Marathon Oil: Investor Incentives
Marathon Oil is one of the largest and most well known oil companies in the world. Many investors are familiar with them, and have probably considered investing with them a couple of times. Well, now might be a good time to consider them again. Their management has created strong incentives for investors, and are working hard to make their investors profit. Dan Dzombak describes the incentives in greater detail.
Creator Bennett Stewart of EVA Dimensions, who also co-created EVA (economic value added), calls EVA momentum “the only percent metric where more is always better than less. It always increases when managers do things that make economic sense.”
So what does this mean for investors? A positive EVA momentum reading means a company has created more value by increasing its EVA while a negative EVA momentum reading means EVA has decreased, signaling less value creation. EVA momentum is one of the few, if not the only, performance measures with such a clear dividing line between good and bad performance.
The best companies, then, create value in excess of their cost of capital, as reflected by positive EVA momentum. The higher the EVA momentum, the faster management is creating value.
2009 Q1 TFQ
2010 Q1 TFQ
2011 Q1 TFQ
Russell 3000 Percentile
Marathon Oil 0.1% (3.4%) 2.8% 64 ExxonMobil (NYSE:XOM ) (0.9%) (4.9%) 3.2% 69 Chevron (NYSE: CVX ) 0.6% (3.8%) 4.4% 76 BP (NYSE: BP ) (1.8%) 1.1% 1.2% 50
Source: EVA Dimensions LLC. TFQ = trailing four quarters.
With an EVA momentum of 2.8%, Marathon Oil’s economic value added increased year over year, placing it in the 64th percentile of all companies in the Russell 3000. All of the three remaining companies had positive EVA momentum over the past 12 months.
Businesses with high EVA momentum are effectively creating value. It will be interesting to see how useful this extremely new metric proves for companies and investors. If it lives up to its promise, EVA momentum will be an essential tool in investors’ arsenals.
It is obvious that the MRO management really wants to create value in their stock. They are utilizing EVA momentum to their advantage and making sure their investors see the value in their company. If they keep working hard at creating value, they are bound to see the results.
Quotes taken from report by Dan Dzombak, Read the entire article here.
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