Economic Value Added Performance

International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 3, Issue 2, May-August (2012) ISSN
SN 0976 6367(Print) ISSN 0976 6375(Online) Volume 3, Issue 2, May- August (2012), pp. 108-123 IAEME: www.iaeme.com/ijm.html Journal Impact Factor (2011): 1.5030 (Calculated by GISI) www.jifactor.com
INTERNATIONAL JOURNAL OF MANAGEMENT (IJM)
IJM
IAEME
ECONOMIC VALUE ADDED PERFORMANCE OF BSE-SENSEX COMPANIES AGAINST ITS EQUITY CAPITAL
V.ANANDAVEL Ph.D Research Scholars, Department of Business Administration, Annamalai University, Annamalai Nagar 608 002,Tamilnadu Dr.A.SELVARASU Professor, Department of Business Administration, Annamalai University, Annamalai Nagar 608 002, Tamilnadu ABSTRACT This research paper studies BSE-SENSEX companies profile to demonstrate a direct correlation between the investment in stakeholder relationships and corporate performance. Economic Value Added (EVA) is now being considered as an important management tool across the corporate world for measuring and rewarding performance inside the companies. Most of the companies measure performance with accounting profits which are often seriously biased measure of true profitability. EVA is an unbiased measure of true profitability. Unlike accounting profits, EVA indicates the value to what extent created by management or agent for shareholders. The paper aims at analyzing BSE-SENSEX Companies performance through EVA. For this purpose, EVA has been calculated.taking certain assumptions as to the cost of equity and operational profit adjustments. However, the study concludes that Among the 30 companies ONGC and Reliance Industries EVA were topped. Further the three companies EVA were negative during the period of the study in the BSE-SENSEX Companies. So the companies should improve their profit which is enough to face their cost of capital. Key Words:Economic Value Added, Cost of equity BSE-SENSEX Companies Economic Value Added Performance Financial status is the backbone of companys economy system. The economy of the company is greatly influenced by the operation of finance. It is essential for proper allocation of resources, which in turn helps sustain a healthy climate for analyzing the profit as well as performance. There are differentfinancial tools like Ratios, Fund flow and Cash flow, Common size, Comparative statements etc., to assess the financial performance. This study takes an effort to use the Economic Value Added (EVA)i.e. to find out the economic profit and to measure the difference between equity and debts respectively in addition to the usual financial tools.
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 3, Issue 2, May-August (2012)
Statement of problem: BSE-SENSEX is one of the main indicators of the Indian economic growth and the scrip is including the 30 top companies from all sectors in India. While a number of studiesmade into the use and relevance of EVA for the Corporate Sector across the world. Very little attention has been given hitherto is applicability to the BSESENSEX Companies. The present study on EVA is a performance measure of 30 companies in BSE-SENSEX. It also be noted that the Indian companies has not so far addressed itself to the need for analyzing its performance from the angle of shareholders value addition. Becauseof EVA itself is a relatively new measure. Objectives: The principal objective of this study is to evaluate the performance of BSE-SENSEX Companies in India through the performance measure of EVA. The study covers the following specific objectives: 1. To evaluate the economic value added performance of the BSE-SENSEX Companies based on equity capital 2. To categories companies with its Equity capital and EVA to assess the association between group of Companies. 3. To measure the quantum of relationship between companies equity capital and EVA Test of Hypothesis: H0: There is no significant relation between equity investment and its EVA H1: There is significant relation between equity investment and its EVA Review of Literature You Lee (1995), in his article he stated that the use of EVA as a corporate performance measurement tool. His main research finding was that, within the context of the JSE (Johannesburg Stock Exchange), EVA is at best marginally better than measures such as ROA and ROE. Pretorius (1997) and Jansen (1998) both researched EVA as an investment decision-making measure. Mohammad SalehJahur and Al Nahian Riyadh (2002), the paper aims at analyzing banks' performance through EVA. For this purpose, EVA has been calculated taking certain assumptions as to the cost of equity and operational profit adjustments. A rank correlation coefficient between EVA and different criteria indicates that ranking under Return on Asset, Net Profit, "Profit per Employee and Deposit per Employee have close resemblances to the ranking under EVA, whereas the ranking under Interest Income and Spread does not match with the ranking under EVA. NarcyzRoztocki and Kim LaScola Needy (University of Pittsburgh, 2005), the study concludes with a discussion of possible changes to corporate strategies and business performance when the proposed ABC-and-EVA system is implemented in a manufacturing company. Research Methodology The Study is both theoretical and empirical one. In order to preparetheoretical framework of the Study, existing available textbooks, researcharticles, journals, and magazines had been consulted. The study is primarilybased on secondary data. Secondary data used in the study include ChairmansReport, Income Statement, and Balance Sheet of the BSE-SENSEX Companiescovering the period from 2006-07 to 2010-11.The Secondary data have been tabulated and analyzed manually.
