Escolar Documentos
Profissional Documentos
Cultura Documentos
RESEARCH PROJECT ON “RELATIONSHIP BETWEEN
Submitted By
SHOUKAT. P.
Reg. No: 06XQCM6079
UNDER THE GUIDANCE OF
M. P. Birla Institute of Management 1
RELATIONSHIP BETWEEN EVA & SHARE PRICE
DECLARATION
I also declare that this report has not been submitted to any
M. P. Birla Institute of Management 2
RELATIONSHIP BETWEEN EVA & SHARE PRICE
GUIDE’S CERTIFICATE
M. P. Birla Institute of Management 3
RELATIONSHIP BETWEEN EVA & SHARE PRICE
PRINCIPAL’S CERTIFICATE
M. P. Birla Institute of Management 4
RELATIONSHIP BETWEEN EVA & SHARE PRICE
ACKNOWLEDGEMENT
successfully.
SHOUKAT. P.
M. P. Birla Institute of Management 5
RELATIONSHIP BETWEEN EVA & SHARE PRICE
CONTENT SHEET
1 Research Extracts 1
2 Introduction 4
3 Literature Review 18
Research
4 25
Methodology
Summary and
6 60
Recommendations
7 Bibliography 64
M. P. Birla Institute of Management 6
RELATIONSHIP BETWEEN EVA & SHARE PRICE
LIST OF TABLES
1 Sample profile 27
8 Degrees of correlation 36
M. P. Birla Institute of Management 7
RELATIONSHIP BETWEEN EVA & SHARE PRICE
CHAPTER 1
RESEARCH EXTRACTS
M. P. Birla Institute of Management 8
RELATIONSHIP BETWEEN EVA & SHARE PRICE
1. RESEARCH EXTRACTS:
The EVA is computed and compared with the respective share prices of 20
companies of the SENSEX for a period of 5 years beginning from FY 2002-03
to FY 2006-07.
M. P. Birla Institute of Management 9
RELATIONSHIP BETWEEN EVA & SHARE PRICE
From the study it is observed that there is there is no relationship between EVA
and share prices but EVA is the true profit that the company is able to generate
which also considers opportunity cost of the capital invested in the business.
The study adds that EVA is the one of the measure, which is used to measure
the performance of the company but it cannot be used to forecast the share
price of the company.
M. P. Birla Institute of Management 10
RELATIONSHIP BETWEEN EVA & SHARE PRICE
CHAPTER 2
INTROCUCTION
M. P. Birla Institute of Management 11
RELATIONSHIP BETWEEN EVA & SHARE PRICE
2. INTRODUCTION:
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 (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:
M. P. Birla Institute of Management 12
RELATIONSHIP BETWEEN EVA & SHARE PRICE
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.
M. P. Birla Institute of Management 13
RELATIONSHIP BETWEEN EVA & SHARE PRICE
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.
In stock selection the EVA tool can be used in four distinct ways.
M. P. Birla Institute of Management 14
RELATIONSHIP BETWEEN EVA & SHARE PRICE
1. To measure how much shareholder value the firm has created in the past and
2. To determine investor expectations as they relate to the stock price.
M. P. Birla Institute of Management 15
RELATIONSHIP BETWEEN EVA & SHARE PRICE
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.
M. P. Birla Institute of Management 16
RELATIONSHIP BETWEEN EVA & SHARE PRICE
2.7 Development of the concept of EVA:
9 One of the earliest to mention the residual income concept was Alfred
Marshall in 1890. Marshall defined economic profit as total net gains less
the interest on invested capital at the current rate.
M. P. Birla Institute of Management 17
RELATIONSHIP BETWEEN EVA & SHARE PRICE
2.8 What others say about EVA? (Articles published on web)
"There is no profit unless you earn the cost of capital. Alfred Marshall said that in
1896, Peter Drucker said that in 1954 and in 1973, and now EVA (economic
value added) has systematized this idea, thank God."
- Peter Drucker
"Companies that adopt EVA incentives increased their market-to-book value ratio
by nearly 0.6 more than that of non-EVA peer companies. That means for every
$1 billion in book value an EVA firm creates nearly $600 million more in market
value than the non-EVA peer companies."
"EVA based companies outperform their non-EVA peer companies by 9%, 12%,
& 10%, one, two and three years, respectively, following adoption of EVA. Prior
to adoption of EVA, the EVA-based companies demonstrated no significant
excess performance relative to non-EVA peers."
"Unlike earnings or ROE or any of those other measures, EVA gets at what we're
really after: the creation of value by earning returns above our required cost of
capital across time."
"We don't look for companies with the highest EVA for our funds, but for
companies that can positively increase their EVA."
