Tarun Sharma

Relationship of various performance measures with share prices
A RESEARCH PROJECT ON
RELATIONSHIP OF VALUE BASED AND ACCOUNTING BASED

PERFORMANCE MEASURES WITH RESPECT TO SHARE
PRICES
Submitted in partial fulfillment of the requirements

for the award of MBA degree of Bangalore University.
By
SAVITHA GUPTA
Regd NO: 07XQCM6095
MBA Fourth Semester

Under The Guidance and Supervision of- Dr. N.S. Malavalli, Principle
M.P.BIRLA INSTITUTE OF MANAGEMENT

ASSOCIATE BHARATIYA VIDYA BHAVAN
#43.RACE COURSE ROAD, BANGALORE-56
2008-09

1
DECLARATION
I hereby declare that the dissertation report titled “Relationship of Value-

based and Accounting –based performance measures with respect to share prices
is an original research work carried out by me, towards the partial fulfillment of
requirements for the M.B.A. degree course of Bangalore University under the
valuable guidance of Dr. N. S. Malavalli, Principal , M.P. Birla Institute of
Management.
This project does not form part of any other/degree/diploma fellowship of

Bangalore University or any other University.
Place: Bangalore Savitha Gupta
Date: Regd No:

07XQCM6095

2
ACKNOWLEDGEMENT
The research work which I had done gave me enormous amount of knowledge and
the understanding of various financial issues related to the firm’s Computation of
EVA. This research project work is made successful by the combining efforts of a
no. of officials and bears the imprint of many people. This project cannot be said
completed unless and until, I fulfill my duty of thanking those persons to whom I
deeply indebted. I wish to express my deep gratitude towards them to their whole
hearted support and existence.
I would like to extend my heartfelt gratitude to Dr. Nagesh . S. Malavalli,

our honorable Principal & my esteemed project guide for his valuable advice,
assistance and guidance provided. I am deeply grateful for his constant support and
guidance without which it could have not been possible for me to complete this
project in time
Further, I am grateful to Professor Santhanam, M P Birla Institute of

Management, Bangalore, who gave his suggestions to improve the accuracy and
the dependability of the data.
I also remain grateful to my family and friends for their assistance to prepare this
project successfully.

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CONTENT
CHAPTER PARTICULARS Pg No
EXECUTIVE SUMMARY 16
1 THEORETICAL BACKGROUND 17-25
1.1 Introduction 18
1.2 An overview 18
1.3 Background of EVA 21
1.4 Development of the concept of EVA 24
Comparison of EVA with other performance
1.5 25
measures
2 LITERATURE SURVEY 26-31
3 RESEARCH DESIGN 31-41

3.0 Research Design 33
3.1 Problem Statement 33
3.2 Significance of the study 33
3.3 Objectives of the study 34
3.4 Scope of the study 34
3.5 Research questions 34
3.6 Research Methodology 34
3.6.1 Study type 34
3.6.2 Study population 35
3.6.3 Sampling frame 35
3.6.4 Sampling technique 35
3.6.5 Sample profile 35
3.6.6 Data gathering procedure and instrumentation 36

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3.7 Hypothesis 36
3.7.1 Testing of hypothesis 36
3.8 Description about the various analysis tools 37
3.8.1 Method adopted to calculate Eva 39
3.9 Limitations of the study 41
4 INDUSTRY PROFILE 41-46
4.1 IT Industry 42
4.2 Power Industry 44
4.3 Pharmaceutical Industry 45
5 DATA ANALYSIS AND INTERPRETATIONS 46-104
115-
6 FINDINGS, CONCLUSIONS ,SUGGESTIONS
119
6.1 Findings from the study 116
6.2 Recommendations 116
6.3 Conclusions from the study 117
6.4 Suggestions for further research 119
BIBLIOGRAPHY
ANNEXURE

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LIST OF TABLES
TABLE PARTICULARS Pg No.
Table showing sample profile

3.2.1 46
Table showing Betas of sample companies

5.1 48
Table showing NOPAT of sample companies

5.2 49
Table showing WACC of sample companies

5.3 50
Table showing Capital Employed of sample companies

5.4 51
Table showing share prices, EVA, MVA, EPS, ROCE & RONW
5.5 53
of Infosys
5.6 55
of HCL Technologies
5.7 57
of Mphasis
5.8 59
of Oracle
5.9 61
of Patni
5.10 63
of Polaris software
5.11 65
of TCS

6
5.12 67
of Tech Mahindra
5.13 69
of Wipro ltd
5.14 71
of 3I Infotech
5.15 73
of NTPC
5.16 75
of Power Grid
5.17 77
of Neyveli Lignite
5.18 79
of Tata power
5.19 81
of BF Utilities
5.20 83
of Energy Development
5.21 85
of GVK Power Infrastructure
5.22 87
of CESC ltd
5.23 89
of JP Hydro
5.24 91
of Gujurat Industries power ltd
5.25 93
of Sun Pharma
5.26 95
of Cipla

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5.27 97
of Dr. Reddy’s Laboratories
5.28 99
of Ranbaxy
5.29 101
of Cadila Health Care
5.30 103
of Glen Mark Pharmaceuticals
5.31 105
of Piramal Health Care
5.32 107
of Aurobindo Pharma
5.33 109
of FDC
5.34 111
of IPCA Laboratories
5.35 Table showing summary of multiple regression results 113
5.5.1 Table showing multiple regression results of Infosys 115
5.6.1 Table showing multiple regression results HCL Technologies 117
5.7.1 Table showing multiple regression results of Mphasis 119
5.8.1 Table showing multiple regression results of Oracle 121
5.9.1 Table showing multiple regression results of Patni 123
5.10.1 Table showing multiple regression results of Polaris software 125
5.11.1 Table showing multiple regression results 127

8
5.12.1 Table showing multiple regression results of Tech Mahindra 129
5.13.1 Table showing multiple regression results of Wipro ltd 131
5.14.1
Table showing multiple regression results of 3I Infotech 133
5.15.1 Table showing multiple regression results of NTPC 135
5.16.1 Table showing multiple regression results of Power Grid 137
5.17.1 Table showing multiple regression results of Neyveli Lignite 139
5.18.1 Table showing multiple regression results of Tata power 141
5.19.1 Table showing multiple regression results of BF Utilities 143
Table showing multiple regression results of Energy

5.20.1 145
Development
5.21.1 Table showing multiple regression results of GVK Power Infra 147
5.22.1 Table showing multiple regression results of CESC ltd 149
5.23.1 Table showing multiple regression results of JP Hydro 151
Table showing multiple regression results of Gujurat

5.24.1 153
Industries power ltd
5.25.1 Table showing multiple regression results of Sun Pharma 155
5.26.1 Table showing multiple regression results of Cipla 157
5.27.1 Table showing multiple regression results of Dr. Reddy’s

159
Laboratories
5.28.1 Table showing multiple regression results of Ranbaxy 161

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Table showing multiple regression results of Cadila Health

5.29.1 163
Care
Table showing multiple regression results of Glen Mark
5.30.1 165
Pharma
Table showing multiple regression results of Piramal Health
5.31.1 167
Care
Table showing multiple regression results of Aurobindo LIS
5.32.1 169
Pharma T
OF
Table showing multiple regression results of IPCA
5.33.1 171 CH
Laboratories AR
TS
5.34.1 Table showing multiple regression results of FDC 173
CHART PARTICULARS Pg No
4.3.1 Chart showing growth of pharmaceutical industry 46
5.5.1 Chart showing share prices, EVA, MVA, of Infosys 53
5.6.1 Chart showing share prices, EVA, MVA, of HCL Technologies 55
5.7.1 Chart showing share prices, EVA, MVA, of Mphasis 57
5.8.1 Chart showing share prices, EVA, MVA of Oracle 59
5.9.1 Chart showing share prices, EVA, MVA of Patni 61
5.10.1 Chart showing share prices, EVA, MVA of Polaris software 63
5.11.1 Chart showing share prices, EVA, MVA of TCS 65
5.12.1 Chart showing share prices, EVA, MVA of Tech Mahindra 67
5.13.1 Chart showing share prices, EVA, MVA of Wipro ltd 69

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5.14.1 Chart showing share prices, EVA, MVA of 3I Infotech 71
5.15.1 Chart showing share prices, EVA, MVA of NTPC 73
5.16.1 Chart showing share prices, EVA, MVA of Power Grid 75
5.17.1 Chart showing share prices, EVA, MVA of Neyveli Lignite 77
5.18.1 Chart showing share prices, EVA, MVA of Tata power 79
5.19.1 Chart showing share prices, EVA, MVA of BF Utilities 81
Chart showing share prices, EVA, MVA of Energy

5.20.1 83
Development
Chart showing share prices, EVA, MVA of GVK Power
5.21.1 85
Infrastructure
5.22.1 Chart showing share prices, EVA, MVA of CESC ltd 87
5.23.1 Chart showing share prices, EVA, MVA of JP Hydro power 89
Chart showing share prices, EVA, MVA of Gujurat Indus

5.24.1 91
power ltd
5.25.1 Chart showing share prices, EVA, MVA of Sun Pharma 93
5.26.1 Chart showing share prices, EVA, MVA of Cipla 95
5.27.1 Chart showing share prices, EVA, MVA of Dr. Reddy’s

97
Laboratories
5.28.1 Chart showing share prices, EVA, MVA of Ranbaxy 99
Chart showing share prices, EVA, MVA of Cadila Health

5.29.1 101
Care
Chart showing share prices, EVA, MVA of Glen Mark
5.30.1 103
Pharmaceuticals
5.31.1 Chart showing share prices, EVA, MVA of Piramal Health 105

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Care
Chart showing share prices, EVA, MVA of Aurobindo

5.32.1 107
Pharma
5.33.1 Chart showing share prices, EVA, MVA of IPCA Laboratories 109
5.34.1 Chart showing share prices, EVA, MVA of FDC 111
5.5.2 Chart showing share prices, EPS, ROCE & RONW of Infosys 113
Chart showing share prices, EPS, ROCE & RONW of HCL

5.6.2 115
Technologies
5.7.2 Chart showing share prices, EPS, ROCE & RONW of Mphasis 117
5.8.2 Chart showing share prices, EPS, ROCE & RONW of Oracle 119
5.9.2 Chart showing share prices, EPS, ROCE & RONW of Patni 121
Chart showing share prices, EPS, ROCE & RONW of Polaris

5.10.2 123
software
5.11.2 Chart showing share prices, EPS, ROCE & RONW of TCS 125
Chart showing share prices, EPS, ROCE & RONW of Tech

5.12.2 127
Mahindra
5.13.2 Chart showing share prices, EPS, ROCE & RONW of Wipro ltd 129
5.14.2 Chart showing share prices, EPS, ROCE & RONW of 3I

131
Infotech
5.15.2 Chart showing share prices, EPS, ROCE & RONW of NTPC 133
Chart showing share prices, EPS, ROCE & RONW of Power

5.16.2 135
Grid
Chart showing share prices, EPS, ROCE & RONW of Neyveli
5.17.2 137
Lignite

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Chart showing share prices, EPS, ROCE & RONW of Tata

5.18.2 139
power
5.19.2 Chart showing share prices, EPS, ROCE & RONW of BF Utilities 141
Chart showing share prices, EPS, ROCE & RONW of Energy

5.20.2 143
Development
Chart showing share prices, EPS, ROCE & RONW of GVK
5.21.2 145
Power Infrastructure
5.22.2 Chart showing share prices, EPS, ROCE & RONW of CESC ltd 147
5.23.2 Chart showing share prices, EPS, ROCE & RONW of JP Hydro 149
Chart showing share prices, , EPS, ROCE & RONW of Gujurat

5.24.2 151
Industries power ltd
Chart showing share prices, EPS, ROCE & RONW of Sun
5.25.2 153
Pharma
5.26.2 Chart showing share prices, EPS, ROCE & RONW of Cipla 155
5.27.2 Chart showing share prices, EPS, ROCE & RONW of Dr.
157
Reddy’s Laboratories
5.28.2 Chart showing share prices, EPS, ROCE & RONW of Ranbaxy 159
Chart showing share prices, EPS, ROCE & RONW of Cadila

5.29.2 161
Health Care
Chart showing share prices, EPS, ROCE & RONW of Glen
5.30.2 163
Mark Pharmaceuticals
Chart showing share prices, EPS, ROCE & RONW of Piramal
5.31.2 165
Health Care
Chart showing share prices, EPS, ROCE & RONW of
5.32.2 167
Aurobindo Pharma
5.33.2 Chart showing share prices, EPS, ROCE & RONW of FDC 169

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Chart showing share prices, EPS, ROCE & RONW of IPCA

5.34.2 171
Laboratories
GUIDE’S CERTIFICATE
This is to certify that the dissertation report titled Relationship between Value
based and Accounting based performance measures with respect to share prices
submitted by Savitha Gupta bearing Registration No.07XQCM6095 is a bonafide
work carried under my guidance during the academic year 2007-09 in a partial
fulfillment of the requirement for the award of MBA degree by Bangalore
University. To the best of my knowledge, this report has not formed the basis for
the award of any other degree.

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Place: Bangalore Dr. Nagesh. S.Malavalli
Date (Principal)
PRINCIPAL’S CERTIFICATE
This is to certify that this report is the result of dissertation undergone by Savitha
Gupta bearing the Registration No. 07XQCM6095, under the guidance and
supervision of Dr. Nagesh S. Malavalli, M.P. Birla Institute of Management.. This
has not formed a basis for the award of any degree/ diploma for any university.

