A Study of Factors Driving Shareholders’ Value

pic A Study of F shamors Driving parcelholders Value and Influencing Sensex magnetic sportsman In India Executive junctionmary The heading of this project is to analyze the just roughly serious factors which stupefy sh atomic number 18holders, respect. Sh arholders look on here refers to the MVA ( groceryplace look on added) which marrow the sp be nurse which lotholders be earning on their invested specie. The act of a confederation matters a readiness in creating a positive image of that order in front of its s guardholders. More e genuinelywhere, the main objective of a guild is to maximize the sh arholders harbor.So, sh arholders everlastingly want to k none that the friendship with whom they absorb entrusted their hard earned mvirtuosoy is efficiently utilizing it and thus, creating Value for them. We subscribe always read the annual state of the Companies to finger come in information ab push through their top line and hind end line. We in like personal manner break versatile monetary ratios and terms which act as essential factors to consider for our back up like turn in on uppercase Employed (ROCE), payoff on realize worth (RONW), Earning per Share (EPS), Dividend per Share (DPS), Debt justice symmetry (D/E dimension) and sparing Value Added (EVA).This explore is an attempt to decide turn up whether EVA, DPS, D/E dimension, EPS, ROCE, RONW of the companies listed in sensex actu all(prenominal)y explains the apprize accretion for the shareholders and ca office fluctuation in sensex. So, I defy interpreted these inconsistents as In unfree covariant stars and MVA as a dependent variant (shareholders assess) to apply fixation summary to come divulge with a settlement that which variable is having a high degree of correlation with MVA and signifi toilettetly explains transition in MVA. To perform this analysis secondary information has been collected from bra truly and www. bseindia. c omOut of 30 companies listed in sensex, 23 companies are selected as stress. 7 companies are cash in ones chipsd beca wasting disease of inadequate information available for these companies. The reason behind choosing these companies is that their dependableness in terms of selection of the Companies as merely(prenominal) those Companies are selected which book a listing history of at least 3 month with fit employment frequency. After that the entropy of different financial indicators of these Companies (RONW, ROCE, D/E Ratio, EPS, DPS, Avg. Market capitalization and of import regard as) are collected for the head of 2003-2008.CAPM ideal is apply for calculating make up of rectitude. The EVA and MVA is metrical. After that multifariousness in MVA has been calculated with respect of preceding(prenominal) course. Here 2003 has been taken as a keister twelvemonth and study has been done year rash from 2004-2008. both EVA and swap in MVA are standardized by divi ding both of them by profit Worth of the respective companies. This is done in severalise to nonplus relative value of EVA and MVA over the very(prenominal) Net Worth. SPSS software is utilize for applying simple and multiple obsession analysis.First wide-eyed reverse has been apply taking one self-sustaining variable at a quantify in order to produce around crucial variable and eliminate least grievous variable and analyze each variables warp over Change in MVA individually. After this multiple regressions has been applied in order to find the conspiracy of Independent variables which are strongly jibe with diversity in MVA. In my study EVA has been give the well-nigh important variable past RONW, and so ROCE. These variables are having a high degree of correlativity with careen in MVA and signifi ceasetly explaining the wavering in MVA individually. date the faction of EVA, EPS, and DPS are having a very high degree of correlation with falsify in MVA. S o, my analysis shows that it is beat kayoed to invest in a comp whatsoever(prenominal) generating higher(prenominal) and positive EVA, RONW, and ROCE it provide add additional value to shareholders. index finger Chapter-1 Introduction Page No. 1. 1 fellowship Profile 12-13 1. 2 Product & service Offered by IL Investsmart.. 14-16 1. 3 Back flat coat of the caper17-19 1. Introduction of the Project. 20-21 1. 5 Scope of the Project.. 22 1. 6 Literature Review.. 23-24 1. 7 Abbreviation 25 1. 8 look for mark. 26 1. 9 Introducing MVA and EVA 27 Chapter-2 inquiry Methodology29-30 2. 1 Limitation of inquiry.. 31 Chapter -3 look analysis 3. 1 different Measures utilise for Analysis36-36 3. 2 Regression Analysis 37 3. stratum advisable top of Simple Regression analysis38-42 3. 4 boilers suit allow for of Simple Regression Analysis 43 3. 5 social class wise firmnesss of eightfold Regression Analysis 44-62 3. 6 oerall pass on of Multiple Regression Analysis.. 63-64 Rec ommendations 65 Conclusion 66 Biblio graphy 67 Appendices Appendix-1 remit of Annual Return of Sensex 68 Appendix-2 add-in of shape of instruction wise Annual NOPAT of the Companies. 9 Appendix-3 Table of yr wise Annual RONW of the Companies. 70 Appendix-4 Table of course wise Annual ROCE of the Companies.. 71 Appendix-5 Table of social class wise Annual D/E Ratios of the Companies 72 Appendix-6 Table of course wise EPS of the Companies 73 Appendix-7 Table of year wise DPS of the Companies.. 74 Appendix-8 Table of Year wise Annual Market Cap. of the Companies. 75 Appendix-9 Table of Year wise virtue of the Companies. 76 Appendix-10 Table of Year wise border borrowing of the Companies.. 7 Appendix-11 Table of Year wise Annual important value of Companies.. 78 Appendix-12 Table of Year wise Levered Beta value of Companies79 Appendix-13 Table of Year wise cost of equity of Companies. 80 Appendix-14 Table of Year wise court of Capital of Companies 81 Appendix-15 Table of Y ear wise EVA of Companies.. 82 Appendix-16 Table of Year wise Stdz. EVA of Companies. 83 Appendix-17 Table of Yaer wise MVA of Companies. 84 Appendix-18 Table of Change in MVA of Companies. 85Appendix-19 Table of Stdz. MVA of Companies.. 86 Chapter-1 Introduction 1. 