M. P. Birla Institute of Management 18
RELATIONSHIP BETWEEN EVA & SHARE PRICE
It has been shown that share price has a much higher positive correlation with
EVA than with any other measure of value.
"The EVA approach to equity analysis has become increasingly popular because
it more accurately reflects economic reality (as opposed to accounting reality)
when compared with many traditional valuation measures, such as earnings per
share (EPS), return on equity (ROE), and free cash flow."
- Steven G.Einhorn
- Steven Milunovic
COMPANIES
COCO-COLA
“Economic Profit is the way to keep score. Why everybody doesn’t use it is a
mystery to me.”
M. P. Birla Institute of Management 19
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Corporation Bank:
“To help us make all the short- and long-term decisions that affect our company
and help it to grow, we use a highly respected performance indicator,
measurement, and compensation system called Economic Value Added (EVA).”
There are various views with respect to whether traditional measures or value-
based measures influence change in share price.
M. P. Birla Institute of Management 20
RELATIONSHIP BETWEEN EVA & SHARE PRICE
There is a lot of academic and professional research undergoing these days with
the following question common to every research:
1) Calculating NOPAT (Net Operating Profit After Tax) using profit and loss
account.
M. P. Birla Institute of Management 21
RELATIONSHIP BETWEEN EVA & SHARE PRICE
2) Calculating invested capital using Balance Sheet.
3) Calculating the returns on the market using the indices, which represent
the Market.
4) Extracting the risk free rate from sources.
5) Calculating cost of debt.
6) Calculating the cost of equity using CAPM model.
7) Using the above information, calculating EVA.
EVA calculation:
Every calculation is done under Microsoft Excel mostly with the help of inbuilt
functions.
EVA Calculation
1. Calculation of NOPAT:
Getting to NOPAT takes three basic steps:
M. P. Birla Institute of Management 22
RELATIONSHIP BETWEEN EVA & SHARE PRICE
3. Subtract cash operating taxes
The basic exemption of Stern Stewart is that second step can be adjusted
as per the convenience of the research person but the only condition is that the
same process has to be followed for all the years and all the companies under
research.
2. Calculation of WACC:
It refers weighted average cost of capital (equity and debt). WACC used in the
calculations is at book value of equity and debt. It is calculated as follows:
M. P. Birla Institute of Management 23
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Rm is Average Return from Sensex which is considered as proxy to Market.
β is Beta.
Kd = Interest expenses (1- Tax rate) / Amount of Debt
M. P. Birla Institute of Management 24
RELATIONSHIP BETWEEN EVA & SHARE PRICE
CHAPTER 3
LITRATURE REVIEW
M. P. Birla Institute of Management 25
RELATIONSHIP BETWEEN EVA & SHARE PRICE
3. REVIEW OF LITRATURE:
9 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.
EVA significantly impacts the market value added of a firm and that this wealth
effect stems from the company’s positive residual return on capital. He calculates
regression statistics between the MVA-to-capital and EVA-to-capital ratios from
the data of 983 firms.
M. P. Birla Institute of Management 26
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Value-added measures are slightly but not significantly more correlated with
stock returns than traditional performance measures.
“Both measures correlate positively with stock returns and that the correlation is
slightly better than with traditional performance measures like return on assets
(ROA), return on equity (ROE) and return on sales (ROS).
They also find that firms with greater focus on their business activities have
significantly higher MVA than their less focused counterparts.
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.”
M. P. Birla Institute of Management 27
RELATIONSHIP BETWEEN EVA & SHARE PRICE
EVA is the most widely used Value-Based performance measure probably just
because it happens to be an easier concept compared to the others. In
implementing EVA, one of the most important things is to get the people in
organizations to commit to EVA and thereby also to understand EVA. Even as
easy concept as EVA seems to be quite hard to communicate down the
organization. That is why complicated measures do not work very well.
“Some Value-Based measures have been found to correlate better with share
prices than EVA and find that Cash Flow Return on investment (CFROI) explains
share price movements better than EVA. Of course EVA can also be modified in
order to avoid some accounting distortions and to correlate better with share
prices, but then we have almost as complicated measure as CFROI. The best
possible correlation with share prices is not however the main point, especially
when the differences in correlations are quite small and also disputable.
All the shareholder value metrics are said to be identical to discounted free cash
flow -method, so it is no wonder that we can relate the results of these metrics "to
the fourth decimal points". With the complicated shareholder wealth -measures it
is not always the toughest part to communicate these to people, but to calculate
these in day-to-day operations. E.g. CFROI calls for taking into account the
effects of inflation to asset values and this in turn takes time and resources.