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The study approach is an exploration of possible relationship between equity capital and economic value added performance of select companies. Thirty companies that are included in the assessment of BSE-SENSEX have been classified based on its equity capital and EVA. There are three stages of exploration have been done in order to assess the Cost of capital and Debt; Weighted Average Cost of Capital; and Economic Value Analysis. In addition, ranking of the companies have been identified with respect to its value of EVA. On account of proving the performance of companies, hypotheses have been set to test association as well as correlation between various categories companies equity capital and its EVA. Table 1: List of companiesincluded in the assessment of BSE-SENSEX Sl. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Companies Name of Company Bajaj Auto BhartiAirtel Bharat Heavy Electrical Cipla Coal India DLF Housing Development Finance Industry / Sector Automobiles Telecom Electrical Pharmaceutical Mine Construction Finance Banks Automobile Aluminum FMCG / Diversified Banks Software / Computers Cigarettes Construction Steel Engineering Auto Automobile Power Refineries
Corporation Ltd., HDFC Bank Hero Honda Motors Hindalco Industries Hindustan Uni Lever ICICI Bank Infosys Technologies ITC Jaiprakash Associates Jindal Steel & Power Larsen and Toubro Mahindra and Mahindra Maruti Suzuki India N T P C Ltd Oil and Natural Gas Corp
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22 23 24 25 26 27 28 29 30
Reliance Industries State Bank of India Sterlite Industries India Sun Pharmaceuticals Tata Motors Tata Power Supply Co Tata Steel Tata Consultancy Services Wipro Corporation
Refineries Banks Metals Pharmaceutical Automobile Power Generation Steel Software / Computers Software and Computers
Sources: BSE SENSEX / 2010-2011 Tools of the study Economic Value Added: Economic Value Added is a tool widely used as a corporate performance measurement in the current scenario and there has been a paradigm shift in setting corporate objectives and performance measurement. This shift happened with the changes in corporate mindset and the advent of professional management. It is now well-recognized fact that the aim of every business entity should be to maximize shareholders wealth and the activities of firm to achieve the objectives. EVA is a term developed and used by a US based consulting firm named Stern Stewart & Co. This measure is its registered trademark. It has done much to popularize and implement this measure of residual income. But the concept of residual income has been around for some time and many companies that are not Stern-Stewart clients use this concept to measure and reward managers performance (Brealey and Myers 2000). Economic Value Added is a measure of economic profit. It is calculated as the difference between the Net Operating Profit after Tax and the opportunity cost of invested Capital. This opportunity cost is determined by the weighted average cost of Debt and Equity Capital ("WACC") and the amount of Capital employed.
EVA
NOPAT Net Operati ng Profit
Capital Charges Capital Invested WACC
After Tax
Figure 1
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CALCULATION OF EVA Net sales (-) Operating expenses Operating profit (EBIT) (-) Taxes Net Operating Profit after Tax (NOPAT) (-) Capital Charges (invested capital* cost of capital) Economic Value Added XXX XXX XXX XXX XXX XXX XXX
Weighted Average Cost of Capital: The Weighted Average Cost of Capital (WACC) represents to rate a company and is expected to pay in financing its assets. The WACC calculates the companys cost of capital by proportionately weighing the categories of capital, each of which would be in the form or debt or equity. The WACC for a company is the minimum that the company must earn on its assets to satisfy its owners and creditors.