1-Company Profile IL IL Investsmart circumscribed (IIL) is one of Indias leading financial services organizations providing individuals and somatic with customized financial attention solutions. Investsmart has a strong straw man across wide break away of harvest-festivals and ope roves in the areas of Investment Management and Advisory Services, Broking Services, Merchant Banking, Project Syndication, equity and Debt Broking, Commodity Broking and Distribution of Financial Products.Earlier the companionship was owned by IL root but is now held by HSBC, one of the worlds largest banking and financial services organizations. concord to press Release by HSBC, the Company has perfect the acquisition of 93. 86% of IL Investsmart Limited for a total comity of INR 1,311 Crore. match to Sandy Flockhart, Group Managing Director & Chief Executive police officer of Asia-Pacific, Investsmart allow for give HSBC glide path to the Worlds triad-largest Investor base, with over 20 million retail Investors. The business already has 143000 Customers. The documentation and name changing process is yet going on (till 15th June 2009).In India, The HSBC Group heads a govern of financial services including embodied, commercial, retail and private banking, insurance, asset charge, coronation banking, equities and jacket crown market places, institutional brokerage house, custodial services. It overly provides software ontogeny expertise and global services facilities for the HSBC Groups operations worldwide. IL Investsmart Ltd has an all India presence by dint of its ne devilrk of branches and franchi gets over 128 cities. Following a successful initial Public Offer (IPO), IIL has been listed on both the National melody tack (NSE) and the Bombay Stock Ex lurch (BSE).IIL is geared towards understanding and achieving the financial goals of all its customers, by gist of its specialists in the aforesaid areas. IILs 2000 employee provide a distinguish or deedal cavity of Investment solution in India through 88 branches and 190 Franchi moderate outlets from 128 Cities. It has been recognised as National Best Performing Financial Advisor sell for two age in a row (06-07 and 07-08) by CNBC TV 18, With a market chapiterization of approximately US$260 million. The Corporate mapping and Research Division are located in Mumbai. In Delhi, the regional office is at Caunaght Place and the branch office is at Pitampura. . 2-Products and Services Offered by the IL The Company has grouped its Product and services in following manners o Retail Offering o institutional Offering o Advisory insure & Advisory Services o Online Trading Retail Offering It embarrasss Advisory Produc ts regarding enquiry reports and analysis. Trading product It allows Equity and Derivatives. NRI Products It includes NRE Equity, NRI Portfolio Management services, Mutual Funds, IPO, Insurance, Wealth Management Products, PAN tantalize services, Advisory Report and Accounting and income measure bear filling in India.institutional Offering Investment Banking Services IL Investsmart (IIL) offers extensive range of Investment Banking Services for equity cerebrate products and instruments. Their team advises Customers on proceedings like business structuring and capital raising opportunities base on their corporal inevitably and state of capital markets.Services it specialize in include Management of Initial Public Offering (IPOs) Follow-on Offerings Qualified Institutional Placements (QIPs) buyback of Equities Open Offers Mergers & Acquisitions Private Equity Placements ESOPs Institutional Equity Broking Services It includes IPOs, equities, derivatives and common funds. It excessively focuses on identifying undiscovered value spuds to investors. Through its gamut of services, this division is well-suited to corporate investors, banks, financial institutions, insurance companies and FIIs. Their Institutional Equity Business (IEB) is well positioned to offer support for a work out range of investment banking service to corporate. Institutional Debt Broking Services Its institutional debt broking division includes, secondary market broking, primary market debt placement & distribution and provident fund advisory services. Advisory Report & Advisory Services It includes Equity Report, Mutual Fund Report, Debt Market Report, empyrean Report, Derivatives & Technical Reports. The reports are sent to the Customers on a daily radical before opening of Stock Market in the Morning through email. It as well as provides Advisory Services by message alert and ap daubing alliance Manager to HNI clients. Online TradingFor Online trading Co mpany provides triplet products as online trading Platform SmartStart It is a powerful browser based trading formation for those who are relatively new to online spend. A unique integrated account, which integrates Cusomers banking, broking, and demat accounts. A comprehensive trading service, which allows Investors to invest in equities and derivatives. SmartStart trading weapons syllabus allows you the flexibility of trading on any internet undefended system, with access to both the NSE and BSE. SmartInvest is a browser-based system designed for customers who transact occasionally. It is suppositionl for investors who see in the Buy and Hold approach towards investment in equities.SmartInvests skill as a browser-based trading platform gives the benefit of real-time float entropy with the flexibility of trading on any Internet capable system. With access to both the NSE & BSE. SmartInvest sophisticated yet easy to use head and click order entry interface allows you to r eact more cursorily to the markets and make better decisions. SmartTrade is an EXE based desktop software designed for bustling traders who transact frequently to capture favorable short-term price movements. The platform offers active traders the tools they need to make critical decisions with confidence. SmartTrade is designed and built from the ground up to address the needs of active traders. SmartTrade makes the most of state-of the-art applied science to go to sleep power, speed and reliability.Through an easy-to-use interface, users are provided with the identical tools and advantages that the professionals enjoy. 1. 