M. P. Birla Institute of Management 28
RELATIONSHIP BETWEEN EVA & SHARE PRICE
M. P. Birla Institute of Management 29
RELATIONSHIP BETWEEN EVA & SHARE PRICE
• Another research conducted by Gerald T. Garvey and Todd T.
Milbourn states that
“They advance the literature by ascertaining the relative weights that firms should
use in a realistic setting where they do not know all of the relevant attributes of
alternative performance measures a priori.
More surprisingly, they show that the apparently simplistic idea of comparing the
relative ability of alternative measures to explain stock returns is both
theoretically defensible and a reasonable representation of practice. Therefore,
firms contemplating the adoption of EVA would be well advised to begin with an
examination of EVA's R2 with its stock returns.”
“Implementing EVA in a form would have access to sufficient data about the
metrics to again obviate the need for R2 information. This paper concludes with
the message that a researcher who is unaware of the parameters governing the
metrics for a firm can make use of a complex nonlinear function of the metrics'
correlation with price to compute the value of adopting EVA. These are obviously
not the same things.”
M. P. Birla Institute of Management 30
RELATIONSHIP BETWEEN EVA & SHARE PRICE
• A research conducted by M Geyser & IE Liebenberg on “CREATING A
NEW VALUATION TOOL” on agricultural co-operatives in South Africa
in 2003 concludes that
Finally, there are no magic bullets that create value. Value creation is hard work
in competitive markets and almost always involves a trade off between costs and
benefits. Everyone has a role in value creation and it certainly is not the sole
domain of financial analysts. In fact, the value created by financial engineers is
smaller and less significant than the value created by good strategic marketing,
production and personnel decisions.”
From the study of above mentioned research papers, one can understand that
there is only confusion but not any clear idea regarding the usage or non-usage
of EVA in forecasting the share prices of the company.
Here is the research gap and the main objective behind this research
M. P. Birla Institute of Management 31
RELATIONSHIP BETWEEN EVA & SHARE PRICE
CHAPTER 4
Research Methodology
M. P. Birla Institute of Management 32
RELATIONSHIP BETWEEN EVA & SHARE PRICE
4. Research Methodology
The Sampling method used here is Simple Random Sampling. The companies
listed in the stock exchange are considered since the market prices can be
obtained. The companies in the Sensex are chosen because it is an ideal index
and it is considered to be a good proxy for the whole market. Also it is a
barometer that indicates the state and health of the economy.
At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and
modify its composition to make sure it reflects current market conditions.
Therefore only 20 companies are considered for the research as the data of all
the 30 companies for all the five years is unavailable.
M. P. Birla Institute of Management 33
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Construction
14 Mahindra & Mahindra Transport Equipments
15 Maruti Transport Equipments
16 ONGC Oil & Gas
17 Ranbaxy Laboratories Ltd. Healthcare
18 Reliance Industries Oil & Gas
19 Reliance Energy Power
20 Wipro Ltd. Information Technology
M. P. Birla Institute of Management 34
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Required data:
• Balance Sheet
• Profit and loss Account
• History of stock prices
• History of market index
• Risk free rate of return
• Corporate tax rate
Data Source
• Balance sheet and Profit and loss Account are taken from the financial
statements of the selected companies from the database of Capital
Market.
• History of stock prices and history of market index are downloaded from
database of Capital Market and Bombay stock exchange.
• Risk free rate of return of relevant years is taken from the RBI bulletin
As 365 days Treasury bill rate is considered to be the proxy for risk free
rate of return.
• Corporate tax rate is taken from the Indian annual budget statements and
KPMG survey 2006.
M. P. Birla Institute of Management 35
RELATIONSHIP BETWEEN EVA & SHARE PRICE
4.6 Hypothesis
T-statistic 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
1. 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.
M. P. Birla Institute of Management 36
RELATIONSHIP BETWEEN EVA & SHARE PRICE
M. P. Birla Institute of Management 37
RELATIONSHIP BETWEEN EVA & SHARE PRICE
CHAPTER 5
M. P. Birla Institute of Management 38
RELATIONSHIP BETWEEN EVA & SHARE PRICE
TABLE 1: BETA of selected companies
TABLE 3: NOPAT of selected companies:
M. P. Birla Institute of Management 41
RELATIONSHIP BETWEEN EVA & SHARE PRICE
TABLE 4: WACC of selected companies:
M. P. Birla Institute of Management 42
RELATIONSHIP BETWEEN EVA & SHARE PRICE
M. P. Birla Institute of Management 43
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Interpretation:
TABLE 1: BETA
It can be seen that beta for most of the companies has increased from year to
year from Table-1. Earlier, in 2003 it was on an average of 0.15 when all the
companies are taken together. But slowly it has increased to about 0.40 by the
end of 2007. Thus we can say that riskiness of the stock is increased during the
period of 2003 to 2007.