Or
Where, =Weight of debt (Proportion); = Weight of preference Capital; = Weight of Common Share Capital; = Weight of Retained Earnings; = Cost of debt; = Tax
= Cost of Preference Capital = Cost of Common Share Capital = Cost of Retained Earnings
COST OF CAPITAL CALCULATION: Dividend Price Method or Dividend Yield Method: According to this method, cost of equity capital is the discount rate at which present value of expected future dividends per share is equal to the net proceeds(or current market price) per share. The cost of equity capital (Ke) is calculated as follows. (Or) Where, Ke= Cost of equity capital
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D1 = Expected dividend per share NP= Net proceeds per share (in case of new issue) MP= Market price per share (in case of existing shares)
CHI-SQUARE TEST OF ASSOCIATION chi-square test or 2 test, is any statistical hypothesis test in which the sampling distribution of the test statistic is a chi-squared distribution when the null hypothesis is true, or any in which this is asymptotically true, meaning that the sampling distribution (if the null hypothesis is true) can be made to approximate a chi-squared distribution as closely as desired by making the sample size large enough. Test statistics: Chi-square
Where, =Expected Variable = Observed Variable Degrees of freedom = (No. of Rows 1) (No. of Column 1) = (r-1) (c-1) Expected Frequencies = (Row Total Column Total)/ Grand Total
CORRELATION BETWEEN EQUITY CAPITAL AND ITS EVA In statistics, dependence refers to any statistical relationship between two random variables or two sets of data. Correlation refers to any of a broad class of statistical relationships involving dependence.
DATA ANALYSIS AND INTERPRETATIONS: The present study has measured the performance of BSE-SENSEX Companies in India through EVA, and other parameterssuch as Net Profit, ROA. The computation of Cost of Capital and others measures have been exhibited in the Appendix.
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Table 2: CATEGORIES OF COMPANIES BASED ON EQUITY CAPITAL AND EVA Equity Capital Below 250 Cr. Below 1000 Cr. 2007 1000 Cr.-3000 Cr. Above 3000 Cr. Column Total Below 1000 Cr. 2008 Economic Value Added 1000 Cr.-3000 Cr. Above 3000 Cr. Column Total Below 1000 Cr. 2009 1000 Cr.-3000 Cr. Above 3000 Cr. Column Total Below 1000 Cr. 2010 1000 Cr.-3000 Cr. Above 3000 Cr. Column Total Below 1000 Cr. 2011 1000 Cr.-3000 Cr. Above 3000 Cr. Column Total Source: Computed 8 6 1 15 8 5 1 14 5 7 1 13 5 6 1 12 2 7 1 10 250 500 Cr. 2 4 1 7 2 5 1 8 3 2 3 8 3 2 4 9 4 2 4 10 Cr.- Above 500 Cr. 2 1 5 8 2 2 4 8 2 2 5 9 2 2 5 9 1 3 6 10 12 11 7 30 12 12 6 30 10 11 9 30 10 10 10 30 7 12 11 30 Row Total
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CATEGORIES OF COMPANIES BASED ON EQUITY CAPITAL AND EVA
Figure 2 In the BSE-SENSEX group around 30 companies have taken place and the Equity is the major source for any business when the time of incorporation of the firm. Accordingly the studies have been taken the equity as a base for classifying the companies in three sub groups. They are, first set of companies equity range below 250 Cr, Second set of companies equity range between 250 Cr to 500 Cr, and the third group range above 500 Cr. In the year 2007 fifteen companies was coming under the First set of companies, seven companies in the second set, and the balance eight companies in the third set. In those classifications, there was small change in the number of companies at every year in the set in the following yearsand finally ten companies in each set. Table 3: EVA-Based Frequencies Distribution of BSE-SENSEX Companies During the period of the study:
EVA Negative Below Rs.1000 Cr Rs.1000 Cr - Rs.2000 Cr Rs.2000 Cr - Rs.3000 Cr Rs.3000 Cr - Rs.4000 Cr Above Rs.4000 Cr Total 2007 3 8 6 4 4 3 28 2008 3 7 5 7 0 6 28 2009 3 7 6 5 3 5 29 2010 4 6 5 5 2 7 29 2011 3 4 7 5 4 7 30
Source: Computed
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BSE-SENSEX Companies EVA During the Period of the Study
9 8 8 7 7 6 N of Com o. panies 6 5 5 4 4 3 3 2 2 1 0 0 2007 2008 2009 Year Negative Below Rs.1000 Cr Rs.1000 Cr - Rs.2000 Cr Rs.2000 Cr - Rs.3000 Cr Rs.3000 Cr - Rs.4000 Cr Above Rs.4000 Cr 2010 2011 3 3 3 3 3 4 4 4 4 5 5 5 5 5 6 6 6 7 7 7 7 7
