Question 11.RQ.2: Why is MVA not really suitable as a tool for internal manage...

Financial Management for Decision Makers

Why is MVA not really suitable as a tool for internal management purposes?

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Two problems with the use of MVA as a tool for internal management purposes were identified in the text. First, MVA depends on establishing a market price for shares and so only businesses listed on the Stock Exchange can use this technique. Secondly, MVA cannot be used to evaluate the performance of strategic business units as there is no market share price for each unit. However, there is also a third reason why it is inappropriate for management purposes. Share prices may fluctuate significantly over the short term and this could obscure the performance of managers.

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