A Study On Determinants of Shareholders' Return With Special Reference To BSE 500 Companies

PROJECT REPORT
A study on determinants of Shareholders Return with

special reference to BSE 500 companies
By
Rachana Sharma
Enrolment No- 121826974
Course - MS-100
Under the Guidance of
Prof. Hussain Ahmed

Post Graduate Diploma in Finance& Control
(St Xaviers College, Ranchi)
INDIRA GANDHI NATIONAL OPEN UNIVERSITY

NEW DELHI
TABLE OF CONTENTS
CHAPTER
CONTENTS
Chapter - 1
Introduction to the study

Definition and importance of Shareholders
Computation of Shareholders Return
Determinants of Shareholders Return
Rationale of the topic chosen for the study
Chapter - 2
Chapter - 3
Chapter - 4
Chapter - 5
Chapter - 6
Bibliography
Research Methodology
Statement of the research problem
Objectives of the study
Scope of the study
Research Design
Nature and Source of data collected
Sample & Sampling Techniques
Data Handling Tools & Techniques
Limitations of the study
PAGE NO.
o.
2- 4
4-5
5-6
7
9
9-10
10-11
11
11
11-12
12-13
13
Relationship between Accounting Performance

Variables and Shareholders Return
Theoretical Background
Literature Review
Research Gap
Data Analysis & Discussion
Descriptive Statistics
Trend Analysis
Correlation
Regression Analysis
29-36
37-43
44-48
49-56
Findings and Inferences

Major Findings
58-62
Conclusion and Direction for Further Research

Conclusion
Direction for Further Research
15-26
17-26
27
64
64-65
65-69
List of Tables
Table 4.1. Descriptive Statistics of Shareholders Return..30
Table 4.2. Descriptive Statistics of Overall Financial Performance Ratio31
Table 4.3. Descriptive Statistics of Profitability Ratio..32
Table 4.4. Descriptive Statistics of Investment Utilization Ratio..33
Table 4.5. Descriptive Statistics of Dividend Ratio..34
Table 4.6. Descriptive Statistics of Financial Condition Ratio....35
Table 4.7. Descriptive Statistics of Working Capital Ratio.36
Table 4.8. Trend Analysis of Shareholders Return...37
Table 4.9. Trend Analysis of Overall Performance Measures...38
Table 4.10. Trend Analysis of Profitability Ratio....39
Table 4.11. Trend Analysis of Investment Utilization Ratio.40
Table 4.12. Trend Analysis of Dividend Ratio...41
Table 4.13. Trend Analysis of Financial Condition Ratio...41
Table 4.14. Trend Analysis of Working Capital Ratio....43
Table 4.15. Correlation between Shareholders Return and Overall Performance Ratio.44
Table 4.16. Correlation between Shareholders Return and Profitability Ratio..45
Table 4.17. Correlation between Shareholders Return and Investment Utilization Ratio..46
Table 4.18. Correlation between Shareholders Return and Dividend Ratio..46
Table 4.19. Correlation between Shareholders Return and Financial Condition Ratio..47
Table 4.20. Correlation between Shareholders Return and Working Capital Ratio..48
Table 4.21. Regression between Shareholders return and Overall Performance Ratio.50
Table 4.22. Regression between Shareholders return and Profitability Ratio..51
Table 4.23. Regression between Shareholders return and Investment Utilization Ratio..52
Table 4.24. Regression between Shareholders return and Dividend Ratio..53
Table 4.25. Regression between Shareholders return and Financial Condition Ratio..54
Table 4.26. Regression between Shareholders return and Working Capital Ratio..55
Table 4.27. Regression Analysis Excluded Variable55-56
List of Charts
Chart 1.1: Determinants of Shareholders Return..11
Chart 4.1: Descriptive Statistics of Shareholders Return.30
Chart 4.2: Descriptive Statistics of matrix of overall financial performance31
Chart 4.3: Descriptive Statistics of indicators of Profitability Ratio32
Chart 4.4: Descriptive Statistics of indicators of Investment Utilization Ratio33
Chart 4.5: Descriptive Statistics of indicators of Dividend Ratio34
Chart 4.6: Descriptive Statistics of indicators of Financial Condition Ratio35
Chart 4.7: Descriptive Statistics of Working Capital Ratio....36
Chart 4.8: Trend Analysis of Shareholders Return....37
Chart 4.9: Trend Analysis of indicators of overall financial performance38
Chart 4.10: Trend Analysis of indicators of Profitability Ratio...40
Chart 4.11: Trend Analysis of indicators of Investment Utilization Ratio...40
Chart 4.12: Trend Analysis of indicators of Dividend Ratio...41
Chart 4.13: Trend Analysis of indicators of Financial Condition Ratio...42
Chart 4.14: Trend Analysis of indicators of Working Capital Ratio43
Chart 4.15: Correlation between Shareholders Return and Overall Performance Ratio.44
Chart 4.16: Correlation between Shareholders Return and Profitability Ratio .45
Chart 4.17: Correlation between Shareholders Return and Investment Utilization Ratio..46
Chart 4.18: Correlation between Shareholders Return and Dividend Ratio.47
Chart 4.19: Correlation between Shareholders Return and Financial Condition Ratio.47
Chart 4.20: Correlation between Shareholders Return and Working Capital Ratio ..48
Chart 4.21: Regression between Shareholders Return and Overall Performance Ratio............50
Chart 4.22: Regression between Shareholders Return and Profitability Ratio..51
Chart 4.23: Regression between Shareholders Return and Investment Utilization Ratio..52
Chart 4.24: Regression between Shareholders Return and Dividend Ratio.53
Chart 4.25: Regression between Shareholders Return and Financial Condition Ratio..55
Chart 4.26: Regression between Shareholders Return and Working Capital Ratio....56
Chapter 1: Introduction to the Study
1. Introduction to the Study

This chapter presents the discussion on
- Definition and Importance of Shareholders
- Roles of shareholders
- Shareholders value
- Computation of Shareholders return
- Determinants of Shareholders return
- Rationale of the topic chosen for the study
DEFINITION AND IMPORTANCE OF SHAREHOLDERS