3-Background of the Problem In two month of my training my job was divided up into two parts. In one part I was told to sell the online trading product of the Company and in different part I was told to do my project in equity investigate. Since the Company is very oft customer oriented, It wants to give a complete Investment solution to the customer so that the Company force out please them. For this beau monde has a query division located in Mumbai. Since I was working in Pitampura Branch and that branch deals in Equity solo (Online trading Product). So, I was upposed to do my project on Equity research. In this two month as a summer trainee I use to generate Client entropybase from my own sources and indeed approaching to the potential Customers by calling and arranging meeting with them and finally converting them into Customers. I was in like manner manipulation the query of Existing Customers of the Company regarding Online Products. On the basis of their Query I felt that the new retail Investors as well as lively Customers need a strong support from company to have an idea in which bourgeon they should invest, so that in future their investment pull up stakes core in a positive or ordain affix market value of their Investment in Stock market.For this Company use to send triad research reports regarding be tter investment option on a daily basis on their email-id, message alert on mobile, and appoint Relationship Manager. So, for complete Customer satisfaction the company needs to have a strong research Division which is already in that respect in Mumbai. moreover, be driveway of Global Melt Down investors are very such(prenominal) afraid to invest in Stock Market as the sensex reaches to a minimum of 8000 from 21000 within a Year. outright they are looking for those brokerage unassailables, which forget guide them with a strong research analysis. So, in this eggshell it is very much essential for the Research analysts working in the Company to analyze those factors which are really going to accelerate the market value of share holders in order to gain a competitive marge over the Competitors.It is the time to do an in depth study on those factors which an investor should consider before investing in a particular Company or Stock, if they want to add some more coin to their p ocket. So, I was given a task to analyze those financial factors which will drive the share holders value in future and will keep them at safe end for a extensive as well as short term Investment. Since, if the market value of stock will step-up, sensex will likewise go up. So, here we need to study on those factors which will step-up the Market Value. First thing which comes in my mind is that Stock of a particular Company is very much similar to a soulfulness, like whatever is happening in a persons life, he or she is the one who is responsible for that.For example if a person is not able to pass an MBA exam then we take that something is damage with his or her mind, if he or she is not able to walk powerful then something is wrong with his or her health. It means the problem is within the person. The same things apply in the stock Market like if a company is not able to increase its market value (Share holders Value) or market Capitalization it might be the reason that Co mpany is not playacting well, not generating enough net, not able to use its assets in an rough-and-ready and efficient manner, not able to increase the earnings of its owner and etcetera because of which it is destroying the share holders value.So, I decided to work on the financial performance of Companies itself and to analyze whether the financial Performance of a company like (RONW, ROCE, D/E Ratio, EPS, DPS, EVA) is having any kind of correlation with their market value. I have also tried to analyze that is it so that we should consider these factors as a number one wood of Share holders value? Will positive change in these factors give positive result to the Share holders? This is the rationale behind working on this project which is very much required to understand in this recovery period of Economy. 1. 4-Introduction of the Project Today, one of the major goals of financial management is maximum utilization of the capital employed for maximization of Shareholders valu e. Since capital resources are scarce and costly, companies try to employ these resources in a way that yields highest return.Of course this should be accompanied by steps taken to minimize the cost of acquired resources. Otherwise, it will not increase the shareholders wealth and the firms value. The manager of a firm (as an internal user of financial information) and the investors and other parties (as the external users) are concerned to use an appropriate performance handbill in order to respect how the managerial actions affect the value of the firm. For this purpose the performance measure used, moldiness consider at least collar things, which are the amount of capital invested, the return earned on the capital, and the cost of capital (Weighted Average Cost of Capital).So, the first question comes to our mind is that how do shareholders know that the Company with whom they have entrusted their hard earned money is efficiently utilizing it and thus, creating Value for them. We have always read the annual report of the Companies to find out information about their top line and bottom line. We also have various financial ratios and terms which act as essential factors to consider for our aid like Return on Capital Employed (ROCE), Return on Net worth (RONW), Earning per Share (EPS), Dividend per Share (DPS), D/E Ratio, and economical Value Added (EVA). Out of all these factors EVA was introduced as an Indicator for Shareholders wealth maximization in 1990s by Stern Stewart & Co.It has been a focal point for majority of the studies. Stern has claimed that EVA as a tool of financial management is not just a phenomenon and neither is it limited to only for remuneration organizations. frugal Value Added has been put to use for management performance e military rank and much more than just a measure of performance, it is a framework for complete financial management (for improving allocation of scarce capital and for valuation of a target company at the t ime of acquisition). On the other hand, Market Value Added (MVA) is an indicator which measures the stock returns and shows the effect of different factors on share prices, in a particular market.While EVA is an accounting-based measure for the corporate performance of one year, MVA is a market-generated number. MVA is cumulative measure of the value created by the management in excess of the capital invested. This research is an attempt to find out whether EVA, EPS, ROCE, RONW, DPS, D/E Ratio of the companies listed in sensex explains the value accretion for the shareholders and fluctuation in sensex. 