TABLE 3: NOPAT
NOPAT is increased consistently increased and improved from year to year of
almost companies. There are some variations in case of Airtel, HUL, ONGC and
Ranbaxy.
TABLE 4: WACC
From the table it is concluded that weighted average cost of capital (WACC) of
the all companies during 2003 and 2004 is very low. WACC is around 0.02
during these years. But in 2004 WACC is increased drastically because of
increasing beta. In case of Infosys there is only equity fund employed and they
are known as debt free company.
M. P. Birla Institute of Management 44
RELATIONSHIP BETWEEN EVA & SHARE PRICE
M. P. Birla Institute of Management 45
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Before going on with the further part of the analysis of the data here are the
concepts used in the analysis which forms a basis for all the analytical
interpretation
Thus the higher the correlation coefficient the better Large −1.0 to −0.5 0.5 to 1.0
is the relationship between two variables.
M. P. Birla Institute of Management 46
RELATIONSHIP BETWEEN EVA & SHARE PRICE
ACC:
Regression
Statistics
Adjusted R
Square 0.792507
The p- value in this case is 0.027384, which is less than 5% level of significance.
Therefore Alternate hypothesis is accepted.
As such there is a relationship between EVA and share.
M. P. Birla Institute of Management 47
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Airtel:
Regression
Statistics
R Square 0.801423
Adjusted R
Square 0.73523
The p- value in this case is 0.040067, which is less than 5% level of significance.
Therefore Alternate hypothesis is accepted.
As such there is relationship between EVA and share price.
M. P. Birla Institute of Management 48
RELATIONSHIP BETWEEN EVA & SHARE PRICE
BHEL:
Regression
Statistics
R Square 0.50153
Adjusted R
Square 0.335373
The p- value in this case is 0.180718, which is more than 5% level of significance.
Therefore Null hypothesis is accepted.
As such there is no relationship between EVA and share price.
M. P. Birla Institute of Management 49
RELATIONSHIP BETWEEN EVA & SHARE PRICE
CIPLA:
Regression
Statistics
R Square 0.279687
Adjusted R
Square 0.039582
The p- value in this case is 0.3595, which is more than 5% level of significance.
Therefore Null hypothesis is accepted.
As such there is no relationship between EVA and share price.
M. P. Birla Institute of Management 50
RELATIONSHIP BETWEEN EVA & SHARE PRICE
GRASIM:
Regression
Statistics
R Square 0.583084
Adjusted R
Square 0.444112
The p- value in this case is 0.132976, which is more than 5% level of significance.
Therefore Null hypothesis is accepted.
As such there is no relationship between EVA and share price.
M. P. Birla Institute of Management 51
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Gujarat Ambuja
Regression
Statistics
→Small positive correlation. If EVA moves by one, share
price will move by 0.129 in the same direction.
Multiple R 0.129352
R Square 0.016732
Adjusted R
Square -0.31102
The p- value in this case is 0.835764, which is more than 5% level of significance.
Therefore Null hypothesis is accepted.
As such there is no relationship between EVA and share price.
M. P. Birla Institute of Management 52
RELATIONSHIP BETWEEN EVA & SHARE PRICE
HDFC Bank:
Regression
Statistics
R Square 0.856033
Adjusted R
Square 0.808045
The p- value in this case is 0.02427, which is less than 5% level of significance.
Therefore Alternate hypothesis is accepted.
As such there is a relationship between EVA and share price.
M. P. Birla Institute of Management 53
RELATIONSHIP BETWEEN EVA & SHARE PRICE
HDFC Finance:
Regression
Statistics
R Square 0.05761
Adjusted R
Square -0.25652
M. P. Birla Institute of Management 54
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Hindalco:
Regression
Statistics
R Square 0.003743
Adjusted R
Square -0.32834
The p- value in this case is 0.922156, which is more than 5% level of significance.
Therefore Null hypothesis is accepted.
As such there is no relationship between EVA and share price.
M. P. Birla Institute of Management 55
RELATIONSHIP BETWEEN EVA & SHARE PRICE
HUL:
Regression
Statistics
R Square 0.154279
Adjusted R
Square -0.12763
M. P. Birla Institute of Management 56
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Infosys:
Regression
Statistics
R Square 0.664294
Adjusted R
Square 0.552392
The p- value in this case is 0.092792, which is more than 5% level of significance.
Therefore Null hypothesis is accepted.