Figure 3 The table 3 shows the EVA-Based Frequencies Distribution of BSE-SENSEX Companies during the period of the study. In the study period three companies regularly shown the negative EVA and in 2010 one company added with that negative EVA companies after the company has been recovered from the negative EVA. EVA based performance framework not only provides a far more accurate report card on corporate financial performance than conventional measures, but also has considerable implications for companies on how to make strategic decisions and manage the healthier financial performance in their pursuit of shareholder value.EVA created by the BSE-ENSEX Companies during the period of the study period is showed in Appendix/Table 2.The table shows that out of 30 companies, 26 companies have generated positive EVA during the period of the study and three companies show the negative EVA throughout the study period, the companies are HDFC, HDFC Bank, and State Bank of India. Only in the year 2009-10 Jaiprakash Associates Ltd shows the Negative EVA and the remaining years shows the Positive EVA. Due to high proportion of debt in the capital structure and insufficient profit generation by the HDFC Bank, HDFC, and State Bank of India fails to create positive EVA. However the number of companies that generated positive EVA(26 companies) during the period of the study in the BSE-SENSEX. So the BSE-SENSEX included maximum sound financial position companies except some companies. It may observed from table 2 that ONGC Ltd., Reliance Industries Ltd., BhartiAirtel Ltd., Tata Consultancy Service Ltd., and Infosys Technologies Ltd., was the topper in the BSESENSEX Companies as well as their financial position was good during the period of the study. FINDINGS OF THE STUDY
1. Table 4: RANKING BSE-SENSEX COMPANIES AVERAGE EQUITY CAPITAL & EVA
BSE SENSEX index companies and Industry / Sector Name of Company 1 N T P C Ltd Industry / Sector Power 2007-2011 Avg. Equity Capital 8245.49 Rank 1 2007-2011 Average EVA 3,458.79 Rank 7
Sl. No
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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Coal India Bajaj Auto Oil and Natural Gas Corp Reliance Industries BhartiAirtel ICICI Bank Tata Steel State Bank of India Tata Motors ITC Bharat Heavy Electrical HDFC Bank DLF Wipro Corporation Jaiprakash Associates Infosys Technologies Housing Development Finance Corporation Ltd., Mahindra and Mahindra Tata Power Supply Co Hindustan Uni Lever Sterlite Industries India Cipla Hindalco Industries Maruti Suzuki India Tata Consultancy Services Sun Pharmaceuticals Larsen and Toubro Jindal Steel & Power Hero Honda Motors Mine Automobiles Refineries Refineries Telecom Banks Steel Banks Automobile Cigarettes Electrical Banks Construction Software and Computers Construction Software / Computers Finance Auto Power Generation FMCG / Diversified Metals Pharmaceutical Aluminum Automobile Software / Computers Pharmaceutical Engineering Steel Automobile 6316.36 4,604.73 2566.66 2192.77 1897.92 1078.4 777.812 612.506 498.05 457.23 440.568 404.434 333.054 332.3 308.104 286.4 280.392 265.258 222.948 218.108 179.86 157.508 155.972 144.5 137.004 102.188 94.894 46.564 39.94 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 2,062.70 1,298.93 12,693.70 12,407.60 6,928.26 2,357.25 3,426.30 -27,004.85 942.36 2,698.88 3,498.48 -4,837.25 2,896.09 3,445.89 321.08 4,778.18 -1,452.51 1,275.46 346.47 1,779.22 737.35 739.09 1,586.70 1,699.07 4,854.25 945.65 2,213.17 1,330.14 1,084.05 14 19 1 2 3 12 9 30 23 11 6 29 10 8 27 5 28 20 26 15 25 24 17 16 4 22 13 18 21
Source: Computed
In the above table show the ranking position of a BSE SENSEX companies based on their average equity and average EVA during the period of the study. 2. Table 5: Chi-square and correlation result
Result - I Years Chi-square Test of Association [calculated] 2007 2008 2009 2010 2011
Source: Computed
Result - II Correlation [r] 0.24 0.19 0.20 0.13 0.18
10.76 8.44 6.60 6.17 8.95
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The critical value of Chi-square =13.30 at =0.01 and df=4. Since calculated value of Chisquare is less than the critical value during the period of study, the null hypothesis H0 is accepted. Hence the study concludes that there is no significant relation between equity investment and its EVA. Since value of r is positive during the period of the study, therefore equity capital of company and Economic value added are positively correlated. Hence we conclude that as the equity capital of company increases, EVA also increase. Even the correlation is positive the percentage of relation between EVA and Equity is poor during the period of the study. 