Shareholders are the owners of companies. A small business concern may have just one
shareholder [i.e owner], the founder, while a public limited company may have thousands
of individual shareholders and institutional shareholders such as mutual fund companies,
insurance companies, pension funds and hedge funds. A shareholder is an individual or an
organization or a company that legally own share(s) of stock in a joint-stock company. By
owning shares of stock, a companys shareholders collectively own the company and
therefore have the right to cast their votes in meetings conducted to take decisions that
affect how the company is run. This usually means that the shareholders as owners will
push the companys actions that increase their own financial returns. Shareholders play
an important role in the financing, operations, governance and management of a business
entity.
Financing
One of the primary reasons for a company going public is to raise funds from more number
of investors. In return, the company's founders/promoters give up part of their ownership
to these new investors.
Operations
Shareholders play both direct and indirect roles in a company's operations. They elect the
board of directors who appoint and supervise senior officers, including the chief executive
officer and the chief financial officer. They play an indirect role through trading in the
shares of the company in the stock market.
Governance
Public companies usually have formal corporate governance policies, such as defining the
composition and roles of different board committees, the role of the chairman, codes of
conduct and business ethics. Boards of directors answer to shareholders, not to
management while the management is reporting to the board of directors elected by the
shareholders.
Management
Shareholders usually control a public company through their power to hire and fire the
managers of the firm. In other words the mangers act as the agents of the shareholders in
the pursuit of maximizing the wealth of the shareholders.
Hence the literature on finance states that the objective of a business entity is to maximize
the wealth of its shareholders.
SHAREHOLDERS Value
Due to the direct and indirect influence exercised by the shareholders and because of the
companys dependence on shareholders, many companies aim to accomplish the
shareholder wealth maximization objective and work towards increasing shareholder
value on a consistent basis. Shareholder value refers to a company's value less its debt to
outsiders. Shareholder value can refer to any one of the following
[a] Book Value or Net Worth or Shareholders Funds or owners Equity: It
is computed by subtracting the accounting value of liabilities from the total amount of
liabilities and shareholder funds. Alternatively, Book value is the sum of Paid in Capital
and Reserves and Surplus [or Retained Earnings] of the company. This is an accounting
value and hence may not reflect the market value of the shareholders funds.
[b] Market Capitalization or Market Value of Equity: This is computed by
multiplying the number of outstanding equity shares of a company with its current market
price per share on the date of computation. This is a relatively better measure of the value
of shareholders as it reflects the current market value of the company to its equity
shareholders.
COMPUTATION OF SHAREHOLDERS RETURN

Companies create value for their shareholders when their investment returns are more
than that of the investment costs. Shareholders normally expect a minimum return on
their investments that is equal to the going return on a risk free investment
(e.g., Treasury securities such a 10 year Government Bond) plus a risk premium for
investing in equity shares which is determined by the level of risk associated with a
particular company. According to Aswath Damodaran, the Risk of a company is
determined by its decisions on
[a] Businesses it is doing : Companies that are into sectors that are characterized by lower
variations in profits such as Fast Moving Consumer Goods[FMCG] are perceived to be
having lower risk compared to companies that are operating in sectors that are dealing
with by discretionary products or luxurious products and services such as luxurious hotels.
[b] Operating Leverage: It refers to the proportion of fixed cost to the total cost of a
company. For instance if a companys Fixed Cost to Total Cost ratio is 80% , it means that
if the business is not doing well it will incur a huge loss compared to another company
which has a Fixed cost to Total Cost ratio of 20%.
[c] Financial Leverage: It indicates the companys financial structure i.e reflects how the
company funds its investment in assets. Companies have two sources of funds namely
Debt and Equity. This ratio is otherwise known as Debt to Equity ratio. Higher the D/E
ratio, higher is the risk of the company.
The Literature in Finance states that companies deliver returns to their shareholders in
the form of dividends and share price appreciation. If a company is perceived as not
increasing shareholder wealth over time, investors may lose confidence and either decide
to sell its shares or give pressures to the company to take steps to improve its
performance, such as by replacing the CEO or altering the corporate strategy.
Total Shareholder Returns is the sum of increase in share price between the date of buying
the share and the date of selling it [or the date of return computation in case of continuous
holding of the share by the investors; in that case it is not the actual return but the notional
return and the amount of dividend paid to the shareholders by the company. The
shareholder returns is computed using the following formula
Where
TSR = Total Shareholder Return in the investment period/horizon
= share price at beginning of the year/Investment Period,
= share price at end of year/Investment Period,
Dividends = dividends paid over the year/Investment Period
The amount of dividend paid by the company is very small and hence the researchers
consider only the appreciation in the share price of a stock for the computation of
shareholders return.
DETERMINANTS OF SHAREHOLDERS RETURN

This study aims to measure the impact if any of the Accounting Performance Measures on
the Shareholders Return of the BSE 500 firms [Firms in the Bombay Stock Exchange 500
Index, one of the indices of Bombay Stock Exchange in India]. The following diagram
depicts the research model.
Chart 1.1: Determinants of Shareholders Return
Overall Accounting Performance

Measures
DETERMINANTS
OF
SHAREHOLDERS
RETURN
ROIC (Return on Invested Capital)

ROE (Return on Equity)
ROA(Return on Asset)
Profitability Ratios
GPM (Gross Profit Margin)
EBITDA Margin (Earnings Before
Interest, Taxes, Depreciation and
Amortization]
EBIT Margin (Earnings Before
Interest &Taxes)
PBT Margin (Profit before Tax)
PAT Margin (Profit after Tax)
Working Capital Ratio

CCC (Cash Conversion
Cycle)
Investment Utilization Measures

Asset Turnover
Invested Capital Turnover
Equity Turnover
Financial Condition Ratios