As such there is no relationship between EVA and share price.
M. P. Birla Institute of Management 57
RELATIONSHIP BETWEEN EVA & SHARE PRICE
ITC:
Regression
Statistics
R Square 0.000646
Adjusted R
Square -0.33247
M. P. Birla Institute of Management 58
RELATIONSHIP BETWEEN EVA & SHARE PRICE
L & T:
Regression
Statistics
R Square 0.704574
Adjusted R
Square 0.606099
M. P. Birla Institute of Management 59
RELATIONSHIP BETWEEN EVA & SHARE PRICE
M & M:
Regression
Statistics
Adjusted R
Square 0.503774
M. P. Birla Institute of Management 60
RELATIONSHIP BETWEEN EVA & SHARE PRICE
MARUTI:
Regression
Statistics
R Square 0.021406
Adjusted R
Square -0.30479
M. P. Birla Institute of Management 61
RELATIONSHIP BETWEEN EVA & SHARE PRICE
ONGC:
Regression
Statistics
Adjusted R
Square -0.33311
M. P. Birla Institute of Management 62
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Ranbaxy:
Regression
Statistics
R Square 0.000168
Adjusted R
Square -0.33311
M. P. Birla Institute of Management 63
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Reliance Industries:
Regression
Statistics
R Square 0.251522
Adjusted R
Square 0.002029
M. P. Birla Institute of Management 64
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Reliance Energy:
Regression
Statistics
R Square 0.300323
Adjusted R
Square 0.067097
M. P. Birla Institute of Management 65
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Wipro:
Regression
Statistics
R Square 0.467242
Adjusted R
Square 0.289656
M. P. Birla Institute of Management 66
RELATIONSHIP BETWEEN EVA & SHARE PRICE
CHAPTER 6
SUMMARY AND
RECOMMENDATIION
M. P. Birla Institute of Management 67
RELATIONSHIP BETWEEN EVA & SHARE PRICE
• Investing in the market is becoming more and more risky as the beta of the
individual securities is increasing year by year.
• Majority of the companies are increasing their capital to meet the increased
expenses.
• As the market is becoming more and more risky, investors’ expectations are
increasing and therefore share prices of almost all the companies for almost all
the years showed an increasing trend.
This specifies that there is no relationship between EVA and share price.
This report explains the importance of using EVA as a tool for measuring
financial performance. The study reveals that there is no strong pattern of EVA of
selected companies during the period.
It is also observed that there is no strong relation between EVA and market
prices of the companies. Thus, it can be understood that investor do not give so
importance to EVA for its investment decision. Extensive study is required to
establish the influence of other factors like non-fund based income, spread,
M. P. Birla Institute of Management 69
RELATIONSHIP BETWEEN EVA & SHARE PRICE
deployment of funds, market price, etc. It is also expected that the usage of EVA
as a financial performance tool will also be more in India.
The study adds that EVA is the one of the measure, which can be used to
measure the performance of the company but it cannot be used to forecast the
share price of the company.
This research has a limited scope, that is only five years and the data of only
twenty 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.
M. P. Birla Institute of Management 70
RELATIONSHIP BETWEEN EVA & SHARE PRICE
Bibliography:
A. Books
• Chandra, Prasanna, Financial management, Second Edition, New Delhi:
Tata McGraw-Hill Publishing Company Limited, 2005.
• Kulkarni, P.V. and Sathyaprasad B.G., Financial Management, Ninth
Edition, Himalaya Publishing House, 1999.
• Pandey, I.M., Financial Management, Eighth Edition, Vikas Publishing
House Pvt. Ltd., 1999.
B. Articles
• Lehn and Makhija., “a study on EVA and MVA as performance measures
and signals for strategic change”.
• Banerjee, Ashok., “Economic Value Added and Shareholder Wealth - An
empirical study of relationship”.
• Dr. Srinivasan, Professor, National Institute of Industrial Engineering
(NITIE) on “Economic Value Added (EVA) - An Emerging Tool for Value
Creation”
• “Relationship between EVA and share price”, The ICFAI Journal of
Applied Finance, Vol. 13, No.1, (January, 2007), pp. 5-20.
• Sheik, Aamir M., “How EVA influences stock market”, The Journal of
Finance, Vol. 44, No. 5. (December, 1987), pp. 1361-1372.