1. 5-Scope of the Research Since, BSE Sensex of India represents the whole Indian Economy. The companies listed in sensex are the representative of all the major industries of Indian Economy. Millions of investors have invested their money in the stock market.The stock market is something where investors bottom earn lot of money but risk is also there, because it follows fundamental of high jeopardy High Return. So, it is very much require to analyze the behavior of market. It means we should know in which company we should invest or we should not. So, the scope of research is to analyze the most important driver of shareholders value. Since, Research Division of IL Invetssmart are very much working on analyzing the behavior of stock market so that they can decorously guide their customers regarding investment. This research will be a value addition for the Research Division of IL Investsmart, as it ill give an idea which factor is highly correlated with Market value of the Companies. The market value of the Companies is very much dependent on the performance of the Companies. But which performance measure should be taken into consideration by the Investors before investing in any company is very much required. So, this research will explain whether performance measure does have any correlation with market Value added of the Companies. If it is so then which of the performance measures is strongly influencing the shareholders value? The research is an attempt to analyze the influence of few performance measures over the shareholders value and this will help in taking correct investment decision. 1. 6-Literature reviewStewart (1991) had carried out a research to find out the alliance betwixt EVA and MVA. This study was done by taking average EVA values for the year 1987 and 1988 of 613 companies in USA and then comparing them with their MVA values for 1988. The study institute an r2 of 97% among the EVA and MVA value for the Companies with positive EVA while this correlation was insignificant for the companies with negative EVA values. Finegan (1991) took a sample of 450 Companies in USA and demonstrate that average value of EVA could explain 61% of the variance in MVA whereas the similar figure was 44% between the change in EVA and change in MVA. He also find that this r2 was 47% between ROCE and MVA.Dodd and Chen (1992) found RO A as a better driver of Shares returns as compared to EVA. Stern (1993) found out that EVA is the best measure that drives the Shareholders value with an r2 of 50% with MVA. The next important driver was ROE with an r2 of 25% with MVA. Lehn and Makhija (1996) also studied the birth of share returns with ROE, ROA, Return on Sales (ROS), EVA, MVA and chief executive officer turnover. Correlation was found to be highest in case of EVA however, (EVA divided by the Cost of Capital), NOPAT (Net Operating Profit subsequently Tax) and free cash flow rate and correlation with them with market value divided by invested Capital. He found NOPAT as a better indicator with an r2 of 33% compared with 31% in case of EVA.However, changes in EVA values explained 74% of the change in market value over a period of 10 years. Uyemara and others (1996) studied MVAs correlation with EVA, Net Income, EPS, ROE, and ROA over a period of 10 years. r2 was highest technology industry for the period 1990-95 a nd found an r2 of 42%. EPS was judged as the second best measure of with an r2 of 34%. Kramer and Pushner (1997) established that lagged directs of NOPAT explained MVA better as compared to EVA. This correlation was found higher even when changes in NOPAT were correlated with changes in MVA. According to Biddle and others (1991), Net Income was found to be the best measure to explain Share returns. majority of these studies were focused on US Companies.Giffith (2004) concluded that an Investor or analyst apply EVA or MVA measures to forecast performance would have experienced significant losses. Ferguson and others (2005) also doubted that adopting EVA improves stock performance. JHvH de Wet (2005) analyze the database of 89 south African Companies and observed that the beatized Cash Flow from Operations (CFO divided by the invested Capital in the beginning) had an r2 of 38% with the Standardized MVA (MVA divided by the invested Capital in the beginning), which was found to be the best driver as compared to the Standardized EVA (EVA divided by the Invested Capital in the beginning), ROA, ROE, EPS, and DPS. He also observed that Correlation of EPS and DPS for valuing the Shares.Roji George (2005) analyzed the data of 21 Indian banks for the period 1999-2003 and concluded that there is a positive relationship between EVA and productivity and negative relationship between EVA and NPA. So, what I have found that nobody has done any analysis on the 30 companies which is listed in Sensex, while these companies represent all the major Industries of Indian Economy. So, it is better to analyze these Companies behavior. So, this research is an attempt to pair this research gap. 1. 7- Abbreviation NOPAT Net Operating Profit After Tax RONW Return on Networth ROCE Return on Capital Employed D/E Ratio Debt/Equity Ratio EPS Earning per Share DPS Dividend per Share EVA stinting Value Added MVA Market Value Added R Coefficient of Correlation R2 Coefficient of Determination 1. 8-Research Objective The following are the objectives of my research Main Objective The primary objective is to find out what drives the share holders value. Specific Objective 1) To find out the correlation of the measures like RONNW, ROCE, D/E Ratio, EPS, DPS and EVA with MVA(Market Value added) 2) To find out the most important factors or variable which explain variance in MVA and that variable should be consider before investing in any Company. 1. 