Economic Value Added (EVA) of Indian companies preferably BSE 100?

Question

calculated values

Answer 1

There is no way to answer this because EVA has some assumptions in it - specifically WACC. You will need to use an estimate for the Cost of Equity (Ke), the pre-tax cost of debt (Kd) and long run capital structure between debt and equity. Values will vary pretty significantly based on your assumptions. Ke should be somewhere in the high-teens to low twenties and cost of debt should be bootstrapped off the benchmark government long-bond. Unfortunately, I am not sure which one should be used, but I do know that Kd should be relatively high due to high interest rates in India.

Answer 2

Most listed companies in the country have destroyed corporate value in the last four years, according to a Confederation of Indian Industry (CII) study.

The finding is based on the calculation of the Economic Value Added (EVA) and Return on Net Worth (RONW) of 130 top non-finance corporations listed as Group A companies in the BSE and 363 non-finance companies out of the 500 that account for the S&P CNX 500 index. These companies account for almost 50% of the total market capitalisation of all listed companies and their combined sales account for over 35 per cent of total sales revenue of all listed companies of the BSE.

As a benchmark, the study takes value neutrality at 20% for RONW. EVA has been worked out at Cost of Capital of 20%.

Finance Ministers, civil servants, academics and industrialists have often said that Indian share markets are notoriously fickle. Apparently markets don't respect fundamentals, move purely on whims and sentiments, and can't distinguish between well performing and badly run companies. Given that the BSE Sensex fell by 36 per cent between 20 April and 19 October 1998 -- and still rules below its April 1998 peak -- it isn't surprising that many commentators have trashed the stock market.

A variant of the `inefficient stock market' hypothesis is that Indian companies have been consistently creating value since the advent of economic liberalisation.

Regrettably, the story is very different. Yes, markets were down between April 1995 and March 1998. But in the last four years, most listed companies in India have destroyed corporate value. And despite overall bearishness, companies that have added corporate value have been amply rewarded by the market.

Modern corporations require outside finance. Those willingto put up these funds expect a minimum rate of return. Irrespective of whether pre-contracted (for debt instruments) or residual (for ordinary shares), the returns have to be measured against the opportunity cost of capital, or what the investors would have earned in their next best line of deployment.

Some critics argue that such an approach to measuring corporate value is too finance-centric. According to this view, corporate value can also be added by building brands, having better supply chains, focusing on quality creating franchises and motivating a company's human resources. True enough. But at the end of the day, all this must be reflected in a company's cash flow. There are two ways of measuring corporate value creation -- the somewhat broad and the relatively narrow. The former is economic value added (EVA). Developed by Stern, Stewart & Company, EVA is the residual income after charging for the opportunity cost of capital provided by lenders and shareholders. EVA increases if:

# Operatingprofit grows without employing more capital, ie, through greater efficiency;

# additional capital is invested in projects that return more than the cost of that capital;

# capital is curtailed in activities that do not cover its cost.

Answer 3

sit in a good environment. do some sort of meditation. u will get the answer from within urself