3. Table 6: EVA to Equity ratio -Based Frequencies Distribution of BSE-SENSEX Companies During the period of the study: EVA to Equity Capital Ratio Below 2 2 to 10 Above 10 Sources: Computed In the BSE SENSEX Companies minimum of 6 companies and maximum of 9 companies EVA to equity ratio is below 2 in the study period. So they should improve their EVA in forthcoming years. The second sets of companies coming in the range between the ratio 2 to 10 and minimum of 13 companies and maximum of 17 companies are under this range during the course of study period, hence they should take steps to maintain the current EVA level and further improvement. Third categories under the range of the ratio is above 10, in this 8 companies are there except in 2008 this companies can increase their capital for the further development of the companies. CONCLUSION The above analysis concluded that EVA is animportant measure to judge a Companies performance in view of the currentscenario. It has been found in the study that EVA does have reflected a true profit measure though the company showing the profit in their financial statements. Among the 30 companies ONGC and Reliance Industries EVA was topped. Furtherthe three companies EVA were negative during the period of the study in the BSESENSEX Companies. So the companies should improve their profit which is enough to face their cost of capital. It can be concluded in view of the current scenario andintense
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2007 7 15 8
2008 6 17 7
2009 8 14 8
2010 9 13 8
2011 8 14 8
competition anticipated in the coming years thecompanies willreplace other performance parameter measures with EVA. The recognition of EVA concept in India shows, to some extent, diverse trend. A majority of the companies are still not prepared to employee the EVA technique to evaluate their financial performance because of certain inherent difficulties associated with the computation. In view of above facts, the competent authorities in India should issue necessary guidelines for the computation of EVA and its practices in financial reporting, to the appropriate bodies in India, so that it become obligatory for all companies to disclose their EVA in their financial statement and to meet expectations of shareholders in the country. REFERENCE 1. Thenmozhie . M (1999), Economic Value Added as a measure of corporate performance, The Indian Journal of Commerce, Vol. 52, No.4, PP.71-85. 2. Stern, Joel (2003), Work Shop on Value-based Management, organized by the ASCI, Hyderabad, PP.21-22. 3. Ball, R. J., & P. Brown. (1968). An Empirical Evaluation of Accounting Income Numbers, Journal of Accounting Research, 6, pp. 159-178. 4. Beaver, W. H. (1968). The Information Content of Annual Earnings Announcements, Journal of Accounting Research, 6, pp. 67-92. 5. Bontis, N., Keow, W. C. C., & Richardson, S. (2000). Intellectual Capital and Business Performance in Malaysian Industries, Journal of Intellectual Capital, 1, pp. 85-100. 6. Bontis, N., N. C. Dragonetti, K. Jacobsen, & G. Roos. (1999). The Knowledge Toolbox: A Review of the Tools Available to Measure and Manage Intangible Resources, European Management Journal,.17, pp. 96-104. 7. Bradley, K. (1997). Intellectual Capital and The New Wealth of Nations, Business Strategy Review, 8, pp. 53-62 8. Bukh, P. N., Larsen, H. T., &Mouritsen, J. (2001). Constructing Intellectual Capital Statements, Scandinavian Journal Management, 17, pp. 96-104. 9. Chauvin. K. W. & H. Mark. (1993). Advertising, R&D Expenditures and the Market Value of the Firm, Financial Management, pp. 128-140. 10. Chen, Shimin& James L. Dodd. (1997). Economic Value Added (EVA): An Empirical Examination of A New Corporate Performance Measure?,Journal of Managerial Issues, 6, pp. 318-333. 11. Edvinsson, L. & Malone, M. (1997).Intellectual Capital: realizing your companys true value by finding its hidden roots. New York: Harper Collins. 12. Greene, W. H. (2003). Econometric Analysis (5th ed). Prentice Hill Publishing. 13. Lehn, K. & A. K. Makhija. (1996). EVA & MVA as performance measures and signals for strategic change, Strategy and Leadership, 24, pp. 34-38. 14. Lev, B. (2001).Intangibles: Management, Measurement and Reporting. Washington, DC: Brookings Institution Press. 15. Lev, B. & P. Zarowin.(1999). The Boundaries of Financial Reporting and How to Extend Them, Journal of Accounting Research, 37, pp. 353-389. 16. Mouritsen, J. (1998). Driving growth: Economic Value Added versus Intellectual Capital, Management Accounting Research, 9, pp. 461-482. 17. Neter,J., W. Wasserman, & M. H. Kutner. (1989). Applied Linear Regression Models (3rd ed). Homewood, IL:Irwin.