CR (Current Ratio)
QR (Quick Ratio)
D/E Ratio (Debt Equity Ratio)
Interest Cover Ratio
Dividend Ratio
Dividend Payout Ratio
RATIONALE OF THE TOPIC CHOSEN FOR THE STUDY
What determines the return for the equity shareholders is a question that needs to be
answered by every public limited company as the objective of the business revolves
around maximization of the wealth of the shareholders. Financial Statements
communicate the operating, financial condition and cash management abilities of a
firm to its current and potential investors. It is rational for any investor to invest his
funds in a firm that performs well on fundamentals. Hence if a firms financial
performance is good, then it should get reflected in terms of an appreciation in its
share price. Therefore, this study aims to examine whether the financial performance
measured in terms of accounting measures such as Overall Performance Ratios,
Profitability Ratios, Investment Utilization Ratios, Working Capital Ratios, Financial
Condition Ratios& Dividend Ratios impact the shareholders return of the sample
companies.
Structure of the Report
This Chapter has presented the introduction to the study and the report presents the
remaining research work in the following chapters
Chapter 2 discusses the research methods adopted by the researcher
Chapter 3 presents the relationship between the accounting performance measures
and shareholders returns
Chapter 4 discusses on the results of the data analysis and hypothesis testing
Chapter 5 provides the major findings and inferences made by the researcher from the
analysis of the data and
Chapter 6 concludes on the research work besides spelling out the directions for
further research.
Chapter 2: Research Methodology
2. Research Methodology
This chapter presents the discussion on

- Statement of the Research Problem
- Objectives of the study
- Scope of the study
- Research design
- Nature of Data Collected for the study
- Sample and Sampling Techniques
- Data analysis tools and techniques and
- Limitations of the study
STATEMENT OF THE RESEARCH PROBLEM

This research work aims to address the following research problem.
Whether accounting variables such as Overall Performance measures, Profitability
Ratios, Investment Utilization measures, Working Capital Ratios, Financial Condition
Ratios and Dividend Ratios affect the shareholders return of sample BSE 500
companies?
OBJECTIVES OF THE STUDY

Primary Objective: The primary objective of the research work is to study the
impact of accounting performance variables on Shareholders return of the Sample

Companies.
Secondary Objectives
The following are the secondary objectives of the research work:
To find the accounting performance variables (Overall Performance measures,

Profitability Ratios, Investment Utilization ratios, Working Capital Ratios, Financial
Condition Ratios & Dividend Ratios ) that impact the Shareholders Return of the
sample firms
To quantify the impact of the overall financial measures such as the ROIC (Return
on Invested Capital) and ROE (Return on Equity) on Shareholders Return of the
sample firms
To measure the impact of the profitability measures such as the Gross Profit
Margin, EBITDA Margin(Earnings Before Interest, Taxes, Depreciation and
Amortization) ,EBIT Margin (Earnings Before Interest & Taxes) EBT Margin
(Earnings Before Tax) and PAT Margin (Profit After Tax) on the Shareholders
Return of the sample companies
To study the impact of the investment utilization measures such as the Asset Turn,
IC Turn, Equity Turn and Fixed Asset Turn on the Shareholders Return of the
sample firms
To find whether the working capital ratios impact the Shareholders Return of the
sample companies
To study the impact of the financial condition ratios on the Shareholders Return
To measure the impact of the dividend ratios on the Shareholders Return
SCOPE OF THE STUDY

It is a known fact that the Shareholders are the major players in running the public
Companies. They become the owners of companies by making their investments in the
companies and get the right to take decisions which impact the companys
profitability. The ultimate objective of the public companies is to maximize the
shareholders return as it is their investments which cater to the requirement of long
term capital of the firm which is very much essential for the growth of the firm.
The study aims to reveal how the different accounting performance variables are
related with the Shareholders return and how these accounting variables impact the
shareholders returns of the sample firms. The study is restricted to the firms that form
part of the BSE 500 index. The firms in the BSE 500 index excluding Banking, Finance &
IT sectors companies are considered for the study. The study is based on the data
collected from the ACEEQUITY database for the variables considered by the researcher
for the sample companies for the latest five financial years [From Financial Year ending
on 31st March 2010 to Financial Year ending on 31st March 2014].
RESEARCH DESIGN
The Study is dealing with financial research and hence has adopted the analytical
research design. The study describes the data available for the sample companies from
the ACEEQUITY database.
NATURE & SOURCE OF DATA COLLECTED

ACE Equity is used for deriving companies specific financial data. The database is used
to collect the secondary data on the dependent and independent variables for the
study.
SAMPLE & SAMPLING TECHNIQUES

Companies forming part of BSE 500 index are the primary sample of the study.The
required data were collected from listed firms in the Bombay Stock Exchange (BSE).
The reason for choosing BSE is primarily owing to the greater transparency and volume
of trading than that of other National and Regional Stock Exchanges.
Companies operating in Banking, Finance & IT sectors have been removed from the
sample list. This is due to the fact that some of their accounting performance measures
such as cash conversion cycle; investment utilization measures may not be significant
enough to generalize the findings of the study. For instance CCC (Cash Conversion
Cycle) is a meaningless number for an IT company as it will have zero days of inventory
and insignificant days of payable numbers. Similarly banking companies cannot be
studied on working capital measures such as CCC.
Further firms operating in the above stated industries do not get affected by cash
conversion cycle as working capital is a very insignificant number for these firms.
Hence the original number of the sample firms is brought down from 500 to 293 firms.
The researcher has also filtered out another 33 firms from the sample as the Ace Equity
database [from which the researcher has collected the data on the variables used by
her to establish the relationship between the accounting variables and shareholder
value] does not report the complete data set for these 33 firms. Hence the study is
based on the shareholder returns and accounting variables of 260 firms that form part
of the BSE 500 Index. The required variables were collected for the 260 firms from the
ACE Equity Database for the five financial years (2010-2014). Data for 2015 has not
been reflected in the work as Ace Equity does not report complete data for the FY
2015.
DATA HANDLING TOOLS & TECHNIQUES