9- Introducing EVA and MVAAs the introductory paragraph of this paper suggests, EVA is the surplus profit after accounting for all the expenses including the cost of capital. We have always looked at the figures of Profit after Tax to find out whether a company is execute well or not. However, what we forget is that the shareholders invest money in a company in expectation of some return. So, the basis for evaluation should be whether the company has earned over and above the minimum required rate of return by the investors. If there is surplus after accounting for this prospect cost of equity, the company is creating value for its shareholders. If not, then it is destroying value.In other words, value is created when return earned by the firm is more than its cost of capital or firm invests in the project with positive NPV. EVA can be calculated through any of the following methods Increasing revenue, Reducing in operation(p) costs, Efficient utilization of assets and Raising funds at cheaper cost Chapter-2 Research Methodology Research MEthodology Quantitative Research Design has been used in this research. This analysis was carried out over a period of 6 years (2003-2008) on companies which form part of BSE Sensex. Nature of Data Secondary Data has been used for this research. The Year wise annual data of NOPAT, RONW, ROCE, D/E Ratio, EPS, DPS, Avg. Market Capitalization, beta value of 23 Companies out of 30 Companies listed in the Sensex.Source of Data For regression analysis the data has been collected from CMIEs Prowess and www. bseindia. com. Research Design Descriptive Research Design has been used as the problem is well define and signalize issues are known and which is to find out the most important variable which drive the Shareholders, Value. Under this Research design, Cross Sectional Study has been done. Year wise annual value of all the variables has been collected from 2003-2008 for finding the cause and effect relationship between Independent shiftings (RONW, ROCE, D/E Ratio, EPS, DPS and EVA) with dependent variable (Change in MVA). The study has been done on yearly basis. have Judgment (Purposive) Sampling Method has been used for selecting Companies.The analysis has been carried out over 23 Companies out of 30 Companies listed in sensex. Though Sensex comprises 30 companies, 7 companies were eliminated because of the inadequate information available for these Companies. The reason for choosing these Companies are their reliability in terms of selection of the Companies as only those Companies are selected which have a listing history of at least 3 month with sufficient trading frequency. Sample Size Sample size is of 23 Companies has been taken for the Year 2003-2008. The following Table shows the List of Companies Company Name Bharat unplumbed Electricals Ltd. Oil & Natural Gas Corpn. Ltd. Bharti Airtel Ltd. Ranbaxy Laboratories Ltd. Grasim Industries Ltd. Reliance Industries Ltd. H D F C Bank Ltd. Reliance Infrastructure Ltd. Hindalco Industries Ltd. State Bank Of India Hindustan Unilever Ltd. Sterlite Industries (India) Ltd. trapping Development Finance Corpn. Ltd. Sun Pharmaceutical Inds. Ltd. I C I C I Bank Ltd. Tata Motors Ltd. I T C Ltd. Tata superpower Co. Ltd. Infosys Technologies Ltd. Tata Steel Ltd. Larsen & Toubro Ltd. Wipro Ltd. Mahindra & Mahindra Ltd. Statistical Tool The Simple Regression Analysis and Multiple Regression Analysis have been done using SPSS to establish the relationship of MVA with EVA, ROCE, RONW, EPS, DPS, and D/E Ratio on periodic basis. 2. 1- Limitation of Research The following are the limitation of this research Since, the research has been carried out to find out the important factors which drive shareholders value. So, only the financial ratios which measures performance of the Companies are taken into consideration. Hence, the focus of research is on micro economic factors only. While macroeconomic factors (like GDP, FIIs, and Inflation) also does matter in creating or eroding the value of shareholders. Chapter-3 Research Analysis 3. 1- Different measures used for the analysisIn this research our main objective is to find out the factors which investor should look for or take into consideration before buying share of any Company. Now it becomes very much essential to know the correlation between these versatiles and the Shareholders value. Hence we have included some of the main variables like RONW, ROCE, D/E Ratio, EPS, DPS, EVA. These ar e the variables based on which an Investor decide to buy the shares of a particular Company. As depending upon these variables they buy the shares, the market Value of that particular Company increase which results in increase in Shareholders Value. Hence open unsettled is MVA. (For data please see Appendix-17 p. no. 84)But since MVA is Stock purpose so, for applying Regression Analysis change in MVA (Market Value Added) with respect to previous year has been used. MVA=Market Capitalization-Investment (Book Value) Change in MVA= (MVAt MVAt-1 )/MVAt-1)x100 Here, MVAt= MVA of the Companies of Proceeding Year. MVAt-1= MVA of the Companies of preceding Year Independent Variables are six performance measures are considered as Independent Variable RONW, ROCE, D/E Ratio, EPS, DPS EVA. All these variables are flow variables. 1) Return on Net Worth (RONW) =NOPAT/Total NETWORTH NETWORTH=EQUITY+RESERVE & SURPLUSES Return on Networth measures a companys earnings in relation to all of the In vestors it is using.RONW tells us what earnings were generated from the Networth. The Networth of the company comprises both equity and reserve and Surpluses. These types of support are used to fund the operations of the company. The RONW figure gives investors an idea as to how in effect the company is converting the money it has into net income. (For data please see appendix-3, p. no-70) 2) Return on Capital Employed (ROCE) = EBIT/(NET Worth+Debt) Return on Capital Employed (ROCE) is a measure of the returns that a company is realizing from its capital. It calculates as profit before interest and tax divided by the contravention between total assets and current liabilities.The resulting ratio represents the efficiency with which capital is macrocosm utilized to generate revenue. (For data please see appendix-4, p. no. 71) 3)D/E Ratio=Total Debt /Total Equity D/E Ratio gives the idea about the Capital structure of the Company. It shows how risky is the Investment in a Company. O n the basis of D/E ratio we can have an idea of the fixed liabilities of the Company if it is using more of Debt. (For data please see appendix-5, p. no. 72) 3) Earning per Share (EPS) = PAT/The Number of Equity Shares Earning per Share is the portion of a companys profit allocated to each outstanding share of common stock. Earning per Share as the name indicates, is the per share earning of a