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18. ODonnell, ORegan. P., Coates. B., Kennedy. T., Keary.B.,&Berkery. G.. (2003). How Interaction: The Critical Source of Intangible Value, Journal of Intellectual Capital, 4, pp. 82-99. 19. Ohlson, J. (1995). Earning, Book Values, and Dividends in Equity Valuation, Contemporary Accounting Research, 11, pp. 661-687. 20. Roos J., Robert L. Edvinsson& N. Dragonetti. (1998). Intellectual Capital: Navigating in the New Business Landscape. New York University Press. 21. Stewart. Thomas A. (1997). Intellectual Capital: The New Wealth of Organizations. New York: Doubleday Dell Publishing Group. 22. Wooldridge, Jeffrey M. (2003). Introductory Econometrics: A Modern Approach (2nd ed). South-Western of Thomson Learning. 23. Wu, Chi-Ming & Firms Value Appraisal Group of EMBA. (2005). The EVA of the firms consist of TSEC Taiwan 50 index, Accounting Research Monthly, 230, pp. 32-51
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APPENDIX Table 2: EVA of BSE-SENSEX Companies
Sl. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Companies Bajaj Auto Bharat Heavy Electrical BhartiAirtel Cipla Coal India (Listing Date 04-112010) DLF HDFC Bank Hero Honda Motors HindalcoIndsutries Hindustan Uni Lever Housing Development Finance 2007 EVA 2,380.82 3,984.91 569.27 2,753.81 -926.3 530.12 1,927.05 1,248.67 -525.38 1,933.53 3,213.70 2,273.98 387.58 674.2 1,319.69 758.7 RANK 10 4 21 8 27 22 13 17 26 12 7 11 24 19 15 18 EVA 2,653.28 6,377.43 526.29 2,375.72 -4,722.92 680.66 2,041.72 1,533.28 -766.34 2,598.48 4,292.41 2,614.18 535.72 1,385.37 1,997.62 829.29 2008 RANK 8 3 24 12 27 22 13 15 26 10 5 9 23 17 14 21 EVA 758.56 2,849.58 9,190.16 944.49 3,137.93 -7,023.79 1,096.07 1,324.95 2,254.57 -2,153.16 1,922.77 5,752.80 2,760.70 683.27 1,631.66 2,370.43 819.28 2009 RANK 23 10 3 21 7 28 19 16 13 27 14 4 11 24 15 12 22 EVA 1,746.16 4,089.85 7,998.11 901.99 2,901.52 -2,335.38 1,449.17 923.26 1,926.47 -1,095.36 2,126.62 5,245.05 3,633.75 -121.65 1,072.87 2,649.20 1,949.34 2010 RANK 17 7 3 21 10 28 18 20 16 27 14 5 8 26 19 11 15 EVA 2,119.28 5,518.86 7,090.70 753.39 3,980.95 3,311.44 -9,177.86 1,664.25 1,716.54 1,933.12 -2,722.33 3,204.84 5,386.94 2,211.76 120.45 1,886.58 2,728.88 2,020.71 2011 RANK 14 5 3 24 8 10 29 20 19 17 28 11 7 13 27 18 12 15 Avg. of EVA 1541.33 3498.48 6928.26 739.09 3980.95 2896.08 -4837.25 1084.05 1586.70 1779.22 -1452.51 2357.25 4778.18 2698.87 321.07 1330.14 2213.16 1275.46 Standard Deviation 979.74 1305.40 1952.81 189.11 1780.33 361.27 3361.17 484.68 460.54 391.57 943.57 547.29 1027.38 570.70 323.24 474.35 575.67 648.79
Corporation Ltd., ICICI Bank Infosys Technologies ITC Jaiprakash Associates Jindal Steel & Power Larsen and Toubro Mahindra and Mahindra