M. P. Birla Institute of Management 71
RELATIONSHIP BETWEEN EVA & SHARE PRICE
C. Databases
• Prowess
• Capital-online
D. Websites
• www.nseindia.com
• www.google.com
• www.rediff.com/finance
• www.jstor.com
• www.eva.com
• www.wikepedia.com
• www.sternstewart.com
M. P. Birla Institute of Management 72
RELATIONSHIP BETWEEN EVA & SHARE PRICE
APPENDICES:
ACC
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 0.2606441 0.0487292 0.023202 0.53 0.47 0.0367314 2982.88 244.0322 148.6025
2003-04 0.2617192 0.0401992 0.2264548 0.49 0.51 0.1351895 3317.69 360.31135 204.3667
2004-05 0.1444204 0.037272 0.0754496 0.36 0.64 0.0617056 3347.51 500.23168 289.4408
2005-06 0.1536011 0.0540168 0.142445 0.23 0.77 0.1221065 4100.38 1129.8498 487.4683
2006-07 0.6089198 0.1031633 0.0974968 0.1 0.9 0.0980635 4647.71 1336.1735 927.9225
AMBUJA
year beta kd Ke wd we wacc Capital NOPAT Share price
-
2002-03 0.2551141 0.0482033 0.0939115 0.52 0.48 0.0701433 3367.863 253.46601 23.36667
2003-04 0.4185113 0.0599761 0.3342824 0.39 0.61 0.2273029 3291.37 331.82992 32.2275
- - -
2004-05 10.383869 0.0542668 1.6972972 0.34 0.66 1.1017655 3305.84 406.89368 43.05583
2005-06 0.3516393 0.0872339 0.254315 0.2 0.8 0.2208988 4355.96 1303.2852 72.89083
2006-07 0.6758358 0.1534891 0.1003175 0.07 0.93 0.1040395 4991.29 1858.8929 117.9617
AIRTEL
year beta kd Ke wd we wacc Capital NOPAT Share price
-
2002-03 0.2482196 1.65545 0.0929504 0.01 0.99 0.1085754 4825.67 2100.105 29.895
2003-04 0.1563647 0.0037467 0.1543408 0.11 0.89 0.1377754 5451.22 1440.7387 78.55667
2004-05 0.656729 0.0007436 0.1616704 0.52 0.48 0.0779884 9527.89 125424.94 171.5175
2005-06 0.2948477 0.0004351 0.22211 0.4 0.6 0.13344 12129.72 170181.84 507.8867
2006-07 0.3315816 0.0009038 0.0858351 0.32 0.68 0.0586571 16724.01 325578.94 520.17
BHEL
M. P. Birla Institute of Management 73
RELATIONSHIP BETWEEN EVA & SHARE PRICE
year beta kd Ke wd we wacc Capital NOPAT Share price
- -
2002-03 0.4537341 0.0683648 0.0032969 0.01 0.99 0.0025803 5337.89 571.46857 87.97917
2003-04 0.4720303 0.0741724 0.3713696 0.09 0.91 0.3446219 5835.87 716.56249 198.0733
2004-05 0.391259 0.1010765 0.1170444 0.08 0.92 0.115767 6563.87 1108.7088 315.5742
2005-06 0.3086232 0.0701645 0.23002 0.07 0.93 0.2188301 5835.87 1748.7808 626.155
2006-07 0.3548143 0.3233864 0.0868034 0.01 0.99 0.0891692 8877.59 2519.6793 1118.903
CIPLA
GRASIM
year beta kd Ke wd we wacc Capital NOPAT Share price
-
2002-03 0.4334252 0.0540824 0.1183509 0.61 0.39 0.0791471 5053.38 448.68243 314.2883
2003-04 0.3714894 0.0506442 0.3020028 0.36 0.64 0.2115137 5676.38 820.80104 727.4717
2004-05 0.3231908 0.0460636 0.1055932 0.32 0.68 0.0865437 6336.69 961.69475 1158.968
2005-06 0.2448064 0.0348156 0.19386 0.38 0.62 0.1334231 6961.75 872.98365 1332.09
2006-07 0.7951595 0.0252625 0.1053695 0.32 0.68 0.0797353 9181.6 1558.8779 2359.734
HDFC BANK
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 0.0786464 0.0280062 0.0481906 0.93 0.07 0.0294191 30482.45 1175.2654 217.5967
2003-04 0.4053889 0.023307 0.325354 0.93 0.07 0.0444503 42379.98 1286.7377 301.9808
2004-05 0.4626458 0.0598086 0.1290008 0.91 0.09 0.0660359 51505.98 1529.7432 438.1608
2005-06 0.3128944 0.0416023 0.23228 0.94 0.06 0.053043 73586.87 2122.1128 659.4875