Descriptive Statistics, Trend analysis, Correlation and Regression Analysis are carried
over to accomplish the objective of the study. SPSS was used to arrive at the results of
data analysis.
Hypothesis Testing
In order to analyze the results, the researcher has formulated a number of hypotheses
and tested the same on the relationship between the dependent and the independent
variables.
Definition of Variables
The researcher has used the shareholders return as the dependent variable. The
following variables are used as the independent variables in this study
Overall Performance measures: ROIC, ROE & ROA
Profitability Measures: GPM, EBITDA Margin, BIT Margin, PBT Margin & PAT Margin
Investment Utilization Measure: Asset Turnover
Working Capital Measure: Cash Conversion Cycle
Financial Condition [Liquidity & solvency] Measures: Current Ratio, Quick Ratio, Debt
to Equity ratio & Interest Cover ratio.
Dividend Ratio: Dividend Payout Ratio
LIMITATIONS of the study

The following are the limitations of the study:
-The findings of the study may not be generalized as the study is based on the last five
years period. This is due to the fact that shareholders returns do get affected by the
economic cycles and stock market sentiments.
-The results and findings might be different if the sample companies are taken from
other indices such as BSE 100, BSE Sensex, NIFTY 50 and so on.
-Besides, Analysis part does not contain information in regard to some accounting
variables such as Gross Profit margin, Invested Capital Turnover and Equity Turnover
as Ace Equity Turnover does not report the complete set of data for the said variables.
Chapter 3: Relationship between Accounting Variables and

Shareholders Return
3. RELATIONSHIP BETWEEN ACCOUNTING

VARIABLES AND SHAREHOLDERS RETURN
This chapter presents the literature discussion on
- Shareholders return
- Working capital ratio
- Dividend ratios
- Investment utilization ratios
- Overall financial performance measures
- Profitability ratios
- Financial Condition ratios
- Research Gap
SHAREHOLDERS RETURN (THEORETICAL BACKGROUND)

Introduction: Every business should set itself a business objective. Business magazines,
newspapers, and journals are replete with articles exhorting managers to adopt the
creation of shareholder value as their prime objective because it is the Shareholders
who enable the business firms to obtain the required amount of their long term
capital. It is generally agreed in theory that the financial goal of the firm should be
shareholders wealth maximization (SWM), as reflected in the market value of the
firms shares.
Literature Review: According to I M Pandey (2005),SHAREHOLDERS WEALTH
MAXIMIZATION (SWM) means maximizing the net present value of a course of action
to shareholders. Net Present Value (NPV) or wealth of a course of action is the
difference between the present value of its benefits and the present value of its costs.
A financial action that has a positive NPV creates wealth for shareholders and
therefore, is desirable. A financial action resulting in negative NPV should be rejected
since it would destroy shareholders wealth.
The objective of SWM is an appropriate and operationally feasible criterion to
choose among the alternative financial actions. It provides an unambiguous
measure of what financial management should seek to maximize in making

investment and financing decisions on behalf of shareholders.
Many scholars and managers endorse the idea that the primary purpose of the firm
is to make money for its owners. This shareholder wealth maximization objective
is justified on the grounds that it maximizes social welfare.
Researcher (Dobson, John; 1999) has found out that for those educated in modern
business schools, the justification for decisions made by financial professionals in
business organizations has been supplied by financial economic theory. Broadly, the
theory posits that the ultimate objective of a business organization is to maximize its
market value. This objective is, in turn, justified by the premise that such activity
undertaken competitively, within the law, by individual firms will lead to maximal
social welfare.
By the mid-1990s shareholder value-related management approaches found a
prominent, not to say predominant, position among management and accounting
scholars and in practice. Core elements of these management approaches are
management accounting techniques that are intended to direct managerial decisionmaking to maximize a firms value. Having said that, the ideas that the only social
responsibility of firms is to create profitsas proposed by Friedman (1962: 133) and
that maximizing firm value for the owner is the only relevant objective of a firm
Working Capital Ratios (THEORETICAL BACKGROUND)

Introduction: Firms profitability is mainly determined by two main determinants
namely capital structure and working capital management as widely discussed by
academia (Lazaridis and Tryfonidis, 2006). In the literature on finance, working capital
management has been approached in numerous ways. Some researchers (Besely et al.
1987) have studied the impact of optimum inventory management while other
authors have studied the management of accounts receivables in an optimum way
that leads to profit maximization. According to Deloof (2003) the way in which working
capital is managed has a significant impact on profitability of firms and thereby
impacting the value of the shareholders. This result indicates that there is a certain
level of working capital requirement which potentially enhances shareholders value.
Relevance of Cash Conversion Cycle: Working capital management can be best
described by the cash conversion cycle and there seems to be the existence of a
relationship between profitability and management of the cash conversion cycle. In
order to have maximum shareholder value, an equilibrium should be maintained in
receivables-payables and inventory. This simple equation encompasses all three very
important aspects of working capital management. It is an indication of how long a
firm takes to receive back the cash which are invested in its operating activities or it
indicates the time gap between purchase of goods and collection of sales proceeds
from the customers.
From the corporate finance and financial economics literature, it is observed that there
is a strong relationship between the cash conversion cycle of a firm and its profitability.
There are three components of Cash Conversion Cycle (CCC) namely accounts
payables, accounts receivables and inventory. CCC can be managed in multiple ways
in order to enhance the shareholders value.
Literature Review: Working capital is an important and integral part of any business,
irrespective of the nature, for running the day to day operations in a smooth manner.
But the research on this interesting area is really scanty.
Sagan (1955) was arguably the first conceptual paper on the theory of working capital
management, in which he emphasized the need for management of working capital
and warned that it could vitally affect the financial health of the company if not
properly managed and concluded that improper management of working capital of
firms will lead to its bankruptcy.
Many researchers (Wang, 2002; Deloof, 2003) have established a relationship

between working capital management and profitability. Wang (2002) found a negative
relationship between return on investment and cash conversion cycle of firms
operating in Japan and Taiwan. Deloof (2003), with the sample of 1,009 Belgian firms,
found significant negative relation between the gross operating income and accounts
receivable and inventory. He concluded that negative relation between cycle time of
accounts payable and firms profitability which is not in agreement with the argument
of shorter cash conversion cycle of Jose et al. (1996)
Contrary to the above studies, Mathuva (2009) found a positive relation between
profitability and number of days inventory, which is inconsistent with the findings of
Deloof (2003), Garca-Teruel and Solano (2007) and Falope and Ajilore (2009).
Mathuva (2009) argued that high inventory level reduces the cost of possible
interruption in the production and loss of business due to scarcity of product.
Dividend Ratio (THEORETICAL BACKGROUND)

