10% returns might not lead to wealth, but EVMA can
People commonly confuse investment returns with wealth creation, but they are not the same.
Take these two scenarios:
- You accumulate enough investable assets capable of delivering 10% annual rates of return. Over time, you can become personally rich.
- You own a company that provides shareholders with an annual return rate of 10%, but you haven’t actually created a high Equity Market Value Added (EVMA). If your business value doesn’t rise above what it cost to create, you’ll never be business rich.
The second scenario is shocking but true because without the potential to deliver returns above what your company cost to create, your business will never attract sophisticated outside capital. Independent investors will simply choose safer alternatives, like the S&P 500, which offers scale, liquidity, and lower execution risk.
This is why many businesses function primarily as a way to “be your own boss.”
They provide their owners with a decent living and a chance to save some money…
But they don’t create true wealth.
Calculating Equity Market Value Added (EVMA)
So how do you truly create wealth in business?
Wealth is created when a company generates annual rates of return above its applicable benchmarks. That’s where Equity Market Value Added (EMVA) comes in as the single most important corporate financial performance metric. EMVA is the difference between what a company’s shareholder equity is worth today and what it cost to create.
Once you know this number, you can compute the annual compound growth rate of your EMVA. This reveals whether your business is simply maintaining value or actually creating shareholder wealth and the key to calculating this is knowing the weighted average age of the equity at cost. Because most companies reinvest cash flow back into the business instead of distributing it to shareholders, this effective age matters. Raising new capital can also reduce the average age of equity, thereby lifting annual compound EMVA rates.
This is also why broad stock market indices rise over the long term. Companies retain and reinvest free cash flows, but for true shareholder wealth creation, the reinvested capital must not only preserve value, but also add EMVA.
Wealth creation in context
Of course, the math alone isn’t enough. Building wealth through EMVA depends on the ideas, business models, and leadership teams that are compelling enough to attract capital behind the numbers. In my experience, qualified teams and good models are far scarcer than investor money and the U.S. offers a unique environment for the best ideas to flourish:
- With only 4% of the world’s population, the U.S. has more small and middle market companies than any other country.
- Capital availability continues to expand.
- A strong legal framework and open economy encourage business formation and protect investors.
The result is a continuous flow of lenders and equity investors actively seeking opportunities with true wealth creation potential.
Creating measurable wealth through EVMA
I’ve always believed that our potential is limited only by imagination, dedication, and discipline. And in business, the ultimate test isn’t achieving arbitrary 10% returns, it’s creating measurable wealth. Equity Market Value Added (EMVA) is the clearest way to know if your company is doing exactly that.
I hope you don’t stop at being your own boss. Aim to create something that attracts capital, outperforms benchmarks, and compounds shareholder value over time.
That’s how business wealth (not income returns) is created.