company in a reported period.This is the most important factor in the fundamental analysis of a stock. This coupled with a few related ratios gives a fair idea about the worth of a stock. (For data please see appendix-6 p. no. 73) 4) DPS is the Dividend allotted to each share holders (For data please see appendix-7. P. No. 74) 5) Economic Value Added (EVA) = NOPAT-(Cost of Equity x Networth) EVA attempts to measure how much value was created by an organization for its shareholders, during an accounting period. It is defined as the excess of a companys after tax net operating profit over the re quired minimum rate of return that the investors and lenders could get by investing in other securities of comparable risk. For data see appendix-15, p. no. 82) For collusive Cost of Equity CAPM (Capital Assets Pricing work has been used) Ke=Cost of Equity =Rf +? *(Rm-Rf) (For data please see appendix-13, p. no. 80) Rf =Yearly Risk free Rate of Return=6% (The yield of treasury Bill has been taken as risk free rate of return which is around 6% for the period of 2003-2008) Rm=Yearly Sensex Rate of Return=17% (Average from 1995 to 2007 comes out to be 17% please see appendix-1, p. no. 68) ? = Beta Value of a particular Stock of a Company E= Total Networth (Equity+ Reserve and Surpluses) Since, the value of ? shows the riskiness of a particular stock with respect to market.This ? value shows riskiness on the basis of book value of a particular Company. So, these ? values of the Companies are converted into Unlevered ? and then Levered ? based on Companys present Market Capitalizatio n, so that an faultless and present riskiness of the stock of Company can be taken into consideration for the research The Formula is Unlevered ? ju= ? /1+(D/S)(1-T) Here, D=Total Debt used by the Company S=Total Equity used by the Company (Book Value) T= Corporate Tax Rate (30%) Now Calculating Levered ? based on Market Capitalization using unlevered ? Levered ? = ? ju x (1+(D/S)x(1-T) (For data Please see appendix. -12, p. no. 79)Here, S=Present Market Capitalization of the Company. For an accurate result, the change in MVA and EVA has been standardized by dividing them by the Net worth of the respective Company. Standardization is done in order to find the relative value of EVA and MVA over the Net worth used by the Company. (For Stdz. EVA and Stdz. MVA please see Appendix-16, p. no. 83 and Appendix-19 p. no. 86) The collected and calculated data of ll the variables are attached in Appendices. Please see appendices for expand list. 3. 2-Regression Analysis The analysis is done in two parts. Firstly, simple regression analysis has been done between Dependent Variable (Stdz.MVA) and Independent variables (RONW, ROCE, D/E Ratio, EPS, DPS and Stdz. Eva) taking one Independent Variable at a time for all the Years (2004-2008). Year 2003 has been considered as a base year for the Year 2004 to get change in MVA in 2004 and the same process has been used to calculate change in MVA till 2008. This Simple Regression analysis has been performed in order to understand the key variables which are having high degree of correlation with MVA. After analyzing the key variables, multiple regressions Analysis have been applied with the key variables in order to analyze the repair of key Independent Variables together on Change in MVA. 3. -Year wise resultant of Simple Regression Analysis from 2004 to 2008 Result of the Year 2004 RONW ROCE D/E Ratio EPS DPS Stdz. EVA R . 771 . 817 . 089 . 332 . 201 . 851 R2 . 594 . 667 . 008 . 110 . 040 . 724 set R2 . 575 . 652 -. 039 . 068 -. 005 . 711 Standard mistake of Estimate 2. 47868 2. 4331 3. 87455 3. 66887 3. 81084 2. 04402 Significance . 000 . 000 . 686 . 121 . 358 . 000 p-Value Interpretation From this table, it can be observed that Change in MVA is positively related with all the financial indicators but only three variable ROCE, RONW and EVA are highly correlated with change in MVA. The coefficient of correlation of change in MVA with RONW, ROCE and EVA is 0. 771, 0. 817 and 0. 51 respectively moreover the p-value (significance) is also less than . 001. So, at 99% confidence level we can say that, these three variables importantly explain the variation in MVA. This shows that all these three variables are very much important from investment point of view. The coefficient of intent (Adjusted R2) Of Change in MVA with RONW is . 594 which means change in RONW explains 59. 4% of variation in MVA, while with ROCE it is . 652 which means change in RONW explains 65. 2% of variation in MVA and w ith EVA it is . 711, which means change in EVA explains 71. 1% variation in MVA, the most important driver of change in MVA.So, the simple regression analysis for this year shows that these three variables are very much important while EVA is the most important variable to consider before investment. While, EPS explains 6. 8% of variation in MVA but p value is more than . 000 and DPS has a very minuscule round of significance and D/E Ratio is insignificant to consider as a driver of Shareholders value. Result of the Year 2005 RONW ROCE D/E Ratio EPS DPS Stdz. EVA R . 578 . 543 . 046 . 323 . 289 . 96 R2 . 334 . 295 . 002 . 104 . 084 . 484 Adjusted R2 . 303 . 262 -. 045 . 061 . 040 . 459 Standard fallacy of 2. 73331 2. 81226 3. 34638 3. 17073 3. 20682 2. 40672 Estimate Significance . 004 . 007 . 835 . 133 . 181 . 00 p-Value Interpretation According to the result we can see that correlation of Change in MVA with Stdz. EVA is the highest (. 696) then with RONW (. 578) and then with ROCE (. 543) for this year. The modify R2 of Change in MVA with EVA, RONW and ROCE is . 459, . 303 and . 262 respectively which shows highest variation in MVA is explained by EVA that is 45. 9%. Moreover, the significance level lies between . 005 to . 010 which is less than . 010. Hence, these three variables are the most important variables to consider as standard error is also very low in comparison to other variable.While EPS and DPS has a very bitty significance and D/E Ratio is insignificant to consider. Result of the Year 2006 RONW ROCE D/E Ratio EPS DPS Stdz. EVA R . 725 . 638 . 025 . 450 . 054 . 801 R2 . 525 . 407 . 001 . 203 . 003 . 641 Adjusted R2 . 503 . 379 -. 047 . one hundred sixty-five -. 045 . 624 Standard error of 2. 60034 2. 0531 3. 77240 3. 36897 3. 76802 2. 25987 Estimate Significance . 000 . 001 . 910 . 