Introduction: Dividend policy is concerned with financial policies regarding paying cash
dividend in the present or paying an increased dividend at a later stage. Whether to
issue dividends, and what amount, is determined mainly on the basis of the company's
inappropriate profit (excess cash) and influenced by the company's long-term earning
power. When cash surplus exists and is not needed by the firm, then management is
expected to pay out some or all of those surplus earnings in the form of cash dividends
or to repurchase the company's stock through a share buyback program.
Management must also choose the form of the dividend distribution, generally as
cash dividends or via a share buyback. Various factors may be taken into consideration:
where shareholders must pay tax on dividends, firms may elect to retain earnings or
opt for stock buyback, in both cases increasing the value of shares outstanding.
Alternatively, some companies will pay "dividends" in the form of stock rather than
cash dividend. Financial theory suggests that the dividend policy should be set based
upon the type of company and what management determines is the best use of the
liquid resources for the firm to its shareholders. As a general rule, shareholders of
growth companies would prefer managers to have a share buyback program, whereas
shareholders of value or secondary stocks would prefer the management of these
companies to payout surplus earnings in the form of cash dividends.
By dividend policy we mean that the amount of earnings distributed to the
shareholders and the amount of retained earnings. So in this policy the amount of
earnings of the firm are divided into two parts, dividend paid and the amount kept for
future projects. Dividend policy is considered an important tool for investors to assess
the company's financial position as they require return on their investment and
dividend paying company will certainly attract them.
In the world of corporate finance the question that whether the earnings of the firm
should be distributed to shareholders or it must be reinvested in future profitable
projects has great importance. To answer this question finance mangers must consider
which dividend policy will increase the shareholders wealth. Shareholders like the cash
dividends but on the other hand they also want the growth of the company by
reinvesting the funds.
In the dynamic business situations, finance manager's prime objective is to maximize
the shareholders wealth as they are principle agents of them. Shareholders wealth is
represented in the market price of the share which is the result of company's efficiency
in its financing, investment and dividend policy decisions. The optimal dividend policy
is that which increases the share prices of the company which in return increase the
shareholder's wealth.
Literature Review: Researchers had tried to explain the reasons for firms to pay
dividends (Green 1983). Miller and Modigliani (1961) argued that the dividend policy
has no effect on the shareholders wealth. Dividend irrelevancy is also supported by
the work of (Scholes, 1974). Many researches had shown that there is dependency of
dividend policy on the shareholders wealth. Linter (1956), Gordon (1963) and
Richardson (1986) had stated that there is a relationship between the dividend policy
and the firm's value and the dividend policy has the positive relationship with the
firm's value. Researchers also found the positive impact of dividend policy on
shareholders wealth. (Fama, 1969; Petit, 1972 &Travlos, 2001).
Besides, Ansar Irtaza, Butt Arslan Ali, Shah Syed, Basit Hussain (2015) have examined
in their study that there is a strong relationship between shareholders wealth and
dividend policy. They have taken sample of 30 companies from Karachi stock exchange
which includes companies from textile, cement and chemical sector.Shareholders
wealth is measured with the market price of shares. Dividend per share, retained
earnings, lagged price and return on equity was used as independent variables in their
study. The estimation based on multiple regression model shows that there is strong
relationship between shareholders wealth and dividend policy.
Researchers (Thanh Truong, Richard Heaney; 2007) find that that firms are more likely
to pay dividends when profitability is high, debt is low, investment opportunities are
limited or when the largest shareholder is not an insider. Further, the magnitude of
dividend payout tends to be smaller when the largest shareholder is either an insider
or a financial institution. It is also apparent that largest shareholding and dividend
payout are related and that, consistent with the extant literature, legal system does
matter in dividend policy decisions.
Investment Utilization Ratio (THEORETICAL BACKGROUND)

A companys investment turnover ratio measures its ability to generate sales revenue
using the money it has invested in the company. The ratio equals sales divided by the
sum of long-term liabilities plus stockholders equity. Stockholders equity is the
amount of money stockholders have invested in a company. The amount of long-term
liabilities is the amount of money debt holders have invested in the company. We can
calculate investment turnover ratio using information from a companys annual
report. A higher ratio means a company is using its invested money more efficiently,
which increases value for stockholders. Investment turnover is called, more
specifically, asset turnover, invested capital turnover, or equity turnover, depending
on which definition of investment is being used. Assets are used to generate sales.
Therefore, a firm should manage its assets efficiently to maximize sales. The
relationship between sales and assets is called assets turnover. The Asset Turnover
ratio is an indicator of the efficiency with which a company is deploying its assets.
Generally speaking, the higher the ratio, the better it is, since it implies the company
is generating more revenues per dollar of assets. But since this ratio varies widely from
one industry to the next, comparisons are only meaningful when they are made for
different companies in the same sector.
Literature Review: Lmbrson (1995) showed that asset management of the firm is
the most critical issue in the firm where there are many managers who are managing
the financial conditions in order to identify the reasons of good asset management
and the level of optimization of management of assets (fz & Nzir, 2009). By having
the balanced level of asset management , the major component is the skills and the
ability of the management of the firm who make key decisions in order to manage the
key areas of receivables, inventory and other issues as well (Filbck & Krugr, 2005).
The amount of investment in current assets can be managed by decreasing the costs
of finance and by increasing the funds available to the firms. Lmbrson (1995)
explained that the effectiveness of the managers can be computed by the time they
make decisions and the efforts that are exerted on the identification of the problems.
The best level of asset management is by keeping balance in the efficiency and risk
involved. There can be various ways for optimization of different parts of asset
management (fz&Nzir, 2009). Shin &Sonn (1998) conducted a survey in which
the sample of firms totaled 5897, is used between the years of 1978-1988 to explore
the relation between the trade cycle to measure the effectiveness of asset
management and the profit ratio. Dloof (2003) explored the relation between the
profit ratio and the asset management by collecting the sample of firms that are nonfinancial total of 1000 Belgium based firms. The results of study showed the indirect
relation between the profit ratio and the asset management of all the firms based in
Belgium. The research showed that the profit rate can be decreased. The firms having
less profit took more time to pay. Singh &Pandey (2008) explained that the impacts of
the components of such asset management and the profit ratio are more relevant.
Overall Financial Performance Measures (THEORETICAL BACKGROUND)