15
Place: Bangalore Dr. Nagesh. S.Malavalli
Date:
EXECUTIVE SUMMARY
Market prices of the shares reflect the performance of the company. Today, wealth created by the
company is more important than the profit it earns or the dividend it pays to the shareholders.
The objective of this research is to study the relationship that exists between the wealth, value
and other performance based measures for the shareholders created by the company with respect
to market prices of the shares.
The value-based management performance measure EVA introduced by Stern Stewart & Co. is
an incarnation of the underlying residual income (RI) concept. EVA is equal to NOPAT (Net
Operating Profit) minus WACC (Weighted Average Cost of Capital) *Capital Employed.
NOPAT is EBIT after taxes. Cost of equity is calculated using CAPM Model. Beta is calculated
based on monthly high low average of past five years. MVA is the sum of all capital claims held
against the company plus the market value of debt and equity.
The value based performance measures are evaluated and compared with traditional valuation
measures like Earnings per share (EPS), ROCE (Return On Capital Employed) and RONW

16
(Return On Net Worth) within a controlled simulation framework. The purpose of the study is to
see whether EVA, MVA, ROCE, RONW, EPS, have relationship with share prices, and this is
tested on 30 companies of the stock market for a period of 5years beginning from FY 2003-2004
to FY 2007-2008. Analysis is done using the Regression tool.
From the study it is observed that there is strong pattern of wealth created by companies. EVA of
different companies varies year to year based on its overall cost of capital and cost of equity is
more influential factor but it is unexpectedly insensitive to its cost of debt component under
regular conditions. It is also found that EVA, MVA and market price have good relation for the
sample companies. And thus we can say that investors do consider EVA for the investment
decision. EPS, ROCE & RONW market price also have good relation for the sample companies
CHAPTER 1
THE0RETICAL
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BACKGROUND
1.1 INTRODUCTION:
Market prices of the shares reflect the performance of the company. Today, wealth created by the
company is more important than the profit it earns or the dividend it pays to the shareholders.
Creation of shareholder’s value is the core of every business. This is natural since shareholders
own the company and as rational investors they expect good long-term yield on their investment.
Maximizing value means maximizing long-term yield on shareholders’ investment.
There are a number of financial performance measures. The Commonly used accounting
measures are Earnings Per share (EPS), Price Earnings Ratio (PE Ratio), Return On Capital
Employed (ROCE), Return On Net Worth (RONW) etc. Apart from this, value based metrics of
performance evaluation like EVA (Economic Value Added), MVA (Market Value Added), CVA
(Cash Value Added) and CFROI (Cash Flow Return on Investment) have come into existence.
These new performance metrics seek to measure the periodic performance in terms of change in
value. Maximizing value means maximizing long-term yield on shareholders’ investment.

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Considering this, it is interesting to examine which of the performance measures has more
influence on the share prices.
1.2 AN OVERVIEW:
Investors analyze and interpret the financial statements so that they can get an insight into the
firm’s performance. Ratio analysis is one of the tools of financial analysis. It shows the
relationship between two figures in the financial statements. There are various types of ratios
used. Investors are more interested in profitability ratios like Net profit ratio, Earnings per share,
Return on Capital employed, Return on Net worth, etc., and valuation ratios like Price-Earnings
ratio, Earnings per share, Yield, etc.
Net profit ratio:
NPR shows the earnings left for the shareholders as a percentage of net sales. It measures the
overall efficiency of production, administration, selling, financing, pricing and provides a
valuable understanding of the cost profit structure of the company. It enables the analysts to
identify the sources of business efficiency/inefficiency.
NPR= (Net Profit/Net Sales)*100
Return on Net worth/Equity:
RONW measures the profitability for the shareholders funds invested in the firm. It is an
important measure as it reflects the productivity of the ownership capital in the firm. This
measure is of great interest to the shareholders.
RONW= (Earnings for Equity shareholders/ Average equity capital) * 100
Earnings per share:

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EPS is also a measure of the profitability of the firm. It indicates the profitability on a per-share
basis.
EPS = (Earnings for Equity shareholders/ No. of equity shares) * 100
Earnings Before Interest & Tax (EBIT):
An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax

and interest. EBIT is also referred to as "operating earnings", "operating profit" and "operating
income", as you can re-arrange the formula to be calculated as follows:
EBIT = Revenue - Operating Expenses
Return On Assets (ROA):
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to
how efficient management is at using its assets to generate earnings. Calculated by dividing a
company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this
is referred to as "return on investment".
ROA=Net Income/Total Assets
ROI (Return on Investment):
A performance measure used to evaluate the efficiency of an investment or to compare the

efficiency of a number of different investments. To calculate ROI, the benefit (return) of an
investment is divided by the cost of the investment; the result is expressed as a percentage or a
ratio.
ROI=(Gain from Investment-Cost of Investment)/Cost of Investment
Return On Capital Employed (ROCE);
A ratio that indicates the efficiency and profitability of a company's capital investments.
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ROCE=EBIT/ (Total Assets-Current Liabilities)
Market Value Added:
MVA is the difference between the company’s market value and the capital invested. It is the
premium the market awards a company over and above the amount the investors have invested in
it. This helps in the assessment of how the markets view EVA generating ability of the firm. So,
MVA is the market expectations of future EVAs generated by a firm.
MVA= EVA1 + EVA2 +………………………
(1+WACC)^1 (1+WACC)^2
Calculated as:
MVA=Company’s Market Value-Invested Capital
Economic Value Added:
The consulting firm Stern Stewart originally proposed it. It is the most popular value-based
measure. It is the surplus left after making an appropriate charge for the capital employed in the
business.
EVA = NOPAT – WACC (Capital Invested)
NOPAT is Net Operating Profit After Taxes
WACC is Weighted Average Cost of Capital
1.3 BACKGROUND OF EVA:
Stern Stewart & Co, a consulting firm based in New York, introduced the concept of EVA as a
measurement tool in 1989, and trademarked it. The EVA concept is often called Economic Profit

21
(EP) to avoid problems caused by the trade marking. EVA is so popular and well known that all
residual income concepts are often called EVA even though they do not include the main
elements defined by Stern Stewart & Co (Pinto, 2001)
Stern Stewart developed EVA to help managers incorporate two basic principles of finance into
their decision making:
1. The primary objective of maximizing the wealth of its shareholders; and
2. Accepting that the value of a company depends on the extent to which investors expect
future profits to exceed or fall short of the cost of capital.
Today, this mechanism enable all types of firms to determine their value creation and share
holders to determine the value created on their investments. The first question coming to our
mind after reading this is:
WHAT IS EVA?
EVA is a value based financial performance measure, an investment decision tool and a
performance measure reflecting the absolute amount of shareholder value created. It is computed
as the product of the “excess return” made on an investment or investments and the capital
invested in that investment or investments. EVA is the net operating profit minus an appropriate
charge for the opportunity cost of all capital invested in an enterprise or project. It is an estimate
of true economic profit, or the amount by which earnings exceed or fall short of the required
minimum rate of return investors could get by investing in other securities of comparable risk
(Stewart, 1990).
Uses of EVA
In stock selection the EVA tool can be used in four distinct ways.

22
¾ Analyzing historical trends - EVA can measure a company’s historical success in creating
shareholder wealth.
¾ Using EVA to forecast a target stock price - EVA can be used to determine whether a
stock is fairly valued based on a forecast of economic profits. Such a forecast converts
discounted EVA into a share price.
¾ To quantify Competitive Advantage Period (CAP) - Stock prices in many cases may
reflect a long competitive advantage period. Analysts can use the value driver model to
look at their assumptions regarding risk and CAP.
¾ To examine excess returns and its impact on valuation of a stock - Another way of
exploring the explanatory power of the value drivers in an EVA model is to perform a
regression analysis of invested capital (ROIC) minus the weighted average cost of capital
(WACC) spread as the independent variable and enterprise value to invest capital as the
dependant variable. The correlation between return spreads and valuation is quite strong.
PROFITS THE WAY SHAREHOLDERS COUNT THEM:
By taking all capital costs into account, including the cost of equity, EVA shows the monetary
amount of wealth a business has created or destroyed in each reporting period. In other words,
EVA is the profit as defined by the share holders.
The capital charge is the most distinctive and important aspect of EVA. Under conventional
accounting, most companies appear profitable but many in fact are not. As Peter Drucker put the
matter in a Harvard Business Review article, "Until a business returns a profit that is greater than
its cost of capital, it operates at a loss. Never mind that it pays taxes as if it had a genuine profit.
The enterprise still returns less to the economy than it devours in resources…Until then it does
not create wealth; it destroys it." EVA corrects this error by explicitly recognizing that when
managers employ capital they must pay for it, just as if it were a wage.
23
If the shareholders expect, say, a 10% return on their investment, they "make money" only to the
extent that their share of after-tax operating profits exceeds 10% of equity capital. Everything
before that is just building up to the minimum acceptable compensation for investing in a risky
enterprise.
APPLICATIONS OF EVA:
¾ To measure how much shareholder value the firm has created in the past and
¾ To determine investor expectations as they relate to the stock price.
ADVANTAGES OF EVA:
EVA is frequently regarded as a single, simple measure that provides a real picture of
shareholder wealth creation. In addition to motivating managers to create shareholder value and
to serving as a basis for the calculation of management compensation, there are further practical
advantages that value based measurement systems can offer. According to Roztoci & Needy an
EVA system helps managers to:
¾ Make better investment decisions;

¾ Identify improvement opportunities; and
¾ Consider long-term and short-term benefits for the company.
EVA is an effective measure of the quality of managerial decisions and a reliable indicator of a
company’s value growth in the future. Constant positive EVA values over time will increase
company values, while negative EVA values might decrease company values.
Above all, EVA helps in overcoming the ambiguity of financial goals. Most companies use a
plethora of measures to express their financial goals and objective.
1.4 DEVELOPMENT OF THE CONCEPT OF EVA:

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EVA is not new. Residual income, an accounting performance measure, is defined to be

operating profit with a capital charge subtracted. Thus, EVA is variant of residual income, with
adjustments to how one calculates income and capital.
Upto 1970 residual income did not get wide publicity and it was not the prime performance
measure for companies (Mäkeläinen, 1998). However, in the 1990’s, the creation of shareholder
value has become recognized as the ultimate economic purpose of a corporation.
Firms adopt this concept to track their financial position and to guide management decisions
regarding resource allocation, capital budgeting and acquisition analysis. At operational level
EVA approach leads often to increased shareholder value through increased capital turnover
(Wallace 1997, p.16). In many companies everything has been done in cutting costs but the
capital efficiency has been ignored. EVA has been helpful because it forces to pay attention to
capital employed and especially to excess working capital. Allocating the capital costs to their
originators i.e. individual functions of organization can further reinforce this impact.
1.5COMPARISON OF EVA WITH OTHER PERFORMANCE MEASURES:
Conceptually, EVA is superior to accounting profits as a measure of value creation because it

recognizes the cost of capital and, hence, the riskiness of a firm’s operations. Furthermore EVA
is constructed so that maximizing it can be set as a target. Traditional measures do not work that
way. Maximizing any accounting profit or accounting rate of return leads to an undesired
outcome.
EVA vs. ROCE

25
1. Return on capital is very common and relatively good performance measure. Different
companies calculate this return with different formulas and call it also with different names like
Return on investment (ROI), Return on invested capital (ROIC), Return on capital employed
(ROCE), Return on net assets (RONA), Return on assets (ROA) etc. The main shortcoming with
all this rate of return is that maximizing rate of return does not necessarily maximize the return to
shareholders.
2. Also operations should not be guided with the goal to maximize the rate of return. As a
relative measure and without the risk component ROI fails to steer operations correctly.
Therefore capital can be misallocated on the basis of ROI. First of all ROI ignores the definite
requirement that the rate of return should be at least as high as the cost of capital. Secondly ROI
does not recognize that shareholders’ wealth is not maximized when the rate of return is
maximized. Shareholders want the firm to maximize the absolute return above the cost of capital
and not to maximize percentages. Companies should not ignore projects yielding more than the
cost of capital just because the return happens to be less than their current return. Cost of capital
is much more important hurdle rate than the company's current rate of return.
3. Observing rate of return and making decisions based on it alone is similar to assessing
products on the "gross margin on sales" -percentage. The product with the biggest "gross margin
on sales" -percentage is not necessary the most profitable product. The product profitability
depends also on the product volume. In the same way bare high rate of return should not be used
as a measure of a company's performance. Also the magnitude of operations i.e. the amount of
capital that produces that return is important. High return is a lot easier to achieve with tiny
amount of capital than with large amount of capital. Almost any highly profitable company can
increase its rate of return if it decreases its size or overlooks some good projects, which produce
a return under the current rate of return.
EVA vs. RONW
RONW suffers from the same shortcomings as ROI. Risk component is not included and hence
there is no comparison. The level of RONW does not tell the owners if company is creating
shareholders wealth or destroying it. With RONW this shortcoming is however much more

26
severe than with ROI, because simply increasing leverage can increase RONW. As we all know,
decreasing solvency does not always make shareholders’ position better because of the increased
(financial) risk. As RONW, return on net worth (ROE) is also an informative measure but it
should not guide the operations.
EVA vs. EPS
EPS is raised simply by investing more capital in business. If the additional capital is equity
(cash flow) then the EPS will rise if the rate of return of the invested capital is just positive. If the
additional capital is debt then the EPS will rise if the rate of return of the invested capital is just
above the cost of debt. In reality the invested capital is a mix of debt and equity and the EPS will
rise if the rate of return of that additional capital invested is somewhere between cost of debt and
zero. Therefore EPS is completely inappropriate measure of corporate performance and still it is
very common yardstick and even a common bonus base. EPS and earnings can be increased
simply by pouring more money into business even though the return on that money would be
entirely unacceptable from the viewpoint of owners. EPS, earnings and earnings/EPS growth
should therefore be abandoned as performance measures.

27
CHAPTER 2
LITERATURE REVIEW
LITERATURE REVIEW:
My preliminary review of the current literature indicates that the application of perceptual
mapping of Relationship of Economic Value Added, Market Value Added & Return on net
worth, Return on capital employed, Earnings per share with respect to Share Price has not been
adequately researched. The available research data is sketchy and scanty. Thus, there is a vital
gap in the current research. This has prompted me to take up this research investigation.