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19 20 21 22 23 24 25 26 27 28 29 30 Maruti Suzuki India N T P C Ltd Oil and Natural Gas Corp Reliance Industries State Bank of India Sterlite Industries India Sun Pharmaceuticals Tata Consultancy Services Tata Motors Tata Power Supply Co Tata Steel Wipro Corporation 1,492.54 4,677.59 14,754.63 11,037.65 -9,205.82 664.18 469.08 3,393.98 1,282.37 340.42 3,513.61 2,482.03 14 3 1 2 28 20 23 6 16 25 5 9 1,523.77 5,416.70 13,252.42 13,367.52 -13,219.60 940.07 999 4,053.25 1,307.10 333.89 2,471.20 2,913.73 16 4 2 1 28 20 19 6 18 25 11 7 1,189.42 2,905.02 11,402.22 13,629.61 -15,966.85 970.92 1,154.04 5,066.60 154.56 231.93 3,098.24 3,753.96 17 9 2 1 29 20 18 5 26 25 8 6 2,283.30 3,054.34 10,229.63 9,033.65 -47,050.53 794.72 889.01 5,343.20 820.23 203.26 2,582.74 4,224.73 13 9 1 2 29 24 22 4 23 25 12 6 2,006.30 1,240.29 13,829.58 14,969.59 -49,581.44 316.85 1,217.10 6,414.20 1,147.54 622.84 5,465.71 3,855.00 16 21 2 1 30 26 22 4 23 25 6 9 1699.07 3458.79 12693.70 12407.60 -27004.85 737.35 945.65 4854.25 942.36 346.47 3426.30 3445.89 438.42 1636.37 1843.19 2357.90 19622.74 265.10 295.92 1171.71 481.22 165.98 1214.32 721.30
Source: Computed Table 3: Economic Value Added to Equity Capital Ratio

2007 Sl. No Company EVA Bajaj Auto Bharat Heavy Electrical BhartiAirtel Cipla Coal India DLF HDFC Bank 1,095.03 2,380.82 3,984.91 569.27 596.09 2,753.81 -926.3 Equity Capital 101.18 244.76 1,895.93 155.46 6,316.36 305.88 319.39 EVA/E C 10.82 9.73 2.1 3.66 0.09 9 -2.9 EVA 775.65 2,653.28 6,377.43 526.29 -1,195.99 2,375.72 -4,722.92 2008 Equity Capital 144.68 489.52 1,897.91 155.46 6,316.36 340.96 354.43 EVA/ EC 5.36 5.42 3.36 3.39 -0.19 6.97 -13.33 EVA 758.56 2,849.58 9,190.16 944.49 3,278.98 3,137.93 -7,023.79 2009 Equity Capital 144.68 489.52 1,898.24 155.46 6,316.36 339.44 425.38 EVA/ EC 5.24 5.82 4.84 6.08 0.52 9.24 -16.51 EVA 1,746.16 4,089.85 7,998.11 901.99 3,653.50 2,901.52 -2,335.38 2010 Equity Capital 144.68 489.52 1,898.77 160.58 6,316.36 339.48 457.74 EVA/E C 12.07 8.35 4.21 5.62 0.58 8.55 -5.10 EVA 2,119.28 5,518.86 7,090.70 753.39 3,980.95 3,311.44 -9,177.86 2011 Equity Capital 289.37 489.52 1,898.77 160.58 6,316.36 339.51 465.23 EVA/E C 7.32 11.27 3.73 4.69 0.63 9.75 -19.73
1 2 3 4 5 6 7
122
8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Hero Honda Motors Hindalco Industries Hindustan Uni Lever HDFC ICICI Bank Infosys Technologies ITC Jaiprakash Associates Jindal Steel & Power Larsen and Toubro Mahindra and Mahindra Maruti Suzuki India N T P C Ltd Oil and Natural Gas Corp Reliance Industries State Bank of India Sterlite Industries India Sun Pharmaceuticals Tata Consultancy Services Tata Motors Tata Power Supply Co Tata Steel Wipro Corporation 530.12 1,927.05 1,248.67 -525.38 1,933.53 3,213.70 2,273.98 387.58 674.2 1,319.69 758.7 1,492.54 4,677.59 14,754.63 11,037.65 -9,205.82 664.18 469.08 3,393.98 1,282.37 340.42 3,513.61 2,482.03 39.94 104.33 220.68 253 899.34 286 