Profitability ratios are an indicator for the firm's overall efficiency. It's usually used as
a measure for earnings generated by the company during a period of time based on
its level of sales, assets, capital employed, net worth and earnings per share.
Profitability ratios measures earning capacity of the firm, and it is considered as an
indicator for its growth, success and control. Creditors for example, are also interested
in profitability ratios since they indicate the company's capability to meet interest
obligations. Shareholders also are interested in profitability. It will indicate the
progress and the rate of return on their investments. The ratios of the return on assets
(ROA) and the return on owner's equity (ROE) are the most used profitability ratios in
the analysis. 1- Return on assets (ROA) ratio: Net profit after taxes/Total assets. This
ratio is calculated as net profit after tax divided by the total assets. ROA reflects how
much the firm has earned on the investment of all the financial resources committed
to the firm. 2- Return on owner's equity (ROE) ratio: Net profit after taxes/Total
shareholders equity. This ratio is calculated as net profit after tax divided by the total
shareholders equity. This ratio measures the shareholders rate of return on their
investment in the company. ROE reflects how much the firm has earned on the funds
invested by the shareholders (either directly or through retained earnings). This ROE
ratio is obviously of interest to present or prospective shareholders and is also of
concern to management because this measure is viewed as an important indicator of
shareholder value creation. This ratio is not generally of interest to division managers,
however, because they are primarily concerned with the efficient use of assets rather
than with the relative roles of creditors and shareholders in financing those assets.
Literature Review: (Abu Shanab, 2008) examined the impact of returns and risks on
the share prices for a sample of 38 industrial public companies in Jordan listed on
Amman Security Exchange for the period of 2000 to 2007. The results of the study
showed that there is no effect for the returns, risks and dividends on the market value
per share. However, the results indicated that there is a significant relationship
between cash flow and share prices. (AL Kurdi, 2005) study explored the ability of the
published accounting Information to predict share prices for a representative sample
of 110 Jordanian public companies listed in Amman Security Exchange for the period
of 1994 to 2004. The results revealed that there is a relationship between the
published accounting Information of the insurance public companies and their share
price movements. The results also informed that market information have more ability
on predicting share prices compared to the accounting information. Another study by
AL Qudah[ 2004] tested the role of accounting exposure in indicating the real market
price. The sample was consisted of (35) public companies listed in Ammans Stock
Exchange, and (23) licensed financial traders, and (27) investors at Ammans Security
Exchange.
AL Khalayleh, (2001) tested the relationship between accounting performance
indicators and market performance indicators for a sample of (40) Jordanian public
companies listed in Amman Security Exchange during the period between the year of
1984 to 1996. The results showed a significant positive relationship between the
market price per share with the ratios of return on assets and return on equity.
Profitability Measures (THEORETICAL BACKGROUND)

Profitability ratios are the financial metrics that help investors in assessing a business's
ability to generate earnings compared with its expenses and other relevant costs
incurred during a specific period. When these ratios are higher than a competitor's
ratio or than the company's ratio from a previous period, this is a sign that the
company is doing well.
Earnings before Interest Taxes Depreciation and Amortization (EBITDA), is an often
used measure of a company's profitability. Financial analysts use EBITDA for a number
of purposes including calculating simple valuations of a firm, estimating cash flows,
and assessing debt servicing capability. The uses for EBITDA in financial analysis are
numerous, but in practice should be more restrained. While EBITDA has some useful
applications, it should be used with caution, as the problems with EBITDA are
abundant and can lead to a number of misguided conclusions.
EBIT measures the profit a company generates from its operations, making it
synonymous with "operating profit." By ignoring tax and interest expenses, it focuses
solely on a company's ability to generate earnings from operations, ignoring variables
such as the tax burden and capital structure. This focus makes EBIT an useful metric
for certain applications.
Profit before tax[PBT] measures a company's operating and non-operating profits
before taxes are considered. It is the same as earnings before taxes[EBT]. Profit before
tax provides investment analysts with useful information for evaluating a companys
operating performance without regard to tax implications. By removing the tax factor,
profit before tax helps to minimize a variable that may be unique from company to
company, in order to focus the analysis on operating profitability as a singular measure
of performance. Such analysis is particularly important when comparing similar
companies across a single industry.
PBT measure combines all of the company's profits before tax, including operating,
non-operating, continuing operations and non-continuing operations. PBT exists
because tax expense is constantly changing and taking it out helps to give an investor
a good idea of changes in a company's profits or earnings from year to year.
Profit after Tax [PAT] is computed by dividing the amount of Net Income or PAT by the
amount of the sales revenue of the firm. This ratio is otherwise known as the Return
on Sales [ROS] ratio. This indicates the amount of net profit earned by a company out
of its every 100 rupee of sales revenue. The higher the profit margin, the better is the
financial performance of the firm. Many studies in the literature make use of these
profitability ratios while attempting to measure the financial performance of firms.
Financial Condition Measures (THEORETICAL BACKGROUND)

Solvency and liquidity are the measures that reflect an enterprises state of financial
health, but with some notable differences. Solvency refers to an enterprise's capacity
to meet its long-term financial commitments while liquidity refers to an enterprises
ability to pay short-term obligations in time; the term also refers to its capability to sell
assets quickly to raise cash. A solvent company is one that owns more than it owes; in
other words, it has a positive net worth and a manageable debt load. On the other
hand, a company with adequate liquidity may have enough cash available to pay its
dues, but it may be heading for a financial disaster down the road.
Solvency and liquidity are equally important, and healthy companies are both solvent
and possess adequate liquidity. A number of financial ratios are used to measure a
companys liquidity and solvency position; the most commonly used measures are
discussed below.
Liquidity Ratios
Current ratio = Current assets / Current liabilities