28
The share prices in the market can be measured by the MVA-Market value added for the
company which is the total market value of the company. This relationship between EVA and
MVA has been studied in the recent years in many studies with many methods – and with
different results
STERN STEWART:
In 1990 has first studied this relationship with market data of 618 U.S. companies. Stewart
presents the results in his book "The quest for value". Stewart has studied the relationship
between EVA and market value of the company and he has produced a list of companies’ EVA
annually since 1982, its coverage is limited to the largest 1,000 companies.Stern Stewart claims
that:
¾ EVA is the only true indicator of business and management performance;

¾ EVA is "today's hottest financial idea and getting hotter";
¾ EVA "allows all financial decisions to be modeled, monitored, evaluated, communicated,
and compensated in terms of a single measure";
¾ "EVA is the only reliable and unambiguous continuous-improvement metric"
¾ EVA must be used to guide every decision;
¾ EVA should be used as the "deciding factor in all business decisions.
LEHN AND MAKHIJA:
Lehn and Makhija (1996) first studied this relationship with market data of 618 U.S. companies
i.e. relationship between MVA & EVA.
METHODOLOGY:
The data consists of 241 U.S.companies and cover years 1987, 1988, 1992 and 1993. The
researchers first find out that both measures correlate positively with stock returns and that the

29
correlation is slightly better than with traditional performance measures like return on assets
(ROA), return on equity (ROE) and return on sales (ROS).
CONCLUSION:
Lehn and Makhija conclude that their results suggest EVA and MVA to be effective performance
measures that contain information about the quality of strategic decisions and serve as signals of
strategic change.
DODD AND CHEN:
Dodd and Chen (1996) study the correlation between stock returns and different profitability
measures
METHODOLOGY:
The study was based on 566 U.S. companies from 1983-1992. In the study ROA explained stock
returns best with R squared of 24.5%. The R squared for other metrics are: EVA 20.2%, residual
income 19.4% and EPS, ROE approximately 5-7%.
CONCLUSION
The writers concluded that firms adopting EVA might as adopt simple residual income concept,
while residual income correlates with share prices almost as well as its adjusted version called
EVA.
DAVID M. SZYMANSKI, SUNDAR G. BHARADWAJ AND P. RAJAN

VARADARAJAN DAVID M. SZYMANSKI, SUNDAR G. BHARADWAJ AND P.
RAJAN VARADARAJAN
They studied relationship between market share price and profitability.

30
METHODOLOGY:
David M. Szymanski, Sundar G. Bharadwaj and P. Rajan Varadarajan, performed a met analysis
on 276 market share profitability findings from forty-eight studies to address whether market
share and profitability are possibility related and to examine the factors that moderate the
magnitude of that relationship.
CONCLUSION:
The authors found that, on average, market share has a positive effect on business profitability.
NIKIL VARAIYA AND ROGER A. KERIN AND DAVID WEEKS NIKIL

VARAIYA AND ROGER A. KERIN AND DAVID WEEKS
Research on “The relationship between growth, profitability and firm value examined predictions
drawn from value based planning models Result indicates that profitability and growth do
influence shareholder value in the manner predicated; however the relationships are conditional.
This study also shows that, the market to book value of equity ratio and Tobin’s q ratio are
theoretically & empirically equivalent measures of value creation.
RESEARCH CONDUCTED BY DR. SRINIVASAN, PROFESSOR, NATIONAL

INSTITUTE OF INDUSTRIAL ENGINEERING (NITIE):
On “Economic Value Added (EVA) - An Emerging Tool for Value Creation” in 2000 suggests
that

31
¾ The study points out that EVA alone cannot be an ‘Indicator of Value.’ At the best
it can be used an additional tool. However the use of EVA analysis in isolation can
lead to misleading results.
¾ In India, there is no big correlation between EVA, management innovation and
stock market analysis. EVA serves a useful indicator only at the conceptual stage
rather than on the operational stage. As regards stock market indicator it cannot be
relied upon as a sole measure.
¾ As far as India is concerned the stock trends depend on a number of variables of
which EVA is one among them. It is clear that only a blend of EVA and other
variables can give a holistic future on stock market.
BENEFITS DERIVED FROM LITERATURE REVIEW:
¾ Provide a context for the research

¾ Justify the research
¾ Ensure the research hasn't been done before
¾ Show where the research fits into the existing body of knowledge
¾ Enable the researcher to learn from previous theory on the subject
¾ Illustrate how the subject has been studied previously
¾ Highlight flaws in previous research
¾ Outline gaps in previous research
¾ Show that the work is adding to the understanding and knowledge of the field
¾ Help refine, refocus or even change the topic

32
CHAPTER 3
RESEARCH DESIGN
3.0 RESEARCH DESIGN
BACKGROUND OF THE STUDY:

33
Investors are currently demanding Shareholder value more strongly than ever. So the value
created by the company is more linked to the market price of the shares. This study is undertaken
to show the relationship that exists between the various performance metrics and the share prices
as the performance of the company is reflected in the share prices in the market.
PURPOSE OF THE STUDY:
The purpose of the study is to see whether EVA, MVA, ROCE, RONW, EPS, have relationship
with share prices and this relationship is significant or not. This shows that value addition by the
company is also a dependant factor for the movement in the share prices. So this study is helpful
to the investors for their investment decision as the study also allows them to easily identify
companies that pursue business strategies with the goal of shareholders value creation.
3.1 PROBLEM STATEMENT:
There are various views with respect to whether traditional measures or value-based measures
influence the share prices. Considering this, it is interesting to examine which of the performance
measures has more influence on the share prices. Question to be addressed is whether there is
relationship between EVA, MVA, RONW, EPS, ROCE with respect to share prices.
3.2 SIGNIFICANCE OF THE STUDY:
The Purpose of the study is to see whether EVA, MVA, RONW, EPS, ROCE have relationship
with share prices. This shows that value addition by the company is also a dependant factor for
the movement in the share prices. So this study is helpful to the investors for their investment
decision as the study also allows them to easily identify companies that pursue business
strategies with the goal of shareholders value creation.
3.3 OBJECTIVE OF STUDY:
• To measure EVA, MVA for sample companies.

34
• To analyze the relationship of EVA, MVA, RONW, EPS, and ROCE with respect to
share prices.
• To find out which of the performance metrics is better reflected in the share prices.
3.4 SCOPE OF THE STUDY:
• The scope of the study is limited to three sectors i.e. software, power and pharmaceutical
industries under which 10 companies from each industry have been taken for my study.
And the analysis is based on the last 5 year data.
3.5 RESEARCH QUESTIONS:
The following are the research questions that are addressed in the study:
1. Is there any relationship between EVA, MVA with respect to Share prices?
2. Is there any relationship between EPS, RONW, and ROCE with respect to Share prices?
3. Are EVA & MVA strong influencing factors on the share prices as compared to EPS,
RONW and ROCE?
3.6 RESEARCH METHODOLOGY:
3.6.1 STUDY TYPE:
The study type is analytical, quantitative and historical.
• Analytical as facts and existing information is used for the analysis.

• Quantitative as EVA & MVA is calculated and the variables are expressed in
measurable terms.
• Historical as the historical information is used for analysis and interpretation.
3.6.2 STUDY POPULATION:

35
Population includes 30 domestic companies from IT, Power & Pharmaceutical sectors.
3.6.3 SAMPLING FRAME:
Sampling frame includes, those companies that are listed in the Bombay Stock Exchange
3.6.4 SAMPLING TECHNIQUE
Simple Random sampling is used because only particular units are selected from the sampling
frame. Such a selection is undertaken as these units represent the population in a better way. The
companies listed in the stock exchange are considered since the market prices can be obtained.
3.6.5 SAMPLE PROFILE
Sample includes 30 companies in the Stock market (for which relevant data was available), for a
period of 5 years starting from FY 2003-2004 to 2007-2008
SOFTWARE POWER GENERATION PHARMACEUTICALS

Infosys NTPC Sun pharma
HCL Technologies Power Grid Corporation Cipla
Mphasis Neyveli Lignite Dr. Reddy’s Laboratories
Oracle Tata power co. Ranbaxy
Patni BF Utilities Cadila Health Care
Polaris Software Energy Development Co. Glen Mark Pharmaceutials
TCS GVK Power Infra Piramal Health Care
Tech Mahindra CESC ltd Aurobindo Pharma
Wipro ltd Jai Prakash Hydro FDC
3I Infotech ltd Gujurat Industries Power IPCA Laboratories
TABLE 3.2.1
3.6.6 DATA GATHERING PROCEDURE AND INSTRUMENTATION:

36
Data type: Secondary data
Data required:
• Historical share prices of the sample companies.

• Index values of BSE Sensex
• Financial Information of the sample companies.
Data Source:
Historical share prices of the sample companies and the index points for the period has been
taken from the database of Capital Market Publishers (India) Ltd., Capitaline. Financial
statements of the sample companies have also been taken from the same source.
3.7 HYPOTHESIS:
Hypothesis 1
H0: There is no significant relationship between EVA,MVA and Share prices.
H1: There is significant relationship between EVA,MVA and Share prices.
Hypothesis 2
H0: There is no significant relationship between EPS, ROCE , RONW and Share prices.
H1: There is significant relationship between EPS, ROCE , RONW and Share prices.
3.7.1 TESTING OF HYPOTHESIS

37
The hypothesis is tested using Multiple regression tool. The hypothesis is tested using regression
tool, simple co-efficient of Correlation, co-efficient of determination and P-value
Regression is the process of predicting one variable from another by statistical means using
previous data.
Multiple regressions are statistical process by which several independent variables are used to
predict one dependant variable.
3.8 DESCRIPTION ABOUT THE VARIOUS ANALYSIS TOOLS :
1.Simple Regression
Y=a+bx
Where, Y is the dependant variable – market price of shares
a is the constant
x is the independent variable ROCE
b is the coefficient of the independent variable
2.Multiple Regression
Y=a+b1x1+b2x2+b3x3
Where, Y is the dependant variable – market price of shares
a is the constant
xi are the independent variables – performance metrics like ROCE, MVA.etc.
bi are the coefficient of the independent variables

38
3.Co-efficient of correlation
It is used to describe how well one variable is explained by the other variable. It reveals the
magnitude and direction of relationship. The magnitude is the degree to which variables move in
the same or opposite direction. The co-efficient signifies the direction of the relationship.
4.Co-efficient of determination
It measures the extent, or strength of the association that exists between the two variables.
5.F- statistic
It is used to test the significance of the regression as a whole.
If the Fcal < Ftab, then the null hypothesis is accepted.
6.T-statistic
It is used for testing the significance of an dependent variable over the independent variable.
There are two methods of testing the relationship with the help of t-statistics.
They are
To compare the values of t- calculated with that of t- tabulated.
In this case if the calculated t-value is greater than that of table value null hypothesis has
to be rejected and alternate hypothesis has to be accepted.37
To compare the p- value with that of level of significance.
• If the p-value is greater than or equal to level of significance the null hypothesis is accepted.
• If the p-value is less than the level of significance, the null hypothesis is rejected.

39
In this project report, Probability value (P-Value) is used to find out which performance measure
has better relationship with share price. Lower the P-Value, better is the relationship with
dependent variable.
3.8.1 METHOD ADOPTED TO CALCULATE EVA IS AS FOLLOWS:
EVA = NOPAT – WACC* WACC
where-
1. NOPAT is net operating profit after taxes.
2. WACC is weighted average cost of capital (equity and debt)
It is calculated as follows:
WACC = Kd (1-T)*W1+Ke *W2+Kp*W3
W1 is weight of debt
W2 is weight of equity
W3 is weight of preference
Kd is the effective cost of debt, which is calculated by dividing the total interest by the total
debt.
Ke is calculated using the Capital Asset Pricing Model (CAPM) developed by Modigliani and
Miller.
Ke=RF+Beta (Rm-Rf)
Kp is the effective cost of preference, which is calculated by dividing the total Dividend
Preference by the total preference capital.

40
Rf is the risk free rate, i.e., the rate of interest for 1-year government securities. These rates are
obtained from the website of Reserve Bank of India.
Rm is the return for the market. It is calculated by using the formula given below for the index
values. Rm=Average of return on market for all the 4 years
Return = (Closing index value-opening index value)/ Opening index value * 100
Beta values for all the sample companies for all the 4 years are calculated by finding the slope
between log normal of share prices of all the companies and log normal of the index values. Log
normal of the values is considered to remove abnormalities if any and convert them into normal
distribution.
3. Invested Capital is the total long term funds and includes equity shares and the total debt as
at the end of the year.
MVA (Market Value Added):
A calculation that shows the difference between the market value of a company and the capital
contributed by investors (both bondholders and shareholders). In other words, it is the sum of all
capital claims held against the company plus the market value of debt and equity.
Calculated as:
MVA= EVA1 + EVA2 +………………………
(1+WACC)^1 (1+WACC)^2
Calculated as:
MVA=Company’s Market Value-Invested Capital

41
Return On Capital Employed (ROCE)
A ratio that indicates the efficiency and profitability of a company's capital investments.
Calculated as: ROCE=EBIT/(Total Assets-Current Liabilities)
3.9 LIMITATIONS OF THE STUDY:
¾ The Study is limited to the 30 companies that are included in BSE.

¾ Research investigation is restricted to selected sectors.
¾ Availability of dressed data with respect to the financial statements of companies

42
CHAPTER 4
INDUSTRY PROFILE

43
4.1 I.T INDUSTRY:
The India Software Industry has brought about a tremendous success for the emerging economy.
The software industry is the main component of the Information technology in India. India's pool
of young aged manpower is the key behind this success story. Presently there are more than 500
software firms in the country which shows the monumental advancement that the India Software
Industry has experienced.
Porters Model:
Supply: Abundant supply across segments, mainly lower-end, such as ADM. Lower in higher-
end areas like IT/business consulting, but competition is very tough.
Demand: IT is spending expected to grow at 6% CAGR over the next 3-4 years, and growth is
buoyant in fast-growing economies such as India and China. Europe also shows promise.
Demand largely depends upon the state of the global economy and willingness of corporations to
go in for new software services and greater discretionary spending rather than consolidating
existing systems.
Barriers to entry: Low in the ADM segment, which is prone to relatively easy commoditisation.
In high-end services like IT/business consulting, where domain expertise creates a barrier. The
size of a particular company/scalability also creates barriers to entry, as these firms have built up
long-term relationships with major clients and to take business away from them is not easy.
Bargaining power of suppliers: Low, due to intense competition (oversupply), particularly in

the lower-end ADM space. Low differentiating power is also another reason. High, at the higher
end of the value chain.
Bargaining power of customers: High, mainly due to intense competition among

suppliers/vendors. However, it is lower in higher-end services like consulting and package
implementation.