2006-07 0.4277428 0.0201691 0.0898767 0.93 0.07 0.0250486 91319.29 3212.2939 914.3142
HDFC FINANCE
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 0.3766111 0.056479 0.0072752 0.91 0.09 0.0520507 26296.14 188064.7 329.5208
2003-04 0.9118899 0.0435655 0.6728748 0.91 0.09 0.1002034 32077.83 19342.3 501.585
2004-05 0.5867557 0.0356933 0.1498824 0.9 0.1 0.0471122 40530.5 214596.1 662.8167
M. P. Birla Institute of Management 74
RELATIONSHIP BETWEEN EVA & SHARE PRICE
2005-06 0.5514618 0.0356389 0.367315 0.89 0.11 0.0721233 51189.68 270334.8 1018.214
2006-07 0.334217 0.0428188 0.0859614 0.88 0.12 0.0479959 62744.42 376085.5 1408.893
HINDALCO
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 0.4537341 0.038209 0.0292084 0.47 0.53 0.0334387 8586.11 691.13456 241.615
2003-04 0.7938111 0.0460524 0.0537608 0.44 0.56 0.0503691 9422.5 948.59409 94.3425
2004-05 0.391259 0.029819 0.0383361 0.43 0.57 0.0346738 11466.58 1382.8358 305.6116667
2005-06 847.43935 0.0306154 0.0546713 0.27 0.73 0.0481762 14509.7 1553.991 291.6358333
2006-07 0.03179 0.0219311 0.0498104 0.28 0.72 0.0420042 19786.64 2498.1382 172.8783333
HUL
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 0.1166857 0.0261155 0.0277424 0.07 0.93 0.0276285 3843.03 1489.9012 136.05
2003-04 0.0602001 0.0589059 0.378128 0.03 0.97 0.3685513 3563.83 1076.7072 153.35
2004-05 0.4965496 0.2248093 0.3879276 0.02 0.98 0.3846652 2362.56 1095.3414 134.7933
2005-06 0.0196613 0.0985357 0.205018 0.41 0.59 0.1613603 2796.09 1465.5666 176.8075
2006-07 0.3986352 0.1920349 0.297464 0.44 0.56 0.2510752 1427.77 1568.9451 231.5117
INFOSYS
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 0.4021504 0 0.1838984 0 1 0.1838984 2,860.65 773.15866 482.9508
2003-04 0.3240143 0 0.51752 0 1 0.51752 3,253.43 980.86237 531.025
2004-05 0.5702256 0 0.4329936 0 1 0.4329936 5,242.00 1486.741 863.8875
2005-06 0.0863103 0 0.254079 0 1 0.254079 6,897.00 1824.7579 1258.33
-
2006-07 0.0115387 0 0.03325 0 1 0.03325 11,162.00 2768.8051 1880.815
ITC
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 -0.031024 0.2293954 0.0631563 0.02 0.98 0.0664811 5482.6 1397.6965 43.1391
2003-04 0.1338316 0.1885627 0.1385444 0.01 0.99 0.1390446 6530.91 1568.9051 57.3225
2004-05 0.8607638 0.1380354 0.196024 0.03 0.97 0.1942843 8140.97 2052.2359 75.275
2005-06 0.6300881 0.1174924 0.41195 0.02 0.98 0.4060608 9181.21 2163.6215 128.1108
2006-07 0.14834 0.0532351 0.0781308 0.02 0.98 0.0776329 10637.96 2628.6248 178.2592
L&T
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 0.1991978 0.0541673 0.0315773 0.26 0.74 0.0374507 6738.54 511.85226 92.2483
2003-04 0.3795847 0.063355 0.3074972 0.24 0.76 0.2489031 4099.39 596.01647 181.6175
2004-05 1.2017352 0.0433287 0.2534484 0.36 0.64 0.1778053 5228.19 937.90689 402.6267
M. P. Birla Institute of Management 75
RELATIONSHIP BETWEEN EVA & SHARE PRICE
2005-06 0.0603446 0.0790599 0.0899 0.32 0.68 0.0864312 6093.74 1036.7318 764.5017
2006-07 0.1887499 0.0441718 0.0798148 0.47 0.53 0.0630626 7846.18 1427.8514 1326.798
M&M
year beta kd Ke wd we wacc Capital NOPAT Share price
-
2002-03 0.5111344 0.0677901 0.0112603 0.32 0.68 0.0140358 2709.68 208.9079 49.9025
2003-04 0.3403584 0.0702775 0.280712 0.23 0.77 0.2323121 2504.84 343.4305 136.3542