The current ratio measures a companys ability to pay off its current liabilities
(payable within one year) with its current assets such as cash, accounts receivable
and inventories. The higher the ratio, the better is the companys liquidity position.
Quick ratio = (Current assets Inventories) / Current liabilities
= (Cash and equivalents + Marketable securities + Accounts receivable) / Current

liabilities
The quick ratio measures a companys ability to meet its short-term obligations
with its most liquid assets, and therefore excludes inventories from its current
assets. It is also known as the acid-test ratio.
Solvency Ratios
Debt to equity = Total debt / Total equity

This ratio indicates the degree of financial leverage being used by the business and
includes both short-term and long-term debt[ some of the researchers take only
long term interest bearing debt in the numerator while computing the debt to
equity ratio]. A rising debt-to-equity ratio implies higher interest expenses, and
beyond a certain point it may affect a companys credit rating, making it more
expensive to raise more debt.
Interest coverage ratio = Operating income (or EBIT) / Interest expense

This ratio measures the companys ability to meet the interest expense on its debt
with its operating income, which is equivalent to its earnings before interest and
taxes (EBIT). The higher the ratio, the better is the companys ability to honor the
payment of its interest expense.
Literature Review: Some Researchers (Amos O. Arowoshegbe& Francis
KehindeEmen, 2014) have studied that as individual variable, the estimate of the
relationship between Debt Ratio (DR) and Return on Equity (ROE) shows a negative
relationship. This implies that an increase in debt ratio will bring about a decrease
in return on equity. The t-value of debt ratio is significant at 1% level. This implies
that debt ratio is capable of predicting return on equity and by implication
shareholders wealth.
RESEARCH GAP
It can be inferred from the above discussion that the earlier studies in the financial
literature have not made an attempt to find out the relationship between the
accounting performance variables such as the overall financial performance
measures, profitability ratios, investment utilization measures, working capital
ratios, financial condition ratios and dividend ratios and the shareholders return of
the firms. Further one could hardly come across in the literature about the studies
that have identified the accounting variables that determine the shareholders
returns of firms. Hence this research gap has persuaded the researcher to
undertake the present study.
Chapter 4: Data Analysis and Discussion
4. Analysis & Discussion

This section of the report deals with the data analysis and inferences made by the
researcher on the analysis of the data using statistical tools such as Descriptive
statistics, Trend Analysis , Correlation and Regression.
This is section is presented as below
[a] Descriptive Statistics of the Variables

[b] Trend Analysis
[c] Correlation
[d] Regression
[a] Descriptive Statistics

In order to get an overview about all the variables in this work, Descriptive Statistics
for five years average time has been reported in the table below.
Table 4.1
Descriptive Statistics of Shareholders Return
Variable Name
Mean Median
Standard
Minimum
Deviation
Shareholders Return 3.47
2.45
8.38
-24.04
(%)
Maximum
35.20
From Table 4.1, we can infer that the average shareholders return of the sample
firms was at 3.47% which is slightly higher than the median for the variable at 2.45%.
The maximum for the variable is at 35.20% while the minimum is at -24.04%. The
standard deviation for the variable is at 8.38%.
Shareholders' Return
35.2
2.45
8.38
3.47
MEAN
MEDIAN
STANDARD
DEVIATION
MINIMUM
-24.04
4.1 Descriptive Statistics of Shareholders Return
MAXIMUM
Table 4.2
Descriptive Statistics of Overall Performance Ratios
Variable Name
Mean Median
Standard
Minimum
Deviation
ROIC (Return on
18.18
15.90
22.42
-240.10
Invested Capital) (%)
15.11
15.75
23.50
-174.922
(%)
ROA (Return on Asset)
7.61
6.33
7.11
-26.37
(%)
Maximum
148.63
116.988
30.75
From Table 4.2, it can be inferred that the mean for ROIC, ROE and ROA is at 18.18%,
15.11% and 7.61% respectively and the standard deviation of the said variables is at
22.42%, 23.50% and 7.11%. The median for these variables is at 15.90%, 15.75% and
6.33%. ROIC is in the range between -240.10% and 148.63%. ROE is in the range
between -174.92% and 116.98%. And ROA is in the range between -26.37% and
30.75% for the sample firms.
148.63
116.988
18.18 15.11
MEAN
7.61
15.9
15.75
6.33
MEDIAN
22.42 23.5 7.11
STANDARD
DEVIATION
30.75
MINIMUM
MAXIMUM
-26.37
-174.922
-240.1
ROIC (Return on Invested Capital)
ROA (Return on Asset)
4.2 Descriptive Statistics of matrix of overall financial performance
Table 4.3
Descriptive Statistics of Profitability Ratios
Variable Name
Mean Median Standard
Minimum
Deviation
EBITDA (Earnings before
Interest, Taxes,
34.73 17.16
148.26
-143.878
Depreciation &
Amortization) (%)
EBIT (Earnings before
Taxes) (%)
PBT (Profit before Tax) (%)
PAT (Profit after Tax) (%)
Maximum
2101.948
47.03
19.10
191.86
-852.116
1923.898
32.90
36.61
12.05
19.33
215.55
172.91
-101.45
-1480
2976.94
1263.576
From Table 4.3, we can infer that mean of sample firms EBITDA, EBIT, PBT and PAT
margins is at 34.73%, 47.03%, 32.90% and 36.61% respectively. Median of EBITDA,
EBIT, PBT and PAT is at 17.16%, 19.10%, 12.05% and 19.33%. Range of EBITDA is
between -143.87 to 2101.94. Range of EBIT is between -852.11 and 1923.89. Range of
PBT is between -101.45 and 2976.94. Range of PAT is between -1480 and 1263.57.
Standard deviation is the lowest for the EBITDA margin while it is the highest for the
PBT margin of the sample firms.
2976.94
2101.948
47.03
36.61
34.73
32.9
MEAN
17.16 12.05
19.33
191.86
1263.576
1923.898
172.91
19.1
148.26 215.55
MEDIAN
STANDARD
DEVIATION
-852.116
MINIMUM
-143.878
-101.45
EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization)