44
Competition: Competition is global in nature and stretches across boundaries and geographies.
It is expected to intensify due to the attempted replication of the Indian offshoring model by
MNC IT majors.
4.2 POWER INDUSTRY:
The power sector has registered significant progress since the process of planned development of
the economy began in 1950. Hydro -power and coal based thermal power have been the main
sources of generating electricity. Nuclear power development is at slower pace, which was
introduced, in late sixties. The concept of operating power systems on a regional basis crossing
the political boundaries of states was introduced in the early sixties. In spite of the overall
development that has taken place, the power supply industry has been under constant pressure to
bridge the gap between supply and demand.
Porters Model:
Supply: Many projects have been planned but due to slow regulatory processes, especially in the
distribution segment, the supply is far lesser than demand. Currently, India needs to double its
generation capacity in the next 7 to 10 years to meet the potential demand.
Demand: The long-term average demand growth rate is 6% to 7% per annum and is expected to
grow at faster rate in the future.
Barriers to entry: Barriers to entry are high, especially in the transmission and distribution
segments, which are largely state monopolies. Also, entering the power generation business
requires heavy investment initially. The other barriers are fuel linkages, payment guarantees
from state governments that buy power and retail distribution license.
Bargaining power of suppliers: Not very high as government controls tariff structure.
However, this may change in the future.

45
Bargaining power of customers: Bargaining power of retail customers is low, as power is in

short supply. However government is a big buyer and payment by government can be erratic, as
has been seen in the past.
Competition: Not high currently. The Electricity Act 2003 aims to encourage investments,
thereby increasing competition.
4.3 PHARMACEUTICAL INDUSTRY:
The highly fragmented Indian pharmaceutical industry has around 30,000 players, out of which
330 are in organized sector.
Accounting for two percent of the world's pharmaceutical market, the Indian pharmaceutical
sector has an estimated market value of about US $8 billion. It's at 4th rank in terms of total
pharmaceutical production and 13th in terms of value. As in the present scenario, only a few
people can afford costly drugs, which have increased price sensitivity in the pharmaceutical
market. Now the companies are trying to capture the market by introducing high quality and
lowpricemedicinesanddrugs.
With the Product Patent Act, which came into action in January 2005, this industry is able to
attract big MNCs to India. Earlier these big firms had apprehensions in launching new drugs
intheIndianmarket.
At present, a large number of Indian pharmaceuticals companies are looking for tie-ups with
foreignfirmsforin-licensedrugs.
Contract research and pharmaceutical outsourcing are the new avenues in the pharmaceutical
market.
Indian multinational companies like Dr.Reddy's Lab, Cipla, Ranbaxy, etc have created awareness
about the Indian market prospects in the international pharmaceutical market. Approvals given
by Foods and Drugs Administration (FDA) and ANDA (Abbreviated New Drug
Application)/DMF (Drug Master File) have played an important role in making India a cost-
effective and high quality product manufacturer. Furthermore, the changes that took place in the

46
patent law, change of process patent to product patent, have helped in reducing
theriskoflossforintellectualproperty.
Porters Model:
Supply: Higher for traditional therapeutic segments, which is typical of a developing market.
Relatively lower for lifestyle segment.
Demand: Very high for certain therapeutic segments. Will change as life expectancy, literacy
increases.
Barriers to entry: Licensing, distribution network, patents, plant approval by regulatory

authority.
Bargaining power of suppliers: Distributors are increasingly pushing generic products in a bid
to earn higher margins.
Bargaining power of customers: High, a fragmented industry has ensured that there is
widespread competition in almost all product segments. (Currently also protected by the DPCO).
Competition: High. Very fragmented industry with the top 300 (of 24,000 manufacturing units)
players accounting for 85% of sales value. Consolidation is likely to intensify.
Growth of Indian Pharmaceutical Companies:
(CHART: 4.3.1)

47
CHAPTER 5
DATA ANALYSIS AND

INTERPRETATIONS

48
TABLE: 5.1 BETAS OF SAMPLE COMPANIES:

COMPANY 2008 2007 2006 2005 2004
Infosys 0.3507 0.4577 0.5571 0.4570 0.6773
HCL Technologies 0.4658 0.4816 0.5239 0.3968 0.7214
Mphasis 0.4135 0.609 0.3895 0.3295 0.3042
Oracle 0.9410 0.4395 0.3761 0.4950 0.5425
Patni 0.4610 0.3140 0.4060 0.3304 0.3807
Polaris Software 0.6520 0.7025 0.6000 0.7394 0.9345
TCS 0.3479 0.4873 0.4675 0.4120 -
Tech Mahindra 0.3674 0.5742 - - -
Wipro ltd 0.3660 0.5880 0.6092 0.7219 0.7639
3I Infotech ltd 0.4028 0.5694 0.5050 - -
NTPC 0.5861 0.3580 0.3298 0.5306 -
Power Grid Corp 0.5849 - - - -
Neyveli Lignite 0.8409 0.6037 0.3222 0.7363 0.6524
Tata power co. 0.5992 0.3534 0.5250 0.7595 0.6373
BF Utilities 0.3213 0.3649 0.4938 0.3679 0.3564
Energy Development 0.3021 0.4870 0.4858 0.2288 0.1129
GVK Power Infra 0.2487 0.6235 0.2118 - -
CESC ltd 0.5840 0.4681 0.4325 0.5175 0.5043
Jai Prakash Hydro 0.7963 0.4513 0.3082 - -
Guju Indus Power 0.4197 0.4060 0.3088 0.7789 0.6969
Sun pharma 0.2023 0.3463 0.2488 0.3057 0.2726
Cipla 0.2482 0.4017 0.3439 0.4570 0.2649
Dr. Reddy’s Lab 0.2149 0.3576 0.3769 0.3479 0.2534
Ranbaxy 0.3045 0.3922 0.4203 0.2641 0.3386
Cadila Health Care 0.2124 0.3395 0.1812 0.4139 0.4597
Glen Mark Pharma 0.4254 0.4809 0.3462 0.4053 0.5396
Piramal Health Care 0.2640 0.4640 0.3894 0.3281 0.3511
Aurobindo Pharma 0.3558 0.3894 0.3576 0.5203 0.5234
FDC 0.2679 0.5004 0.2704 0.7153 0.9529
IPCA Laboratories 0.2311 0.3666 0.3230 0.4035 0.4947

49
TABLE: 5.2 NOPAT OF SAMPLE COMPANIES:

COMPANY 2008 2007 2006 2005 2004
Infosys 3738.80 3050.98 2076.67 3050.98 1123.56
Mphasis 205.89 127.58 60.97 35.56 66.57
Oracle 324.66 288.84 214.09 180.66 151.15
Patni 345.27 255.67 203.54 200.27 153.27
TCS 3608.14 2982.01 2202.23 1489.05 11.69
Tech Mahindra 315.65 118.75 183.52 77.16 86.66
Wipro ltd 2668.52 2338.86 1739.41 1285.69 816.58
3I Infotech ltd 111.92 67.27 48.72 31.68 25.37
NTPC 94511.14 8558.13 7040.95 6461.65 7447.64
Power Grid Corp 2663.56 2281.60 1888.39 1561.97 1525.93
Neyveli Lignite 1247.08 901.86 916.30 1552.98 1317.00
Tata power co. 946.32 705.59 785.96 864.32 892.13
BF Utilities 11.43 15.39 6.22 13.38 9.23
GVK Power Infra 68.73 23.62 12.50 2.68 2.70
CESC ltd 497.18 466.02 458.96 472.77 496.35
Jai Prakash Hydro 254.65 251.21 201.46 175.81 175.18
Guju Indus Power 185.23 213.38 216.63 234.97 267.42
Sun pharma 734.93 459.17 356.87 242.77 212.01
Cipla 651.57 608.94 532.10 383.72 295.85
Dr. Reddy’s Lab 502.19 1024.02 263.84 98.72 250.37
Ranbaxy 640.85 391.63 200.52 461.99 673.15
Glen Mark Pharma 332.84 154.20 79.34 78.30 48.49
FDC 150.59 132.21 75.93 86.96 85.69

50
TABLE: 5.3 WACC OF SAMPLE COMPANIES:

COMPANY 2008 2007 2006 2005 2004
Infosys 11.30 27.14 26.41 17.27 13.32
Mphasis 12.02 33.63 20.54 14.37 9.820
Oracle 18.53 26.34 20.10 18.12 12.06
Patni 12.64 20.79 21.11 14.39 10.52
TCS 11.24 28.26 23.22 15.69 .0002
Tech Mahindra 10.68 30.57 7.00 7.00 7.00
Wipro ltd 8.64 32.06 28.00 22.94 13.74
3I Infotech ltd 4.05 14.70 13.32 4.21 4.85
NTPC 9.46 15.22 12.82 13.49 4.96
Power Grid Corp 5.44 2.56 2.82 2.84 2.91
Neyveli Lignite 13.22 28.43 15.70 20.31 11.02
Tata power co. 10.42 14.09 16.92 15.48 9.70
BF Utilities 6.41 15.85 15.63 8.73 5.24
GVK Power Infra 10.05 18.81 14.38 0.42 7.00
CESC ltd 8.46 17.86 19.66 6.22 3.39
Guju Indus Power 7.62 16.57 10.83 10.28 3.63
Sun pharma 9.25 15.48 7.15 5.25 7.00
Cipla 8.70 23.77 15.35 15.38 8.12
Dr. Reddy’s Lab 8.79 21.14 14.29 13.10 9.10
Ranbaxy 4.51 10.31 15.10 12.27 10.01
Glen Mark Pharma 8.10 9.35 5.81 6.40 8.11
FDC 150.15 132.21 75.93 86.96 85.69

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TABLE: 5.4 CAPITALS EMPLOYED OF SAMPLE COMPANIES:

COMPANY 2008 2007 2006 2005 2004
Infosys 13490.00 11162.00 6897.00 5242.00 3253.43
Mphasis 1167.82 981.33 830.54 526.88 565.86
Oracle 2812.62 2358.31 1362.73 1125.19 966.55
Patni 2560.26 2210.9 2044.32 1344.51 848.55
TCS 11023.06 8109.73 5644.83 3441.79 422.08
Tech Mahindra 1323.4 927.00 597.88 482.83 435.34
Wipro ltd 15429.10 9554.90 6470.61 4954.53 3608.26
3I Infotech ltd 1907.10 1007.66 687.60 352.77 304.13
NTPC 81202.60 73737.90 65596.80 59201.50 51540.40
Power Grid Corp 36017.65 30251.57 24989.31 22380.16 20755.86
Neyveli Lignite 11830.96 9836.21 9285.50 8908.87 8142.26
Tata power co. 11075.19 9666.47 8310.64 7996.48 6771.76
BF Utilities 376.45 313.89 314.97 359.24 402.17
GVK Power Infra 1718.22 771.76 412.16 89.55 3.64
CESC ltd 5541.07 4544.23 4120.06 3891.69 4058.54
Guju Indus Power 1817.56 1621.66 1532.05 1349.98 1743.2
Sun pharma 4310.14 3517.64 3210.92 2920.10 1171.82
Cipla 4327.38 3350.86 2442.86 1734.77 1464.45
Dr. Reddy’s Lab 5274.12 4703.26 3186.01 2347.32 2105.24
Ranbaxy 6040.24 5527.73 3406.82 2642.54 2354.04
Glen Mark Pharma 1555.87 1358.90 1047.43 724.07 349.93
FDC 960.67 724.96 582.79 558.33 430.33

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INTERPRETATIONS:
TABLE 5.1
It can be seen that, beta of the software companies have decreased from year to year. Earlier in
2004, it was in the range between “0.5 to 0.9” except some cases. But slowly it has decreased to
about 0.30 by the end of 2008. Thus we can say that there is much variation in beta of the stock
and hence variation in the stock prices. The beta of power and pharmaceutical companies vary
from 0.3 to 0.6 in most of the cases.
TABLE 5.2
NOPAT is increased consistently and improved from year to year of almost all the companies.
There is some variations in case of pharmacy companies. In 2006, NOPAT of Ranbaxy has
dropped, while in case of Dr. Reddy’s NOPAT has decreased continuously but from 2006 it has
improved a lot.
TABLE 5.3
From the table it is concluded that weighted average cost of capital (WACC) of the all
companies during 2004 is very low. But in 2005, WACC is increased drastically because of
increasing beta and market return as well as. In 2008, WACC of most the companies have
decreased again & this is because of the variation of beta and market return
TABLE 5.4
Total capital employed of almost all the companies have increased consistently from 2004 to
2006 and still maintains the same trend. Infosys has increased its capital from 3253 to 13490 and
we can find approximately the same percentage increase in most of the cases in software and
power sector. Capital employed of pharmaceutical companies show an increasing trend but at a
lesser percentage.

53
INFOSYS:
YEAR SHARE PRICE EVA MVA EPS ROCE RONW

2003-04 2089.00 689.98 644.84 186.59 48.13 40.68
2004-05 2996.75 743.31 649.23 70.38 52.50 44.82
2005-06 2240.50 255.00 208.15 87.86 45.09 39.89
2006-07 1768.40 21.06 16.07 66.23 45.99 41.90
2007-08 1117.85 2214.39 1578.83 78.15 41.52 36.26
2008-09 1091.31 1482.72 988.00 31.53 40.73 37.18
(TABLE 5.5)
(CHART 5.5.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Infosys from 2003-2004 to 2006-
2007. After 2006-2007, there is no definite pattern and this may be due the meltdown which is
followed since 2007.
(CHART 5.5.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Infosys from 2003-2004 to
2007-2008 irrespective of the recession period. Hence, we can say that the financial ratios have a
better relationship with share prices, in case of Infosys.
54
MULTIPLE REGRESSION RESULTS:
PARTICULARS EVA &MVA EPS ,ROCE & RONW

MULTIPLE R 0.78 0.92
R SQUARE 0.61 0.86
A 1996.94 -5093.22
B1 -4.33 -1.66
B2 5.56 172.51
B3 - -18.37
T1 -1.44 -0.25
T2 1.31 0.74
T3 - -0.06
P1 0.28 0.84
P2 0.31 0.59
P3 - 0.96
SIGNIFICANCE F 0.38 0.45
(TABLE 5.5.1)
¾ Since the Multiple R is more than 50% in both the cases (i.e.78.62% & 92.99%), It
shows that there is a high positive Correlation between EVA & MVA with respect to
Share Prices and EPS, ROCE & RONW with respect to share prices.
Therefore, Null Hypothesis rejected. & Alternative Hypothesis is accepted.
¾ Since the value of R square is approximately 62% for EVA & MVA, it shows that the
prices are affected by EVA & MVA by 62% and remaining 38% by some other factor. In
case of EPS, ROCE & RONW, the prices are affected by 86% and remaining 14% by
some other factors.
¾ When we compare all the five measures based on probability ratio (P-Value), we can say
that EVA has a better relationship with share prices by having 96% as its P-value.
From the above discussions, we can conclude that, the value based performance measures
have significant relationship with respect to share prices, and the accounting based
performance measures have better relationship with share prices.