031 . 806 . 000 p-Value Interpretation According to the result we can see that correlation of Change in MVA with EVA is the highest (. 801) then with RONW (. 725) and then with ROCE (. 638) for this year.The adjusted R2 of Change in MVA with EVA, RONW and ROCE is . 624, . 503 and . 379 respectively which once more shows the highest variation in MVA is explained by EVA that is 62. 4% . Moreover, the significance level is also . 000 which is less than . 001. Hence, at 99% confidence level we can say that these three variables are the most important variables to consider and over again EPS and DPS has a very little significance. D/E Ratio is again insignificant to consider Result of the Year 2007 RONW ROCE D/E Ratio EPS DPS Stdz. EVA R . 801 . 795 . 075 . 66 . 275 . 896 R2 . 641 . 632 . 006 . 134 . 075 . 802 Adjusted R2 . 624 . 615 -. 042 . 092 . 031 . 793 Standard error of 2. 37916 2. 40757 3. 95859 3. 69485 3. 81708 1. 76595 Estimate Significance . 000 . 000 . 34 . 086 . 205 . 000 p-Value Interpretation According to the result we can see that correlation of Change in MVA with EVA is again highest (. 896) then with RONW (. 801) & then with RONW (. 795) for this year. The adjusted R2 of Change in MVA with EVA, RONW and ROCE is . 793, . 624 and . 615 respectively which again shows highest variation in MVA is explained by EVA that is 79. 3% . Moreover, the significance level is also . 000 in each of three cases which is less than . 001.Hence, out of all variables these three variables are the most important variables out of these three variables EVA is coming out to be the most important variable to consider while EPS and DPS are again having a little Significance and D/E Ratio is insignificant to consider as the driver of shareholders value. Result of the Year 2008 RONW ROCE D/E Ratio EPS DPS Stdz. EVA R . 900 . 890 . 152 . 252 . 259 . 950 R2 . 811 . 793 . 023 . 063 . 067 . 903 Adjusted R2 . 802 . 783 -. 034 . 019 . 023 . 99 Standard error of Estimate 2. 70932 2. 83630 6. 15528 6. 02644 6. 01501 1. 93688 Significance . 000 . 000 . 490 . 246 . 233 . 00 0 p-Value Interpretation According to the result we can see that correlation of MVA with EVA is the highest (. 950) then with RONW (. 900) and then with ROCE (. 890) for this year. The adjusted R2 of Change in MVA with EVA, RONW and ROCE is . 899, . 802 and . 83 respectively which shows highest variation in MVA is explained by EVA that is 89. 9%. Moreover, the significance level is also . 000 which is less than . 001. Hence, these three variables are the most important variables to consider while EPS and DPS are again having a little Significance and D/E Ratio is again insignificant to consider as the driver of shareholders value as significance is more than . 001. Moreover out of these three, EVA is the most important and powerful variable. 3. 4- boilers suit Result of Simple Regression analysis pic Over all Result of the Analysis Hence, my over all Analysis shows that only three financial Indicators (EVA, RONW, and ROCE) are the important driver of shareholders value.Out o f these three, EVA is the most important Indicator. So, if a company is earning more than its cost of capital, it is adding more value to the shareholders. In second, RONW is the important Indicator, which shows that companies utilizing its shareholders funds in an effective & efficient manner are adding value to shareholders. Third important Indicator is ROCE which shows Companies generating higher ROCE will add value to Shareholders. SO, before investment these three variables must be considered. 3. 5- Year wise Result of Multiple Regression Analysis In multiple regression analysis I found that there is multi collinearity inhabit between ROCE, RONW and EVA.So, I applied multiple regression taking three independent variables at a time excluding the variables like D/E Ratio because this variable is insignificant to consider while EPS and DPS is little bit of significant. So to come out with a strong and accurate analysis it is irrelevant to ignore these two variables. Result -1 In Result-1 analysis between Change in MVA with EPS, DPS and RONW has been observed for the period of 2004 to 2008. EPS and DPS have been taken because of their little significance. In this case Hypothesis is as follows H0 EPS, DPS, RONW are not significantly explaining variation in MVA H1 EPS, DPS, RONW are significantly explaining variation in MVA Result of the Year 2004 personate jointmary Model R R self-colored Adjusted R Std.Error of the forthrightly Estimate 1 . 834(a) . 696 . 647 2. 25663 a Predictors (Constant), RONW, EPS, DPS ANOVA(b) Model make sense of foursquares df pixilated Square F 1 . 742(a) . 550 . 479 2. 36227 2. 192 a Predictors (Constant), RONW, DPS, EPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F 1 . 831(a) . 691 . 642 2. 20440 2. 115 Predictors (Constant), DPS, RONW, EPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F 1 . 860(a) . 739 . 698 2. 13011 2. 501 a Predictors (Constant), RONW, EPS, DPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F 1 . 927(a) . 859 . 837 2. 45654 2. 493 a Predictors (Constant), RONW, EPS, DPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square 1 . 875(a) . 765 . 728 1. 98181 a Predictors (Constant), ROCE, EPS, DPS ANOVA(b) Model Sum of Squares df Mean Square F 1 . 728(a) . 530 . 455 2. 41542 1. 856 a Predictors (Constant), ROCE, DPS, EPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares Df Mean Square F 1 . 764(a) . 584 . 519 2. 55798 1. 913 Predictors (Constant), ROCE, EPS, DPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F 1 . 850(a) . 722 . 678 2. 19925 1. 759 a Predictors (Constant), ROCE, EPS, DPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F 1 . 918(a) . 843 . 818 2. 59745 2. 016 a Predictors (Constant), ROCE, EPS, DPS b Dependent Variable Stdz.MVA ANOVA(b) Model Sum of Squares df Mean Square 1 . 888(a) . 788 . 754 1. 88405 a Predictors (Constant), Stdz. EVA, DPS, EPS ANOVA(b) Model Sum of Squares df Mean Square F 1 . 824(a) . 679 . 628 1. 99688 2. 328 a Predictors (Constant), Stdz. EVA, EPS, DPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F 1 . 89(a) . 790 . 757 1. 81740 1. 914 a Predictors (Constant), Stdz. EVA, EPS, DPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F 1 . 923(a) . 852 . 829 1. 60570 2. 184 a Predictors (Constant), Stdz. EVA, DPS, EPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F 1 . 