376.22 219.24 15.4 56.65 238.03 144.5 8,245.50 2,138.89 1,393.21 526.3 111.7 96.7 97.86 385.41 197.92 580.67 291.8 13.27 18.47 5.66 -2.08 2.15 11.24 6.04 1.77 43.78 23.3 3.19 10.33 0.57 6.9 7.92 -17.49 5.95 4.85 34.68 3.33 1.72 6.05 8.51 680.66 2,041.72 1,533.28 -766.34 2,598.48 4,292.41 2,614.18 535.72 1,385.37 1,997.62 829.29 1,523.77 5,416.70 13,252.42 13,367.52 -13,219.60 940.07 999 4,053.25 1,307.10 333.89 2,471.20 2,913.73 39.94 122.65 217.75 284.03 1,112.68 286 376.86 234.3 15.4 58.47 239.07 144.5 8,245.50 2,138.89 1,453.39 631.47 141.7 103.56 97.86 385.54 220.72 730.78 292.3 17.04 16.65 7.04 -2.70 2.34 15.01 6.94 2.29 89.96 34.16 3.47 10.55 0.66 6.20 9.20 -20.93 6.63 9.65 41.42 3.39 1.51 3.38 9.97 1,096.07 1,324.95 2,254.57 -2,153.16 1,922.77 5,752.80 2,760.70 683.27 1,631.66 2,370.43 819.28 1,189.42 2,905.02 11,402.22 13,629.61 -15,966.85 970.92 1,154.04 5,066.60 154.56 231.93 3,098.24 3,753.96 39.94 170.05 217.99 284.45 1,113.29 286 377.44 236.76 15.47 117.14 272.62 144.5 8,245.50 2,138.89 1,573.53 634.88 141.7 103.56 97.86 514.05 221.44 730.79 293 27.44 7.79 10.34 -7.57 1.73 20.11 7.31 2.89 105.47 20.24 3.01 8.23 0.35 5.33 8.66 -25.15 6.85 11.14 51.77 0.30 1.05 4.24 12.81 1,449.17 923.26 1,926.47 -1,095.36 2,126.62 5,245.05 3,633.75 -121.65 1,072.87 2,649.20 1,949.34 2,283.30 3,054.34 10,229.63 9,033.65 -47,050.53 794.72 889.01 5,343.20 820.23 203.26 2,582.74 4,224.73 39.94 191.37 218.17 287.11 1,114.89 287 381.82 424.93 93.12 120.44 282.95 144.5 8,245.50 2,138.89 3,270.37 634.88 168.08 103.56 195.72 570.6 237.33 887.41 293.6 36.28 4.82 8.83 -3.82 1.91 18.28 9.52 -0.29 11.52 22.00 6.89 15.80 0.37 4.78 2.76 -74.11 4.73 8.58 27.30 1.44 0.86 2.91 14.39 1,664.25 1,716.54 1,933.12 -2,722.33 3,204.84 5,386.94 2,211.76 120.45 1,886.58 2,728.88 2,020.71 2,006.30 1,240.29 13,829.58 14,969.59 -49,581.44 316.85 1,217.10 6,414.20 1,147.54 622.84 5,465.71 3,855.00 39.94 191.46 215.95 293.37 1,151.82 287 773.81 425.29 93.43 121.77 293.62 144.5 8,245.46 4,277.76 3,273.37 635 336.12 103.56 195.72 634.65 237.33 959.41 490.8 41.67 8.97 8.95 -9.28 2.78 18.77 2.86 0.28 20.19 22.41 6.88 13.88 0.15 3.23 4.57 -78.08 0.94 11.75 32.77 1.81 2.62 5.70 7.85
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Economic Value Added Performance

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Economic Value Added Performance

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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 3, Issue 2, May-August (2012) ISSN

INTERNATIONAL JOURNAL OF MANAGEMENT (IJM)

NOPAT Net Operati ng Profit

Capital Charges Capital Invested WACC

CATEGORIES OF COMPANIES BASED ON EQUITY CAPITAL AND EVA

Result - II Correlation [r] 0.24 0.19 0.20 0.13 0.18

10.76 8.44 6.60 6.17 8.95

Source: Computed Table 3: Economic Value Added to Equity Capital Ratio

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