55
HCL TECHNOLOGIES:

2003-04 343.25 -50.07 -46.79 10.72 11.93 11.47
2004-05 539.05 183.40 -160.19 11.00 12.89 12.78
2005-06 648.50 119.01 -97.15 10.31 21.28 20.72
2006-07 331.40 -62.23 -47.48 19.74 39.33 36.72
2007-08 115.20 325.56 232.12 16.60 23.52 20.73
2008-09 196.35 243.90 162.52 19.82 36.67 33.22
(TABLE 5.6)
(CHART 5.6.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of HCL Technologies from 2003-2004
to 2006-2007. After 2006-2007, there is no definite pattern and this may be due the meltdown
which is followed since 2007.
(CHART 5.6.2)
INTERPRETATIONS:

56
EPS, ROCE and RONW follow the same pattern as the share price of HCL Tecnologies from
2003-2004 to 2007-2008 irrespective of the recession period. Hence, we can say that the
financial ratios have a better relationship with share prices, in case of HCL Technologies.

R SQUARE 0.74 0.94
A 351.28 666.36
B1 1.15 -41.99
B2 -2.71 -125.25
B3 - 148.05
T1 0.16 -0.94
T2 -0.29 -1.08
T3 - 1.31
P1 0.88 0.51
P2 0.79 0.47
P3 - 0.41
(TABLE 5.6.1)
Therefore, Null Hypothesis is rejected. & Alternative Hypothesis is accepted.
some other factors.
that ROCE has a better relationship with share prices by having 41% as its P-value.

57
From the above discussions, we can conclude that, although the value based performance
measures have significant relationship with respect to share prices, the accounting based
MPHASIS:

2003-04 278.80 11.00 10.28 6.38 14.72 13.58
2004-05 149.20 -40.16 -35.08 4.73 10.71 10.93
2005-06 303.45 -109.63 -89.49 8.02 15.37 13.99
2006-07 306.60 -202.51 -154.50 10.58 20.93 20.07
2007-08 156.35 65.48 46.68 12.66 24.83 25.06
2008-09 212.63 -71.18 -47.43 13.99 26.44 26.35
(TABLE 5.7)
(CHART 5.7.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Mphasis from 2003-2004 to 2006-
2007. After 2006-2007, there is no definite pattern and this may be due the meltdown which is

58
(CHART 5.7.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Mphasis from 2003-2004
to 2007-2008 irrespective of the recession period. Hence, we can say that the financial ratios
have a better relationship with share prices, in case of Mphasis.

R SQUARE 0.56 0.93
A 231.50 144.09
B1 -7.14 2.34
B2 8.70 102.76
B3 - -101.88
T1 -0.81 0.05
T2 0.75 2.52
T3 - -3.80
P1 0.50 0.96
P2 0.52 0.23
P3 - 0.16
(TABLE 5.7.1)

59
prices are affected by EVA & MVA by 57% and remaining 43% by some other factor.
In case of EPS, ROCE & RONW, the prices are affected by 94% and remaining 6% by
some other factors.
that ROCE has a better relationship with share prices by having 0.16 as its P-value.
ORACLE:

2003-04 636.65 34.51 32.25 23.53 25.27 19.72
2004-05 1074.70 -23.32 -20.37 26.39 23.63 18.90
2005-06 1947.70 -59.87 -48.87 31.56 22.95 19.36
2006-07 1511.05 -332.42 -253.60 42.58 19.06 5.13
2007-08 458.30 -196.76 -140.28 49.06 15.89 4.94
54.79
2008-09 1149.57 -501.40 -334.10 14.36 0.61
(TABLE 5.8)
(CHART 5.8.1)
INTERPRETATIONS:

60
EVA and MVA follow the same pattern as the share price of Oracle from 2003-2004 to 2007-
2008 irrespective of the global meltdown.By this, we can say that the Economic profit created by
Oracle is profitable to share holders
(CHART 5.8.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Oracle from 2003-2004 to
2007-2008 irrespective of the recession period. Hence, we can say that the financial ratios do
have a better relationship with share prices, in case of Oracle.

R SQUARE 0.79 0.61
A 1194.29 -29999.50
B1 71.88 338.81
B2 -95.61 866.68
B3 - 64.79
T1 2.73 1.21
T2 -2.76 1.16
T3 - 0.43
P1 0.11 0.43
P2 0.10 0.45
P3 - 0.45
(TABLE 5.8.1)
¾ Since the Multiple R is more than 50% in both the cases (i.e.89.38% & 78%), It shows
that there is a high positive Correlation between EVA & MVA with respect to Share
Prices and EPS, ROCE & RONW with respect to share prices.
61
some other factors.
that MVA has a better relationship with share prices by having 0.10 as its P-value.
PATNI:

2003-04 383.65 63.95 59.76 14.9 24.96 21.54
2004-05 495.45 6.68 5.84 18.44 23.38 21.08
2005-06 417.75 -228.11 -186.20 14.11 14.66 11.49
2006-07 331.55 -204.10 -155.71 14.88 14.79 9.69
2007-08 128.8 21.55 15.37 27.88 18.55 16.26
2008-09 149.36 -156.67 -104.40 12.84 9.42
(TABLE 5.9)
(CHART 5.9.1)
INTERPRETATIONS:

62
EVA and MVA follow the same pattern as the share price of Patni from 2003-2004 to 2006-
2007. After 2006-2007, there is no definite pattern and this may be due the global meltdown
which is followed since 2007
(CHART 5.9.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Patni from 2003-2004 to
better relationship with share prices, in case of Patni.
PARTICULARS EVA &MVA EPS,ROCE & RONW

R SQUARE 0.05 0.84
A 329.24 986.86
B1 -3.30 -26.56
B2 3.87 -63.22
B3 - 66.32
T1 -0.23 -2.14
T2 0.22 -0.81
T3 - 0.95
P1 0.83 0.27
P2 0.84 0.56
P3 - 0.51
(TABLE 5.9.1)
¾ Since the Multiple R is 22.91% in case of EVA & MVA, it is very weekly correlated and
hence the Null hypothesis is cannot be rejected.
63
¾ In case of EPS, ROCE & RONW, It shows that there is a high positive Correlation
(i.e.91.8 %) between EPS, ROCE & RONW with respect to share prices. Therefore, Null
Hypothesis is rejected & Alternative Hypothesis is accepted.
case of EPS, ROCE & RONW, the prices are affected by 84.27% and remaining 56% by
some other factors.
When we compare all the five measures based on probability ratio (P-Value), we can say that
EPS has a better relationship with share prices by having 0.27 as its P-value.
have no significant relationship with respect to share prices, and accounting based
POLARIS SOFTWARE:

2003-04 171.05 -9.18 -8.58 6.93 17.45 14.89
2004-05 131.75 -36.51 -31.89 5.45 11.83 10.44
2005-06 172.85 -103.77 -84.71 1.35 3.94 2.51
2006-07 126.25 -125.17 -95.49 8.07 17.11 14.46
2007-08 42.90 -21.68 -15.46 5.33 11.03 8.99
2008-09 50.42 -93.36 -62.21 5.25 10.00 7.92
(TABLE 5.10)
(CHART 5.10.1)

64
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Polaris Software from 2003-2004 to
2006-2007. After 2006-2007, there is no definite pattern and this may be due the global
meltdown which is followed since 2007.
(CHART 5.10.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Polaris Software from
financial ratios have a better relationship with share prices, in case of Patni.

R SQUARE 0.52 0.59
A 95.25 148.22
B1 9.92 -72.16
B2 -13.16 10.98
B3 - 23.15
T1 1.33 -1.19
T2 -1.37 0.11
T3 - 0.22
P1 0.31 0.44
P2 0.30 0.92
P3 - 0.85
(TABLE 5.10.1)

65
some other factors.
TCS:

2003-04 1335.50 11.68 10.92 4.17 1.46 6.87
2004-05 1702.45 948.83 828.74 38.15 109.87 108.75
2005-06 1218.60 891.45 727.69 55.53 67.77 60.85
2006-07 1083.30 689.57 526.07 38.39 60.69 54.98
2007-08 478.10 2368.32 1688.57 46.07 52.34 47.55
2008-09 463.40 2318.17 1544.70 61.67 74.2 64.07
(TABLE 5.11)

66
(CHART 5.11.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of TCS from 2003-2004 to 2006-2007.
After 2006-2007, there is no definite pattern and this may be due the global meltdown which is
(CHART 5.11.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of TCS from 2003-2004 to
better relationship with share prices, in case of Patni.

R SQUARE 0.94 0.61
A 1244.44 1152.19
B1 -3.52 -14.73
B2 4.46 -16.49

67
B3 - 27.10
T1 -4.39 -0.26
T2 3.94 -0.08
T3 - 0.14
P1 0.04 0.83
P2 0.05 0.94
P3 - 0.91
(TABLE 5.11.1)
some other factors.
that EVA has a better impact on share prices by having 0.04 as its P-value.
From the above discussions, we can conclude that, the value based performance measures have
significant relationship with respect to share prices, and the accounting based performance
measures have better relationship with share prices.
TECH MAHINDRA:

2003-04 - 56.19 52.51 9.29 26.83 23.14
2004-05 - 43.36 37.87 6.99 29.96 24.95
2005-06 1670.15 141.66 115.64 19.58 44.53 40.74
2006-07 1132.05 -164.64 -125.60 5.38 86.22 72.05
2007-08 247.65 174.22 124.21 26.84 74.91 66.65
68
2008-09 1098.17 58.57 39.03 23.663 98.21 85.74

(TABLE 5.12)
(CHART5.12.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Tech Mahindra from 2003-2004 to
2007-2008 irrespective of the global meltdown. By this ,we can conclude that the economic
profit created by the company, is profitable to the share holders
(CHART 5.12.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Tech Mahindra from 2003-
2004 to 2007-2008 irrespective of the recession period. Hence, we can say that the financial
ratios do have a better relationship with share prices, in case of Tech Mahindra.
TECH MAHINDRA:

R SQUARE 0.03 0.93

69
A 624.32 1991.12
B1 -8.21 -347.62
B2 9.71 -1375.41
B3 - 1660.16
T1 -0.14 -3.50
T2 0.13 -3.59
T3 - 3.62
P1 0.89 0.16
P2 0.90 0.17
P3 - 0.17
(TABLE 5.12.1)
hence the Null hypothesis cannot be rejected
(i.e.96.93%) between EPS, ROCE & RONW with respect to share prices. Therefore, Null
case of PE Ratio, ROCE & RONW, the prices are affected by 94% and remaining 6% by
some other factors.
that EPS has a better relationship with share prices by having 0.17 as its P-value.
From the above discussions, we can conclude that, the value based performance measures have
no significant relationship with respect to share prices and the accounting based performance
measures have better relationship with share prices.
WIPRO LTD:

2003-04 748 320.72 299.74 39.31 30.98 26.76
2004-05 463.45 149.06 130.19 21.25 41.15 35.59
70
2005-06 604.55 -72.98 -59.57 14.17 41.01 35.72

2006-07 525.60 -724.53 -552.74 19.48 39.73 36.12
2007-08 233.55 1333.90 951.05 20.96 28.71 29.36
2008-09 225.00 547.06 364.53 11.49 34.52 34.42
(TABLE 5.13)
(CHART 5.13.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Wipro ltd from 2003-2004 to 2006-
(CHART 5.13.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Wipro ltd from 2003-2004
have a better relationship with share prices, in case of Wipro ltd.

71
R SQUARE 0.83 0.79

A 520.91 711.47
B1 -2.79 3.89
B2 3.62 69.14
B3 - -85.51
T1 -2.64 0.16
T2 2.51 1.11
T3 - -0.73
P1 0.11 0.89
P2 0.12 0.46
P3 - 0.59
(TABLE 5.13.1)
¾ Since the Multiple R is more than 50% in both the cases (i.e.91% & 90%), It shows that
there is a high positive Correlation between EVA & MVA with respect to Share Prices
and EPS, ROCE & RONW with respect to share prices.
some other factors.
that EVA has a better relationship with share prices by having 0.11as its P-value.
3I INFOTECH:
YEAR SHAREPRICE EVA MVA EPS ROCE RONW

2003-04 - 10.59 9.90 0.62 5.40 6.54
72
2004-05 95.58 16.80 14.68 2.60 9.46 13.31

2005-06 93.8 -42.91 -35.03 5.76 9.65 18.34
2006-07 145.75 -80.94 -61.75 7.65 7.33 10.14
2007-08 38.65 34.50 24.60 7.21 9.91 20.76
2008-09 112.99 -27.36 -18.23 10.23 10.41 21.39
(TABLE 5.14)
(CHART 5.14.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of 3I Infotech from 2003-2004 to
(CHART 5.14.1)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of 3I Infotech from 2003-
ratios have a better relationship with share prices, in case of 3I Infotech.
3I INFOTECH:

73

R SQUARE 0.58 0.91
A 63.66 -148.52
B1 -0.76 17.06
B2 -0.16 49.48
B3 - -19.63
T1 -0.07 2.49
T2 -0.01 2.31
T3 - -2.56
P1 0.94 0.23
P2 0.99 0.25
P3 - 0.24
(TABLE 5.14.1)
¾ Since the Multiple R is more than 50% in both the cases (i.e.76.3% & 95.58%), It shows
case of PE Ratio, ROCE & RONW, the prices are affected by 91% and remaining 19%
by some other factors.
that EPS has a better impact on share prices by having 0.23 as its P-value.
NTPC:
74

2003-04 187.35 4887.81 4568.052 6.73 17.24 13.03
2004-05 112.10 -1528.46 -1335.01 7.04 14.14 14.85
2005-06 136.40 -1374.03 -1121.62 7.06 15.11 14.86
2006-07 250.05 -2670.45 -2037.28 8.33 15.63 14.5
2007-08 181.00 86829.29 61908.08 8.99 15.72 14.36
2008-09 210.95 66051.12 44012.65 9.37 15.10 15.01
(TABLE 5.15)
(CHART 5.15.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of NTPC from 2003-2004 to 2006-
(CHART 5.15.1)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of NTPC from 2003-2004 to
better relationship with share prices, in case of NTPC.