966(a) . 932 . 922 1. 0292 2. 103 a Predictors (Constant), Stdz. EVA, EPS, DPS b Dependent Variable Stdz. MVA ANOVA(b) Model Sum of Squares df Mean Square F Sig. 1 Regression 759. 238 3 253. 079 87. 270 . 000(a) equipoise 55. 099 19 2. 900 Total 814. 337 22 a Predictors (Constant), Stdz. EVA, EPS, DPS b Dependent Variable Stdz. MVA Coefficien ts(a) Model Unstandardized Coefficients Standardized Coefficients Collinearity Statistics B Std. Error Beta t Sig. margin VIF 1 (Constant) 3. 899 . 674 5. 789 . 000 EPS -. 017 . 010 -. 147 -1. 92 . 089 . 530 1. 886 DPS -. 026 . 065 -. 033 -. 405 . 690 . 525 1. 905 Stdz. EVA 21. 424 1. 383 . 933 15. 494 . 000 . 982 1. 018 a Dependent Variable Stdz. MVA Interpretation The model Summary shows that EPS, DPS and EVA together having a high degree of correlation that is . 966 with change in MVA while variation in these three variables together explains 92. 2% of variation in MVA as adjusted R2 is 0. 922. The Durbin-Watson is 2. 103 which show that variables are following a similar trend and are not scattered. The analysis shows that this year these three variables are very strongly related with Change in MVA.The ANOVA table shows F is 87. 270 and significance is . 000 which is less than . 001. It means extinguish H0 and accept H1. Hence, these three variables significant ly explain the variation in MVA and are very much important to consider. The coefficient table shows that there is no multi collinearity exists between independent variables because Tolerance is greater than 0. 2 and VIF is less than 5. It also shows that beta value of EVA is . 933. So, EVA is the most power full variable over here. Overall Result The analysis of all the years results in rejection of H0 and acceptance of H1. It means these three variables are also significantly explaining variation in MVA. 3. -Overall Result of Multiple Regression Analysis Since, because of multi colinearity between RONW, ROCE and EVA it was not possible to include these three variables together in the multiple regression analysis. But as they are correlated with each other, so we can consider any one of them with the other variables to reach at a conclusive result. Now after analyzing multiple regressions with three sets of independent variable with dependent variable which are Set-1 Change in MVA with EPS, DPS, RONW Set-2 Change in MVA with EPS, DPS, ROCE Set-3 Change in MVA with EPS, DPS, EVA The question comes in our mind is which set is to be given option over other.Though all the sets are highly correlated with change in MVA and there is a little bit of variation in their correlation we can consider any one set out of the three. But to conclude the analysis a Year wise relation has been done with the help of following graph between the three sets pic From the graph we can see that correlation of Change in MVA with EPS, DPS and EVA was the highest throughout the Years. Moreover it is also increasing year by year. So, it is very much recyclable to consider as these three variables together act as a most important driver of shareholders value. While the second most important set to consider is EPS, DPS and RONW and then EPS, DPS and ROCE. RecommendationsSince, my research analysis has shown that there are three most important factors EVA, RONW and ROCE which drive the sh areholders value. Moreover a junto of EPS, DPS, and EVA together causes major variation in shareholders value. So, Research division of IL should focus on these factors because companies generating higher ROCE, RONW, and EVA from their business will add more value to the Shareholders investment. Now a day, it has become very much important for the Brokerage firms to provide valuable services to their customers specially a proper guide line that where they should invest and where they should not in order to bit the Competitors and retain customers with themselves.So, research division of IL Investsmart should guide the investors to invest in the shares of those companies which is earning more than cost of capital that is company with positive EVA moreover the companies which is effectively using the Owners fund means generating higher RONW and a higher ROCE. EPS, and DPS can be taken into consideration but can be avoided also if company is to severe in generating positive EVA and h igher RONW and ROCE because these variables indicate the increase of an organization. If the organization is growing and its not giving any dividend still it is good to invest in that Company, as the growth company will leads to increase in Market value and this will result in increase in Shareholders value. ConclusionAt the end I would conclude that the year wise research done over the period of five years from 2004 to 2008 has shows that EVA is the most important driver of shareholders value as the correlation between EVA and change in MVA is very strong. so, a company generating positive and higher EVA is the best option to invest in because this will result in increase in market value which will result in increase in shareholders value. The second most important variable RONW and the third most important variable ROCE should be consider before investing in the share of any company because these two variables are also having a high degree of correlation with change in MVA. EPS a nd DPS totally are not the important factor to consider individually. But the combination of EPS, DPS and EVA together are highly correlated with change in MVA.According to my research analysis in 2008 it was found that these three variables together have explained 92. 2% of variation in MVA. So, the combination of these three variable can also be taken into consider before selecting a company to invest in. The analysis also shows that Correlation of change in MVA has been found to be increasing year by Year from 2004 to 2008. So, for future investment it is better to look into these ratios before investing in any company. The regression analysis shows strong correlation of change in MVA with EVA, RONW and ROCE, which is not a surprise since shareholders should value an enterprise, based on the return what they are getting on their invested oney, which proves that it doesnt matter whether the company retains or distributed its earnings, so long it is being utilized for productive purposes. 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