2004-05 0.4909302 0.0191532 0.133716 0.35 0.65 0.093619 3039.15 486.2981 237.8483
2005-06 0.2891674 0.0203471 0.219285 0.29 0.71 0.161593 3792.25 751.0109 397.59
2006-07 0.4748729 0.0080689 0.0918554 0.42 0.58 0.0566651 5188.91 958.9079 719.2775
MARUTI
year beta kd Ke wd we wacc Capital NOPAT Share price
-
2002-03 0.13487 0.0770506 0.0034342 0.08 0.92 0.0030046 3554 223.21116 266.47
- -
2003-04 -0.99352 0.0927694 0.6347924 0.01 0.99 0.6275168 3903.1 542.16044 328.9178
2004-05 0.8747752 0.0780273 0.1983816 0.07 0.93 0.1899568 4686.4 893.97803 427.8058
2005-06 0.1257093 0.1896887 0.126625 0.08 0.92 0.1316701 5524.3 1180.3257 575.4542
2006-07 0.3841321 0.0397399 0.0880664 0.13 0.87 0.081784 7484.7 1545.0106 870.47
ONGC
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 -0.082004 0.0943109 0.0701586 0.2 0.8 0.0749891 36539.19 21.00105 236.0683
2003-04 0.3352983 0.0026919 0.277278 0.2 0.8 0.2223608 51950.89 14.407387 399.19
2004-05 0.6944469 0.0025112 0.1680696 0.27 0.83 0.1401758 56761.64 1254.2494 516.6467
2005-06 0.3068171 0.0024608 0.22889 0.22 0.78 0.1790756 66682.28 1701.8184 684.5133
2006-07 0.2773362 0.0017421 0.0835617 0.01 0.99 0.0827435 77033 3255.7894 819.08
RANBAXY
year beta kd Ke wd we wacc Capital NOPAT Share price
-
2002-03 0.2333128 2.0087961 0.0908909 0.58 0.42 1.2032759 1880.33 282.6992 236.0683
2003-04 0.5873083 0.1572369 0.4503516 0.3 0.7 0.3624172 2354.04 448.8008 399.19
2004-05 0.6515054 0.0538817 0.1608284 0.01 0.99 0.1597589 2642.54 514.7158 516.6467
2005-06 0.5748039 0.017098 0.38031 0.01 0.99 0.3766779 3406.82 452.6917 684.5133
2006-07 0.2896844 0.0122576 0.0840669 0.01 0.99 0.0833488 5527.73 400.2217 819.08
RELIANCE INDUSTRIES
year beta kd Ke wd we wacc Capital NOPAT Share price
-
2002-03 0.562 0.0524754 0.0182626 0.3 0.7 0.0029588 50132.72 4353.131 222.1617
2003-04 0.482 0.0456693 0.3782376 0.3 0.7 0.2784671 55397.11 5157.4979 348.5825
2004-05 0.912 0.0521255 0.2047808 0.32 0.68 0.1559311 59187.91 7025.2446 421.955
2005-06 0.144 0.0267417 0.13736 0.38 0.62 0.095325 71699.87 7721.1194 605.1217
M. P. Birla Institute of Management 76
RELATIONSHIP BETWEEN EVA & SHARE PRICE
2006-07 -0.285 0.0282939 0.0599015 0.39 0.61 0.0475745 91792.86 10473.43 1154.8971
RELIANCE ENERGY
year beta kd Ke wd we wacc Capital NOPAT Share price
2002-03 0.2936612 0.079039 0.0186711 0.39 0.61 0.0422146 3209.88 152.64763 218.7675
- - -
2003-04 0.4295468 0.0553031 0.2474372 0.36 0.64 0.1384507 7159.54 324.84958 411.07
2004-05 0.6946358 0.0239005 0.1680696 0.39 0.61 0.1118436 9532.66 469.43014 598.27
2005-06 0.4782984 0.0298164 0.32607 0.29 0.71 0.2401565 12075.51 648.91244 581.3517
2006-07 0.3588462 0.0283681 0.0869718 0.2 0.8 0.0752511 15222.2 748.39742 504.8458
WIPRO TECH
year beta kd Ke wd we wacc Capital NOPAT Share price
- -
2002-03 0.453734 0.0280062 0.0034342 0.0205149 0.9794851 0.0027892 3399.96 622.75114 241.615
2003-04 0.4720303 0.023307 0.3713696 0.0279053 0.9720947 0.3616568 3608.28 723.68285 207.3025
2004-05 0.391259 0.0598086 0.1170444 0.012532 0.987468 0.1163271 4954.53 1174.5587 305.6117
2005-06 0.3086232 0.0416023 0.230585 0.007752 0.992248 0.22912 6470.61 1561.9514 409.4917
2006-07 0.3548143 0.0201691 0.0868034 0.0249087 0.9750913 0.0851436 9554.9 2122.3728 543.6567
M. P. Birla Institute of Management 77