75

$MULTIPLE R 0.23 0.79
R SQUARE 0.05 0.63
A 168.89 -1305.64
B1 -0.01 23.49
B2 0.02 49.78
B3 - 36.64
T1 -0.31 0.59
T2 0.31 0.55
T3 - 0.26
P1 0.78 0.66
P2 0.77 0.67
P3 - 0.83
(TABLE 5.15.1)
hence the Null hypothesis cannot be rejected.
(i.e.79%) between EPS, ROCE & RONW with respect to share prices. Therefore, Null
have no significant relationship with respect to share prices, and the accounting based

76
POWER GRID:

2003-04 - 921.76 861.45 246.50 8.55 9.23
2004-05 - 924.37 807.38 248.17 8.01 8.99
2005-06 - 1181.49 964.64 281.46 8.95 10.65
2006-07 143.80 1505.37 1148.44 3.25 9.50 11.77
2007-08 83.20 700.81 499.67 3.44 9.82 12.99
2008-09 138.46 482.97 321.82 62.74 10.17 13.81
(TABLE 5.16)
(CHART 5.16.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Power Grid from 2003-2004 to
2007-2008 irrespective of the global meltdown. By this we can say that the Economic profit
created by the company is profitable to its share holders.
(CHART 5.16.2)
INTERPRETATIONS:
EPS, ROCE and RONW donot follow the same pattern as the share price of Power Grid from
2003-2004 to 2007-2008 and this may be due to the global meltdown.

77
POWER GRID CORPORATION:

R SQUARE 0.75 0.90
A -0.80 -43.72
B1 0.55 -0.49
B2 -0.62 49.35
B3 - -25.76
T1 2.38 -1.81
T2 -2.07 0.41
T3 - 0.41
P1 0.13 -0.48
P2 0.17 0.32
P3 - 0.74
(TABLE 5.16.1)
some other factors.
that EVA has a better relationship with share prices by having 0.13 as its P-value.
performance measures have better relationship with share prices

78
NEYVELI LIGNITE:

2003-04 72.90 419.67 392.22 6.82 19.33 17.85
2004-05 79.25 -256.60 -224.13 7.24 21.54 16.73
2005-06 56.35 -542.12 -442.53 4.19 9.98 7.70
2006-07 257.05 -1895.14 -1445.79 3.11 9.62 6.94
2007-08 66.30 -318.04 -226.76 6.57 13.23 12.68
2008-09 155.75 -1452.64 -967.95 4.19 7.50 6.34
(TABLE 5.17)
(CHART 5.17.1)
INTERPRETATIONS:
EVA and MVA donot follow the same pattern as the share price of Neyveli lignite at all . By this
we can conclude that EVA, MVA have no relationship with the share prices
(CHART 5.17.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Neyveli Lignite from
financial ratios have a better relationship with share prices, in case of Neyveli Lignite.

79

R SQUARE 0.91 0.61
A 45.54 303.45
B1 -0.77 -71.86
B2 0.87 6.27
B3 - 9.02
T1 -2.12 -0.85
T2 1.88 0.18
T3 - 0.17
P1 0.16 0.55
P2 0.19 0.88
P3 - 0.88
(TABLE 5.17.1)
some other factors.

80
TATA POWER CO:

2003-04 390.55 235.10 219.72 25.72 14.7 10.78
2004-05 435.75 -374.27 -326.90 27.86 9.81 7.37
2005-06 559.85 -620.93 -506.87 30.85 8.99 8.70
2006-07 1470.95 -657.08 -501.28 35.21 8.65 12.03
2007-08 748.35 -208.70 -148.80 39.42 7.67 8.12
2008-09 1246.33 -676.30 -450.65 42.23 5.39 32.53
(TABLE 5.18)
(CHART 5.18.1)
INTERPRETATIONS:
EVA and MVA donot follow the same pattern as the share price of Tata Power Co. from 2003-
2004 to 2007-2008 irrespective of the global meltdown
(CHART 5.18.1)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Tata Power Co.from 2003-
ratios have a better relationship with share prices, in case of Tata Power Co
81

R SQUARE 0.86 0.95
A 246.16 138.44
B1 -12.61 -1.59
B2 14.35 -129.05
B3 - 204.18
T1 -2.98 -0.05
T2 2.82 -1.92
T3 - 3.61
P1 0.09 0.96
P2 0.10 0.30
P3 - 0.17
(TABLE 5.18.1)
some other factors.

82
BF UTILITIES:

2003-04 59.15 -11.84 -11.07 -1.27 - -
2004-05 501.30 -17.98 -15.71 0.51 2.31 -1.04
2005-06 2883.45 -43.01 -35.11 -0.4 - -
2006-07 2264.60 -34.37 -26.22 3.31 1.06 0.34
2007-08 535.75 -12.72 -9.07 1.23 1.73 0.02
2008-09 2063.80 -5.37 -3.58 3.01 1.68 0.29
(TABLE 5.19)
(CHART 5.19.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of BF Utilities from 2003-2004 to
created by the company is profitable to its share holders.

83
(CHART 5.19.1)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of BF Utilities from 2003-
ratios also have a better relationship with share prices, in case of BF Utilities.

R SQUARE 0.99 0.62
A -767.08 2184.44
B1 -193.06 915.45
B2 134.56 -1793.75
B3 - -2023.41
T1 -5.91 1.05
T2 3.24 -1.01
T3 - -0.63
P1 0.02 0.48
P2 0.08 0.49
P3 - 0.64
(TABLE 5.19.1)
some other factors.
84
From the above discussions, we can conclude that, the accounting based performance
measures have significant relationship with respect to share prices, the value based
performance measures also have relationship with share prices.
ENERGY DEVELOPMENT CO.:

2003-04 24.05 2.58 2.41 0.47 9.67 4.68
2004-05 53.90 1.98 1.73 1.61 13.42 14.60
2005-06 53.95 -3.28 -2.68 2.64 14.88 17.97
2006-07 257.80 -11.78 -8.99 3.95 19.13 18.01
2007-08 43.60 6.67 4.76 5.64 26.72 20.39
2008-09 159.56 18.76 12.50 6.90 34.29 25.57
(TABLE 5.20)
(CHART 5.20.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Energy Development Co.from
2003-2004 to 2007-2008 irrespective of the global meltdown. By this we can say that the
Economic profit created by the company is profitable to its share holders

85
(CHART 5.20.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Energy Development
Co.from 2003-2004 to 2007-2008 irrespective of the recession period. Hence, we can say that the
financial ratios also have a better relationship with share prices.

R SQUARE 0.79 0.40
A 78.61 623.77
B1 16.43 236.02
B2 -37.25 -69.97
B3 - -3.54
T1 0.21 0.67
T2 -0.37 -0.68
T3 - -0.13
P1 0.84 0.61
P2 0.74 0.62
P3 - 0.91
(TABLE 5.20.1)
¾ Since the Multiple R is more than 50% in both the cases (i.e.89% & 64%) It shows that

86
that EPS has a better impact on share prices by having 0.61 as its P-value.
From the above discussions, we can conclude that, accounting based performance measures
have significant relationship with respect to share prices and value based performance
measures have no relationship with share prices.
GVK POWER INFRA:

2003-04 - 2.45 2.29 728.34 112.33 69.86
2004-05 - 2.30 2.014 503.94 8.73 39.38
2005-06 289.30 -46.76 -38.17 3.42 7.55 3.88
2006-07 801.25 -121.60 -92.77 6.28 6.05 3.89
2007-08 22.25 -103.94 -74.11 0.64 8.36 8.78
2008-09 476.28 -154.52 -102.96 337.39 -34.58 -22.13
TABLE 5.21
(CHART 5.21.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of GVK Power Infra from 2003-2004
to 2007-2008 irrespective of the global meltdown. By this we can say that the Economic profit
created by the company is profitable to its share holders

87
(CHART 5.21.2)
INTERPRETATIONS:
EPS, ROCE and RONW donot follow the same pattern as the share price of GVK Power Infra
till 2005-2006. But later ,they follow the same pattern as share prices from 2006-07 to 2007-08.

R SQUARE 0.86 0.71
A -15.25 807.25
B1 60.33 6.41
B2 -86.33 17.24
B3 - -106.17
T1 2.33 1.03
T2 -2.49 1.14
T3 - -1.16
P1 0.14 0.48
P2 0.13 0.45
P3 - 0.45
(TABLE 5.21.1)

88
some other factors.
that MVA has a better impact on share prices by having 0.13 as its P-value.
CESC LTD:

2003-04 164.00 358.54 335.08 12.44 11.04 8.31
2004-05 228.45 230.35 201.20 19.79 10.71 12.48
2005-06 317.60 -351.32 -286.78 21.56 11.78 13.92
2006-07 628.2 -345.88 -263.87 35.66 12.68 16.50
2007-08 238.05 28.00 19.96 28.44 11.62 14.31
2008-09 479.61 -387.25 -258.04 37.93 12.50 17.91
(TABLE 5.22)
(CHART 5.22.1)
INTERPRETATIONS:
EVA and MVA donot follow the same pattern as the share price of CESC ltd at all . By this we
can conclude that EVA, MVA have no relationship with the share prices

89
(CHART 5.22.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of CESC ltd from 2003-2004
to 2007-2008 irrespective of the recession period. Hence, we can say that the financial ratios also
have a better relationship with share prices, in case of CESC Ltd.

R SQUARE 0.73 0.83
A 242.49 -1713.41
B1 -4.21 3.90
B2 4.46 160.75
B3 - 5.88
T1 -1.13 0.13
T2 1.02 0.88
T3 - 0.08
P1 0.37 0.91
P2 0.41 0.53
P3 - 0.94
(TABLE 5.22.1)

90
some other factors.
JAI PRAKASH HYDRO:

2003-04 - 135.89 127.00 1.18 12.5 11.48
2004-05 32.90 135.91 118.71 1.04 11.38 9.23
2005-06 29.60 75.97 62.01 2.97 11.14 12.49
2006-07 137.30 7.86 6.00 4.06 15.31 19.4
2007-08 30.85 81.24 57.92 4.35 13.91 15.8
2008-09 95.96 16.17 10.77 5.52 14.87 19.32
(TABLE 5.23)
(CHART 5.23.1)
INTERPRETATIONS:

91
EVA and MVA follow the same pattern as the share price of Jai Prakash Hydro from 2003-2004
to 2007-2008 irrespective of the global meltdown. By this we can say that the Economic profit
(CHART 5.23.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Jai Prakash Hydro from
financial ratios also have a better relationship with share prices.

R SQUARE 0.82 0.74
A 133.87 -33.57
B1 -2.39 -27.40
B2 1.63 -16.29
B3 - 26.57
T1 -1.18 -0.63
T2 0.75 -0.35
T3 - 0.87
P1 0.53 0.45
P2 0.52 0.78
P3 - 0.54
(TABLE 5.23.1)

92
some other factors.
GUJURAT INDUSTRIES LTD:

2003-04 45.50 204.06 190.71 5.58 16.94 13.71
2004-05 133.60 96.13 83.96 9.31 16.92 19.89
2005-06 64.25 50.69 41.38 7.59 16.50 15.38
2006-07 71.15 -55.44 -42.29 12.09 14.92 18.20
2007-08 72.80 46.60 33.22 6.76 11.27 9.23
2008-09 75.105 -71.53 -47.66 9.80 11.30 12.08
TABLE 5.24

93
(CHART 5.24.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Gujurat Industries ltd from 2003-
2004 to 2006-2007. After 2006-2007, there is no definite pattern and this may be due the global
(CHART 5.24.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Gujurat Industries Ltd
from 2003-2004 to 2007-2008 irrespective of the recession period. Hence, we can say that the
financial ratios have a better relationship with share prices.

R SQUARE 0.12 0.98
A 79.81 363.67
B1 1.31 -27.93
B2 -1.50 -33.99

94
B3 - 30.43
T1 0.47 -7.04
T2 -0.49 -7.99
T3 - 8.88
P1 0.68 0.06
P2 0.67 0.08
P3 - 0.07
(TABLE 5.24.1)
hence the Null hypothesis cannot be rejected
¾ In case of PE Ratio, ROCE & RONW, It shows that there is a high positive Correlation
(i.e.99.48 %) between EPS, ROCE & RONW with respect to share prices. Therefore,
Null Hypothesis is rejected & Alternative Hypothesis is accepted.
some other factors.
SUN PHARMA:

2003-04 554.45 129.92 121.42 25.84 40.89 31.44
2004-05 682.15 89.32 78.01 16.48 31.71 31.38
2005-06 979.00 127.23 103.86 24.83 16.37 35.93
2006-07 1222.05 -85.54 -65.26 32.52 19.30 32.15
2007-08 1064.95 335.99 239.55 48.96 27.01 30.47

95
2008-09 1368.79 190.56 126.98 48.41 15.00 31.92

(TABLE 5.25)
(CHART 5.25.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Sun Pharma from 2003-2004 to
(CHART 5.25.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Sun Pharma from 2003-
ratios have a better relationship with share prices.

