholders. Despite a temporary contraction in 2018, the MVA recovered and grew consistently, rising from US$ 50,578 million in 2017 to US$ 63,276 million by the end of 2021.
- Market Value Fluctuations
- The fair market value experienced a notable decline in 2018, dropping to US$ 55,189 million from US$ 64,984 million in the previous year. This was followed by a sustained recovery phase, with the valuation climbing steadily over the subsequent three years to reach a peak of US$ 76,831 million in 2021.
- Invested Capital Stability
- Invested capital remained relatively stable and lean compared to the overall market valuation. After a decrease from US$ 14,406 million in 2017 to US$ 12,895 million in 2018, the capital base exhibited marginal annual increases, concluding the period at US$ 13,555 million.
- Value Creation and Capital Efficiency
- The expansion of the MVA from 2019 through 2021 is characterized by a widening gap between the market's valuation and the actual capital invested. Since the market value increased significantly while invested capital remained relatively flat, the growth in MVA suggests an increase in the market's perception of the company's ability to generate superior returns on its existing asset base.
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MVA Spread Ratio
Illinois Tool Works Inc., MVA spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Market value added (MVA)1 | 63,276) | 59,810) | 55,666) | 42,295) | 50,578) | |
| Invested capital2 | 13,555) | 13,434) | 13,033) | 12,895) | 14,406) | |
| Performance Ratio | ||||||
| MVA spread ratio3 | 466.81% | 445.21% | 427.11% | 327.99% | 351.08% | |
| Benchmarks | ||||||
| MVA Spread Ratio, Competitors4 | ||||||
| Boeing Co. | 256.11% | — | — | — | — | |
| Caterpillar Inc. | 165.08% | — | — | — | — | |
| Eaton Corp. plc | 132.30% | — | — | — | — | |
| GE Aerospace | 110.77% | — | — | — | — | |
| Honeywell International Inc. | 209.78% | — | — | — | — | |
| Lockheed Martin Corp. | 319.28% | — | — | — | — | |
| RTX Corp. | 61.85% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 MVA. See details »
2 Invested capital. See details »
3 2021 Calculation
MVA spread ratio = 100 × MVA ÷ Invested capital
= 100 × 63,276 ÷ 13,555 = 466.81%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 exhibits a general trajectory of value creation, characterized by a temporary contraction in 2018 followed by sustained growth through 2021. The expansion of market value relative to the capital invested indicates an increasing efficiency in generating shareholder wealth.
- Market Value Added (MVA)
- A contraction is observed in 2018, where MVA decreased from 50,578 million US$ to 42,295 million US$. Following this period, a consistent upward trend occurred, with values rising to 55,666 million US$ in 2019 and peaking at 63,276 million US$ by December 31, 2021. This recovery represents a significant expansion in the market's valuation of the entity above its invested capital.
- Invested Capital
- Invested capital remained relatively stable across the five-year period. A decrease was noted in 2018, dropping from 14,406 million US$ to 12,895 million US$. Subsequently, the capital base experienced marginal annual growth, reaching 13,555 million US$ by 2021. The narrow range of fluctuation suggests that the growth in market value was not the result of aggressive capital expansion.
- MVA Spread Ratio
- The spread ratio mirrors the trend of the MVA, experiencing a dip to 327.99% in 2018 before entering a period of steady escalation. The ratio rose to 427.11% in 2019 and continued to climb, ending the period at 466.81% in 2021. This widening spread indicates that the market is assigning an increasingly higher premium to each dollar of invested capital, reflecting enhanced perceived value creation and capital efficiency.
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MVA Margin
Illinois Tool Works Inc., MVA margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Market value added (MVA)1 | 63,276) | 59,810) | 55,666) | 42,295) | 50,578) | |
| Operating revenue | 14,455) | 12,574) | 14,109) | 14,768) | 14,314) | |
| Add: Increase (decrease) in deferred revenue and customer deposits | 172) | 34) | (27) | 10) | 25) | |
| Adjusted operating revenue | 14,627) | 12,608) | 14,082) | 14,778) | 14,339) | |
| Performance Ratio | ||||||
| MVA margin2 | 432.60% | 474.38% | 395.30% | 286.20% | 352.73% | |
| Benchmarks | ||||||
| MVA Margin, Competitors3 | ||||||
| Boeing Co. | 203.39% | — | — | — | — | |
| Caterpillar Inc. | 190.31% | — | — | — | — | |
| Eaton Corp. plc | 198.58% | — | — | — | — | |
| GE Aerospace | 111.81% | — | — | — | — | |
| Honeywell International Inc. | 293.22% | — | — | — | — | |
| Lockheed Martin Corp. | 136.30% | — | — | — | — | |
| RTX Corp. | 107.41% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 MVA. See details »
2 2021 Calculation
MVA margin = 100 × MVA ÷ Adjusted operating revenue
= 100 × 63,276 ÷ 14,627 = 432.60%
3 Click competitor name to see calculations.
The financial performance between 2017 and 2021 reveals a general expansion in market value added relative to operating revenue, characterized by a strong recovery following a contraction in 2018. While operating revenue experienced volatility, the market valuation demonstrated a consistent upward trajectory in the latter half of the period.
- Market Value Added (MVA) Trends
- A period of sustained growth is observed following a dip in 2018. MVA decreased from 50,578 million USD in 2017 to 42,295 million USD in 2018, before entering a three-year growth phase. This growth culminated in a peak of 63,276 million USD by December 31, 2021, indicating an overall increase in the value created for shareholders over the five-year window.
- Adjusted Operating Revenue Patterns
- Operating revenue exhibited significant fluctuations, peaking in 2018 at 14,778 million USD before declining for two consecutive years. The lowest revenue point occurred on December 31, 2020, at 12,608 million USD. A substantial recovery was recorded in 2021, with revenue rising back to 14,627 million USD, nearly returning to 2018 levels.
- MVA Margin Interpretation
- The MVA margin showed a non-linear relationship with operating revenue. After dropping to 286.20% in 2018, the margin rose sharply, reaching its maximum of 474.38% in 2020. This peak is particularly notable as it coincided with the period of lowest operating revenue, suggesting that market valuation increased despite operational contractions. The margin subsequently moderated to 432.60% in 2021 as revenue growth accelerated.
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