R SQUARE 0.87 0.96
A 1116.63 3153.55

96
B1 13.77 5.88
B2 -19.48 -29.33
B3 - -50.67
T1 3.51 1.02
T2 -3.61 -3.40
T3 - -1.20
P1 0.07 0.49
P2 0.06 0.18
P3 - 0.44
(TABLE 5.25.1)
Therefore, Null Hypothesis is accepted. & Alternative Hypothesis is rejected.
some other factors.
CIPLA:

2003-04 1317.25 176.81 165.25 51.14 25.70 26.51
2004-05 317.25 116.79 102.00 13.66 34.55 25.7
2005-06 443.40 156.95 128.12 20.26 25.69 34.55
97
2006-07 250.70 -187.64 -143.15 8.59 28.28 25.69

2007-08 212.60 275.00 196.07 9.02 22.31 20.12
2008-09 -174.51 75.16 50.082 -6.25 23.39 22.67
(TABLE 5.26)
(CHART 5.26.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Cipla from 2003-2004 to 2006-
(CHART 5.26.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Cipla from 2003-2004 to
better relationship with share prices.


98
R SQUARE 0.77 0.99

A 265.19 76.57
B1 -17.73 26.27
B2 23.99 1.13
B3 - -5.23
T1 -2.42 14.43
T2 2.52 0.16
T3 - -0.84
P1 0.13 0.04
P2 0.12 0.89
P3 - 0.55
(TABLE 5.26.1)
some other factors.
DR.REDDY’S LAB:

99
2003-04 865.30 58.60 54.76 37.01 15.61 14.70

2004-05 978.50 -208.80 -182.38 8.55 2.19 2.77
2005-06 811.20 -191.73 -156.51 27.53 9.24 8.57
2006-07 735.35 29.28 22.34 70.09 35.94 35.47
2007-08 469.75 38.43 27.40 28.26 12.00 10.35
2008-09 461.74 4.487 2.99 47.50 22.95 21.57
(TABLE 5.27)
(CHART 5.27.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Dr. Reddy’s lab from 2003-2004 to
(CHART 5.27.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Dr. Reddy’s lab from
financial ratios also have a better relationship with share prices

100

R SQUARE 0.39 0.87
A 731.85 681.28
B1 -8.83 32.54
B2 9.47 -304.41
B3 - 246.31
T1 -0.55 1.09
T2 0.50 -2.37
T3 2.56
P1 0.63 0.27
P2 0.66 0.37
P3 0.28
(TABLE 5.27.1)
some other factors.
RANBAXY:

101

2003-04 1251.40 437.34 408.73 42.84 45.55 37.91
2004-05 362.35 137.57 120.16 28.38 25.59 21.90
2005-06 391.85 -314.14 -256.43 5.69 5.82 7.07
2006-07 425.95 -178.65 -136.29 10.21 11.22 16.10
2007-08 252.40 367.87 262.29 16.56 15.00 25.28
2008-09 -43.53 -46.54 -31.01 -0.48 -2.00 12.33
(TABLE 5.28)
(CHART 5.28.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Ranbaxy from 2003-2004 to 2006-
(CHART 5.28.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Ranbaxy from 2003-2004
to 2007-2008 irrespective of the recession period. Hence, we can say that the financial ratios also
have a better relationship with share prices

102

R SQUARE 0.89 0.99
A 431.01 270.18
B1 -8.16 -99.10
B2 10.54 122.10
B3 - -9.15
T1 -3.41 -5.22
T2 3.68 6.63
T3 - -1.12
P1 0.07 0.09
P2 0.06 0.52
P3 - 0.46
(TABLE 5.28.1)
Therefore, Null Hypothesis is rejected & Alternative Hypothesis is accepted.
some other factors.
CADILA HEALTH CARE:

103

2003-04 588.60 100.66 94.08 22.75 21.19 28.61
2004-05 492.95 52.72 46.05 20.92 18.37 22.77
2005-06 351.45 85.03 69.41 26.26 20.11 24.42
2006-07 314.70 23.00 17.54 16.30 20.95 25.29
2007-08 267.60 156.33 111.46 18.80 20.32 24.40
2008-09 156.98 108.03 71.99 17.25 20.44 23.32
(TABLE 5.29)
(CHART 5.29.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Cadila Health Care from 2003-2004
to 2006-2007. After 2006-2007, there is no definite pattern and this may be due the global
meltdown which is followed since 2007
(CHART 5.29.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Cadila Health Care from
financial ratios have a better relationship with share prices
104

R SQUARE 0.87 0.96
A 331.96 1423.02
B1 -10.36 -0.57
B2 13.83 -181.51
B3 - 105.84
T1 -3.67 -0.08
T2 3.63 -4.35
T3 - 4.98
P1 0.06 0.94
P2 0.06 0.14
P3 - 0.12
(TABLE 5.29.1)
some other factors.
GLEM MARK PHARMA:

105

2003-04 484.40 20.08 18.77 6.91 20.05 22.28
2004-05 314.30 31.93 27.89 5.29 19.31 25.53
2005-06 599.45 18.40 15.02 5.55 11.60 23.31
2006-07 593.80 27.03 20.62 11.17 17.47 35.81
2007-08 294.95 206.78 147.43 15.64 32.58 52.63
2008-09 427.56 171.39 114.20 15.91 27.16 53.20
(TABLE 5.30)
(CHART 5.30.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Glen Mark Pharma from 2003-2004
(CHART 5.30.2)
INTERPRETATIONS:
PE Ratio, ROCE and RONW follow the same pattern as the share price of Glen Mark Pharma
from 2003-2004 to 2007-2008 irrespective of the recession period. Hence, we can say that the

106

R SQUARE 0.93 0.98
A 759.00 851.70
B1 43.32 68.55
B2 -63.94 -24.32
B3 - 16.10
T1 3.93 3.75
T2 -4.04 -5.10
T3 - -2.35
P1 0.08 0.05
P2 0.09 0.12
P3 - 0.25
(TABLE 5.30.1)
some other factors.
PIRAMAL HEALTH CARE:

107

2003-04 319.50 267.76 250.25 49.25 33.68 54.89
2004-05 274.00 140.97 123.13 8.78 17.53 22.01
2005-06 264.90 -22.65 -18.49 8.02 20.39 23.79
2006-07 357.25 -70.92 -54.10 8.90 20.05 19.23
2007-08 238.55 209.16 149.13 14.36 27.23 29.51
2008-09 267.24 6.13 3.82 -3.03 20.66 13.82
(TABLE 5.31)
(CHART 5.31.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Piramal Health Care from 2003-
2004 to 2006-2007. After 2006-2007, there is no definite pattern and this may be due the global
(CHART 5.31.1)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Piramal Health Care from

108

R SQUARE 0.60 0.92
A 300.47 555.44
B1 -1.61 16.23
B2 1.77 1.86
B3 - -20.03
T1 -1.67 3.36
T2 1.57 0.32
T3 -2.86
P1 0.23 0.18
P2 0.25 0.79
P3 - 0.79
(TABLE 5.31.1)
some other factors.
AUROBINDO PHARMA:

109

2003-04 323.95 67.57 63.15 25.02 16.83 19.70
2004-05 409.95 -66.27 -57.88 6.91 5.54 4.54
2005-06 705.15 -41.49 -33.87 13.02 8.24 8.19
2006-07 542.80 25.39 19.37 42.94 12.25 24.97
2007-08 167.80 176.73 126.00 54.08 13.73 27.05
2008-09 376.09 125.38 83.54 56.64 11.47 27.42
(TABLE 5.32)
(CHART 5.32.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of Aurobindo Pharma from 2003-2004
to 2007-2008 irrespective of the global meltdown. By, this we can conclude that the Economic
profit created by the company is in the favour of the share holders.
(CHART 5.32.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of Aurobindo Pharma from

110

R SQUARE 0.59 0.48
A 486.05 834.00
B1 -3.53 -30.08
B2 2.49 -64.77
B3 - 70.06
T1 -0.40 -0.63
T2 0.21 -0.64
T3 - 0.56
P1 0.72 0.61
P2 0.83 0.63
P3 - 0.67
(TABLE 5.32.1)
Therefore, Null Hypothesis is rejected & Alternative Hypothesis is accepted.
some other factors.
IPCA LABORATORIES:

111

2003-04 366.55 41.78 39.05 63.41 29.86 32.52
2004-05 677.90 34.31 29.97 32.28 23.58 26.32
2005-06 593.75 12.40 10.12 25.59 16.48 17.69
2006-07 409.95 -9.08 -6.93 48.89 26.84 28.04
2007-08 366.55 87.42 62.33 56.25 23.79 25.81
2008-09 402.55 47.73 31.80 45.97 21.44 22.56
(TABLE 5.33)
(CHART 5.33.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of IPCA Laboratories from 2003-2004
(CHART 5.33.1)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of IPCA Laboratories from

112

R SQUARE 0.10 0.99
A 513.03 683.03
B1 -3.99 -11.02
B2 3.84 -62.30
B3 69.07
T1 -0.23 -33.59
T2 0.16 -12.69
T3 16.01
P1 0.83 0.01
P2 0.88 0.05
P3 0.03
(TABLE 5.33.1)
Therefore, Null Hypothesis is rejected & Alternative Hypothesis is accepted
some other factors.
FDC LTD:

113

2003-04 60.80 32.72 30.58 6.92 43.79 37.01
2004-05 51.95 13.04 11.39 2.85 26.34 20.74
2005-06 38.50 8.67 7.08 3.63 27.49 22.32
2006-07 47.00 -15.79 -12.04 3.36 26.44 20.76
2007-08 34.95 22.97 16.37 3.43 22.03 18.65
2008-09 29.64 -2.18 -1.45 2.09 16.19 12.88
(TABLE 5.34)
(CHART 5.34.1)
INTERPRETATIONS:
EVA and MVA follow the same pattern as the share price of FDC Ltd from 2003-2004 to 2006-
(CHART 5.34.2)
INTERPRETATIONS:
EPS, ROCE and RONW follow the same pattern as the share price of FDC Ltd from 2003-2004
have a better relationship with share prices

114

R SQUARE 0.87 0.85
A 43.46 5.26
B1 -3.45 -6.81
B2 4.27 3.37
B3 - -1.24
T1 -3.50 -0.32
T2 3.68 0.36
T3 - -0.08
P1 0.07 0.79
P2 0.06 0.77
P3 - 0.94
(TABLE 5.34.1)
Therefore, Null Hypothesis is rejected & Alternative Hypothesis is accepted
some other factors.

115
SUMMARY OF THE MULTIPLE REGRESSION RESULTS:
COMPANIES H0 BETTER
EVA &MVA EPS,ROCE&RONW MEASURE

SOFTWARE
Infosys Rejected Rejected EVA
HCL Technologies Rejected Rejected ROCE
Mphasis Rejected Rejected ROCE
Oracle Rejected Rejected MVA
Patni Accepted Rejected EPS
Polaris Software Rejected Rejected MVA
TCS Rejected Rejected EPS
Tech Mahindra Accepted Rejected EPS
Wipro ltd Rejected Rejected EVA
3I Infotech ltd Rejected Rejected EPS
POWER
NTPC Accepted Rejected EPS
Power Grid Corp Rejected Rejected EVA
Neyveli Lignite Rejected Rejected EVA
Tata power co. Rejected Rejected EVA
BF Utilities Rejected Rejected EVA
Energy Development Rejected Rejected EPS
GVK Power Infra Rejected Rejected MVA
CESC ltd Rejected Rejected EVA
Jai Prakash Hydro Rejected Rejected EPS
Guju Indus Power Accepted Rejected EPS
PHARMACEUTICALS
Sun pharma Rejected Rejected MVA
Cipla Rejected Rejected EPS
Dr. Reddy’s Lab Rejected Rejected EPS

116
Ranbaxy Rejected Rejected EPS
Cadila Health Care Rejected Rejected EPS
Glen Mark Pharma Rejected Rejected EPS
Piramal Health Care Rejected Rejected RONW
Aurobindo Pharma Rejected Rejected EPS
FDC Rejected Rejected RONW
IPCA Laboratories Rejected Rejected RONW

(TABLE 5.35)
INTERPRETATIONS:
From the above summary, it is clear that the null hypothesis is rejected in case of 27
companies, where as the null hypothesis cannot be rejected in just 3 companies, in case of
“Relationship of EVA, MVA with respect to share share prices”.
In case of “Relationship between EPS, ROCE & RONW with respect to share prices”, the
null hypothesis in case of all the 30 companies is said to be rejected.
Therefore, we can conclude that there is relationship between the performance measures
with share prices and we can also observe that, EPS is strong influencing factor among
the variables. Investor’s decisions rely on the EPS as it is well published information and
is directly related to P-E multiple which is used by the fund managers for predicting the
share prices of the companies.
But when we look at each sector, we can conclude that in Software sector, EPS is the
strong influencing factor. In the power industry, EVA is the strong influencing sector and
this may be due the fact that the power industry has created a lot of capital. In case of
Pharmaceutical industry, again EPS is the influencing factor.

117
CHAPTER 6
FINDINGS, CONCLUSIONS &

SUGGESTIONS

118
6.1 FINDINGS FROM THE STUDY:
From the study ,we can find that investing in the market is becoming less risky as the beta
of the individual securities is decreasing year by year.The decrease in beta is decreasing
the weighted average cost of capital; it shows that capital is becoming less costly.As the
market is becoming less risky, therefore share prices of almost all the companies show a
decreasing trend in the 2008 year and this may be the global meltdown. It is also found
that EPS is strong influencing factor among the variables. Investor’s decisions rely on the
EPS as it is well published information and is directly related to P-E multiple which is
used by the fund managers for predicting the share prices of the companies.
6.1.1 DATA ANALYSIS OF 30 COMPANIES SHOW THAT:
Share prices of twenty seven companies’ shows high correlation of coefficient and
coefficient of determination with EVA, MVA, EPS, ROCE & RONW. Share prices of
only two companies shows low correlation of coefficient and coefficient of determination
with EVA, MVA.
This specifies that there is relationship between EVA, MVA and share price, EPS,
ROCE & RONW and share prices.
6.2 RECOMMENDATIONS:
Investors can invest in the companies whose EVA is in the increasing trend, but the
investors also need to look at other aspects like mergers and acquisitions, sold outs and
various other factors which influence the market.

119
6.3 CONCLUSION FROM THE STUDY:
This report explains the importance of using EVA & MVA as the tools for measuring
financial performance. The study reveals that there is strong pattern of EVA & MVA of
selected companies during the period.
The wealth created by most companies in year 2004 is negative because of higher cost of
capital. The central idea of EVA is subtracting the cost of capital from the firm's profits
to measure, as the term indicates, the economic additional value produced by the firm to
its owners over the weighted cost of the capital employed. It reveals that the the decision
of managers between using equity fund or debt fund will influence EVA to the greater
extent. This raised the question of the effect of the debt and equity cost components on
the behavior of EVA. It was observed that the cost of debt has little effect on the EVA's.
On the other hand, as is expected, EVA behaves in a linear fashion with respect to the
cost of equity
Creating shareholder value is a fundamental requirement for all the companies.

Therefore, most of the leading companies adopt the mantra of shareholder value to meet
the increasing expectations of the share holders.
According to the research conducted, the conclusion is, even though EVA is correlated to
stock prices, it is not much greater than the correlation between accounting profit (EPS,
ROCE & RONW) and stock prices. Therefore, though EVA might be incrementally
better over other measures, it does not really provide any significant informational
advantage and cannot be used to forecast the share price of the company.

120
6.4 SUGGESTIONS FOR FURTHER RESEARCH:
This research has a limited scope, that is only five years and the data of only thirty
companies is taken into consideration. These five years had showed a lot of variations
with respect to beta, invested capital, weighted average cost of capital and share prices.
To overcome this limitation of the study, the sample size and the years of consideration
for the research has to be increased, so as to decrease the variations with respect to the
above mentioned variables.
Extensive study is required to establish the influence of other factors like expectations of
investors with respect to mergers and acquisitions, sold outs and various other factors
which influence investors to undertake investing decisions. It is because in these days all
the above mentioned factors are common and it is expected that it will also influence
share prices.

121
BIBLIOGRAPHY:
TEXT BOOKS
¾ Prasanna Chandra, Financial Management, Theory and Practice- (Sixth Edition)

¾ Kulkarni, P.V. and Sathyaprasad B.G., Financial Management, (Ninth Edition)
¾ Pandey, I.M., Financial Management, (Eighth Edition)
¾ Donald Cooper and Pamela Schindler, Research Methodology- (Eighth Edition)
¾ Richard I Levin and David S Rubin, Statistics for Management - (Seventh Edition)
REFERENCES
¾ “Computation of EVA in Indian Banks”, by Roji George, the ICFAI Journal of

Bank Management, Vol IV, No. 2 , May 2005, Pg No. 30-44.
¾ “Facets of Shareholder Value creation”, by V.V.Gopal, The ICFAI Reader, May
2005, Pg No. 33-37.
¾ Banerjee, Ashok., “Economic Value Added and Shareholder Wealth – An
empirical study of relationship”.
¾ Dr. Srinivasan, Professor, National Institute of Industrial Engineering (NITIE) on
“Economic Value Added (EVA) - An Emerging Tool for Value Creation”
¾ “Relationship between EVA and share price”, The ICFAI Journal of Applied
Finance, Vol. 13, No.1, (January, 2007), pp. 5-20.
¾ Sheik, Aamir M., “How EVA influences stock market”, The Journal of Finance,
Vol. 44, No. 5. (December, 1987), pp. 1361-1372.
¾ Database of Capital Market Publishers (India) Ltd., Capitaline 2000

122
C. DATABASES
¾ Prowess
¾ Capital-online
D. WEBSITES
¾ www.investopedia.com
¾ www.valuebasedmanagement.net
¾ www.evanomics.com
¾ www.rbi.org.in
¾ www.bseindia.com
¾ www.capitaline.com
¾ www.rediff.com/finance
¾ www.moneycontrol.com
¾ www.equitymaster.com
¾ www.sternstewart.com

123
ANNEXURE:
BALANCE SHEET OF ORACLE:
Year Mar 08 Mar 07 Mar 06 Mar 05 Mar 04

SOURCES OF FUNDS :
Share Capital + 41.87 41.64 38.14 37.44 37.37
Reserves Total + 2,770.5 2,316.67 1,324.59 1,087.75 929.18
Total Shareholders Funds 2,812.62 2,358.31 1,362.73 1,125.19 966.55
Secured Loans + 0 0 0 0 0
Unsecured Loans + 0 0 0 0 0
Total Debt 0 0 0 0 0
Total Liabilities 2,812.62 2,358.31 1,362.73 1,125.19 966.55
APPLICATION OF FUNDS :
Gross Block + 403.02 323.28 281.88 212.78 157.95
Less:Accumulated Depreciation + 222.61 173.95 118.49 80.63 66.13
Net Block + 180.41 149.33 163.39 132.15 91.82
Lease Adjustment 0 0 0 0 0
Capital Work in Progress+ 131.02 127.06 58.14 8.56 11.36
Investments + 723.41 609.22 41.35 42.54 54.79
Current Assets, Loans & Advances
Inventories + 0 0 0 0 0
Sundry Debtors + 903.31 1,041.94 742.86 620.08 395.7
Cash and Bank+ 640.09 500.75 557.99 539.39 527.58
Loans and Advances + 683.54 585.41 282.47 184.29 135.08
Total Current Assets 2,226.94 2,128.10 1,583.32 1,343.76 1,058.36
Less : Current Liabilities and Provisions
Current Liabilities + 428 633.21 433.65 355.85 217.77
Provisions + 43.33 35.33 56.9 46.09 32.2
Total Current Liabilities 471.33 668.54 490.55 401.94 249.97
Net Current Assets 1,755.6 1,459.6 1,092.7 941.82 808.39
Miscellaneous Expenses not written off
+ 0 0 0 0 0
Deferred Tax Assets 22.17 13.14 7.08 0.12 0.19
Deferred Tax Liabilities 0 0 0 0 0
Net Deferred Tax 22.17 13.14 7.08 0.12 0.19
Total Assets 2,812.2 2,358.1 1,362.3 1,125.9 966.55
Contingent Liabilities+ 0.81 3.94 6.3 0 0

124
PROFIT & LOSS ACCOUNT OF ORACLE:
Year Mar 08 Mar 07 Mar 06 Mar 05 Mar 04

INCOME :
Operating Income + 1,792.97 1,552.34 1,153.82 902.86 684.46
Excise Duty 0 0 0 0 0
Net Operating Income 1,792.97 1,552.34 1,153.82 902.86 684.46
Other Income + 48.65 37.08 32.59 29.07 32.77
Stock Adjustments + 0 0 0 0 0
Total Income 1,841.62 1,589.42 1,186.41 931.93 717.23
EXPENDITURE :
Cost of Traded Software Packages 0 0 0 0 0
Operating Expenses + 113.09 99.66 71.59 54.7 30.86
Employere Cost + 869.3 715.99 513.82 394.2 258.75
Power/Electricity Charges + 18.81 12.73 10.07 6.35 4.48
Selling and Administration Exp. + 286.75 278.55 225.65 167.56 149.62
Miscellaneous Expenses + 61.83 44.91 40.95 35.42 44.53
Less : Pre-operative Expenses
Capitalised + 0 0 0 0 0
Total Expenditure 1,349.78 1,151.84 862.08 658.23 488.24
Operating Profit 491.84 437.58 324.33 273.7 228.99
Interest + 0 0 0 0 0
Gross Profit 491.84 437.58 324.33 273.7 228.99
Depreciation+ 60.31 56.54 38.78 26.59 3.6
Profit Before Tax 431.53 381.04 285.55 247.11 225.39
Tax+ 18.14 25.1 46.21 49.4 46.56
Deferred Tax+ -9.04 -6.06 -6.96 0.07 2.95
Reported Net Profit 410.87 354.67 240.8 197.64 175.88
Extraordinary Items + -10.45 -0.42 -0.38 1.66 -5.57
Adjusted Net Profit 421.32 355.09 241.18 195.98 181.45
Adjustment below Net Profit + 0 -0.01 0 0 0
P & L Balance brought forward 400.96 46.42 49.25 44.3 22.94
Appropriations + 0 0.12 243.63 192.69 154.52
P & L Balance carried down 811.83 400.96 46.42 49.25 44.3
Dividend 0 0 38.26 37.44 26.17
Preference Dividend 0 0 0 0 0
Equity Dividend % 0 0 100 100 70
Earnings Per Share-Unit Curr 49.06 42.59 30.86 25.69 23.08
Book Value-Unit Curr 335.88 283.18 178.65 150.27 129.32

125
FINANCIAL OVERVIEW OF ORACLE:
PARTICULARS 200803 200703 200603 200503 200403

Equity Paid Up 41.87 41.64 38.14 37.44 37.37
Networth 2812.62 2358.31 1362.73 1125.19 966.55
Capital Employed 2812.62 2358.31 1362.73 1125.19 966.55
Gross Block 403.02 323.28 281.88 212.78 157.95
Sales 1792.97 1552.34 1153.82 902.86 684.46
PBIDT 491.84 437.58 324.33 273.7 228.99
PBDT 491.84 437.58 324.33 273.7 228.99
PBIT 431.53 381.04 285.55 247.11 225.39
PBT 431.53 381.04 285.55 247.11 225.39
PAT 410.87 354.67 240.8 197.64 175.88
CP 471.18 411.21 279.58 224.23 179.48
Revenue earnings in forex 1737.06 1495.17 1108.3 880.47 669.72
Revenue expenses in forex 555.89 464.05 348.7 278.36 235.24
Book Value (Unit Curr) 335.88 283.18 178.65 150.27 129.32
Market Capitalisation 7901.29 17346.81 10086.1 4416.8 4285.99
CEPS (annualised) (Unit Curr) 56.27 49.38 35.95 29.24 23.57
EPS (annualised) (Unit Curr) 49.06 42.59 30.86 25.69 23.08
Dividend (annualised%) 0 0 100 100 70
Payout (%) 0 0.03 16.25 19.46 15.17
Cash Flow From Operating Activities 391.36 80.99 113.57 67.85 78.54
Cash Flow From Investing Activities -407.63 -674.32 -140.49 -164.04 -81.25
Cash Flow From Financing Activities -5.07 631.67 -8.83 -28.08 -0.52
ORACLE’S MARKET DETAILS:
Year Open Price High Price Low Price Close Price No. of Shares
2004 865.00 874.00 380.00 636.55 10712981
2005 641.00 1,088.00 541.10 1,074.70 15395104
2006 1,073.00 2,068.90 840.00 1,947.70 17613644
2007 1,988.00 2,630.00 1,225.00 1,511.05 3444753
2008 1,524.00 1,664.00 405.00 458.30 7223745
P.S:- Due to lack of space, the financial statements of only one company are annexed in this report.

126

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Relationship of various performance measures with share prices

RELATIONSHIP OF VALUE BASED AND ACCOUNTING BASED

Submitted in partial fulfillment of the requirements

Regd NO: 07XQCM6095

MBA Fourth Semester

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

I hereby declare that the dissertation report titled “Relationship of Value-

This project does not form part of any other/degree/diploma fellowship of

Place: Bangalore Savitha Gupta

Date: Regd No:

M.P.BIRLA INSTITUTE OF MANAGEMENT

I would like to extend my heartfelt gratitude to Dr. Nagesh . S. Malavalli,

Further, I am grateful to Professor Santhanam, M P Birla Institute of

M.P.BIRLA INSTITUTE OF MANAGEMENT

3 RESEARCH DESIGN 31-41

M.P.BIRLA INSTITUTE OF MANAGEMENT

5 DATA ANALYSIS AND INTERPRETATIONS 46-104

M.P.BIRLA INSTITUTE OF MANAGEMENT

TABLE PARTICULARS Pg No.

Table showing sample profile

Table showing Betas of sample companies

Table showing NOPAT of sample companies

Table showing WACC of sample companies

Table showing Capital Employed of sample companies

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

5.35 Table showing summary of multiple regression results 113

5.5.1 Table showing multiple regression results of Infosys 115

5.6.1 Table showing multiple regression results HCL Technologies 117

5.7.1 Table showing multiple regression results of Mphasis 119

5.8.1 Table showing multiple regression results of Oracle 121

5.9.1 Table showing multiple regression results of Patni 123

5.10.1 Table showing multiple regression results of Polaris software 125

5.11.1 Table showing multiple regression results 127

M.P.BIRLA INSTITUTE OF MANAGEMENT

5.12.1 Table showing multiple regression results of Tech Mahindra 129

5.13.1 Table showing multiple regression results of Wipro ltd 131

5.15.1 Table showing multiple regression results of NTPC 135

5.16.1 Table showing multiple regression results of Power Grid 137

5.17.1 Table showing multiple regression results of Neyveli Lignite 139

5.18.1 Table showing multiple regression results of Tata power 141

5.19.1 Table showing multiple regression results of BF Utilities 143

Table showing multiple regression results of Energy

5.22.1 Table showing multiple regression results of CESC ltd 149

5.23.1 Table showing multiple regression results of JP Hydro 151

Table showing multiple regression results of Gujurat

5.25.1 Table showing multiple regression results of Sun Pharma 155

5.26.1 Table showing multiple regression results of Cipla 157

5.27.1 Table showing multiple regression results of Dr. Reddy’s

5.28.1 Table showing multiple regression results of Ranbaxy 161

M.P.BIRLA INSTITUTE OF MANAGEMENT

Table showing multiple regression results of Cadila Health

4.3.1 Chart showing growth of pharmaceutical industry 46

5.5.1 Chart showing share prices, EVA, MVA, of Infosys 53

5.6.1 Chart showing share prices, EVA, MVA, of HCL Technologies 55

5.7.1 Chart showing share prices, EVA, MVA, of Mphasis 57

5.8.1 Chart showing share prices, EVA, MVA of Oracle 59

5.9.1 Chart showing share prices, EVA, MVA of Patni 61

5.10.1 Chart showing share prices, EVA, MVA of Polaris software 63

5.11.1 Chart showing share prices, EVA, MVA of TCS 65

5.12.1 Chart showing share prices, EVA, MVA of Tech Mahindra 67