EBIT (Earnings before Taxes)
PBT (Profit before Tax)
PAT (Profit after Tax)
4.3 Descriptive Statistics of indicators of Profitability Ratio
MAXIMUM
-1480
Table 4.4
Descriptive Statistics of Investment Utilization Ratio
Mean Median
Standard
Minimum
Deviation
Asset Turnover
0.97
0.80
.722
0
[Times]
Variable Name
Maximum
4.18
Table 4.4 highlights descriptive statistics of the collected variable of Asset Turn ratio.
It is observed that sample firms average turnover on asset is 1% with maximum of
4.18%. The sample firms have a standard deviation of 0.722%.
Asset Turnover
4.18
0.97
MEAN
0.8
MEDIAN
0.722
STANDARD
DEVIATION
0
MINIMUM
4.4 Descriptive Statistics of indicators of Investment Utilization Ratio
MAXIMUM
Table 4.5
Descriptive Statistics of Dividend Ratio
Mean Median
Standard
Minimum
Deviation
25.08
21.69
33.67
-36.38
Variable Name
Dividend Payout
Ratio (%)
Maximum
400.02
From table 4.5 it is observed that an average of 25% dividend has been paid to the
shareholders with maximum of 400%. It can be seen that the median payout ratio of
the sample firm at 21.69% is close to the mean payout ratio. The standard deviation
for the sample firms is at 33.67% on this metric.
400.02
25.08
MEAN
21.69
MEDIAN
33.67
STANDARD
DEVIATION
-36.38
MINIMUM
4.5 Descriptive Statistics of indicators of Dividend Ratio
MAXIMUM
Table 4.6
Variable Name
Descriptive Statistics of Financial Condition Ratio

Mean
Median Standard
Minimum
Deviation
2.59
1.59
5.29
0.27
CR (Current
Ratio)[Times]
QR (Quick Ratio)
[Times]
D/E Ratio (Debt Equity
Ratio) [Times]
[Times]
Maximum
58.90
1.95
1.10
4.68
0.24
58.90
0.82
0.48
2.38
-4.80
33.63
132.04
6.34
557.88
-548.62
4927.08
In table 4.6 data of financial condition ratios of the sample firms has been presented.
It is observed from the above table that firms have average current assets that are
about 2.59 times to pay the current liabilities with a maximum of 59 times and a
minimum of 0.27 times. The table reflects that the firms ability to meet their shortterm obligations with its most liquid assets at 2 times with a median quick ratio of 1.1
times with a maximum of 59 times and a minimum of 0.24 times. The sample firms
have an average debt-equity ratio of 0.82 times and the ratio ranges between -4.80
times and 33.63 times. It is interesting to see that firms average interest coverage
ratio is 132 times with a maximum observation of 4927 times and a minimum
observation of -549 times.
4927.08
2.59
557.88
0.82
1.95
132.04 1.59 1.1
MEAN
6.34
5.29 4.68
MEDIAN
CR (Current Ratio)
58.9
2.38
0.48
QR (Quick Ratio)
STANDARD
DEVIATION
0.27 0.24
58.9
-4.8-548.62
MINIMUM
D/E Ratio (Debt Equity Ratio)
33.63
MAXIMUM
4.6 Descriptive Statistics of indicators of Financial Condition Ratio
Table 4.7
Variable Name
Days Receivable
Days Inventory
Days Payable
Cash Conversion
Cycle (Days)
Descriptive Statistics of Working Capital Ratios

Mean Median
Standard
Minimum
Deviation
54.94
47.44
45.49
1.61
77.77
46.15
148.54
0
80.25
52.85
292.05
7.62
52.46
42.45
330.76
-4634.20
Maximum
322.21
1191.9
4707.78
1108.39
Table 4.7 gives the descriptive statistics of the variables of working capital ratios. It
could be observed from the above table that the average outstanding days with the
customers of the sample firms are about 55 days whereas the average due days to the
suppliers by the sample firms are 80 days. It is also inferred that the sample firms have
an average days inventory is around 78 days. The five year average cash conversion
cycle of the sample firms is at 52 days. The median and mean are closer for the sample
firms in the days receivable and cash conversion cycle. It can also be seen from the
table above that the standard deviation is the lowest for days receivables and the
highest for cash conversion cycle.
4707.78
54.94
80.25
77.77
47.44
52.46
52.85
46.15
MEAN
148.54
42.45 45.49
MEDIAN
1191.9
322.21
330.76
292.05
1.61 0 7.62
STANDARD
DEVIATION
MINIMUM
MAXIMUM
-4634.2
Days Receivable
Days Inventory
1108.39
Days Payable
Cash Conversion Cycle (Days)
4.7 Descriptive Statistics of Working Capital Ratio
[b] Trend Analysis

In order to understand the trend in variables of different measures, Trend Analysis has
been studied taking year wise data of accounting variables of sample firms.
Table 4.8
Variable Name
Shareholders Return
(%)
Trend Analysis of Shareholders Return

Year 1 Year 2 Year Year 4 Year 5
3
9.44
-13.50 25.09 -9.84
6.20
Observed Trend
Fluctuating
From table 4.8 we can observe that Shareholders Return has a fluctuating trend. In
the first year, the average shareholders return for the sample firms is at 9.44% which
has fallen down to a negative 13.50% in the second year and it has gone up in the third
year to 25%. The SHR of the firms has gone down to a negative 9.84% in year 4 and
then in fifth year it has increased to 6.20%. It indicates the overall market returns such
that three out of five years giving a positive returns and two of the five years giving a
negative SHR to the shareholders of the sample firms.
25.09
9.44
6.2
YEAR 1
YEAR 2
YEAR 3
YEAR 4
-9.84
-13.5
4.8 Trend Analysis of Shareholders Return
YEAR 5
Table 4.9
Trend Analysis of Overall Financial Performance Measures
Variable Name
Year 1 Year 2 Year 3 Year 4
Year 5 Observed Trend
ROIC (Return on
17.54 17.34 14.89 20.63
20.53
Fluctuating
Invested Capital) (%)
ROE (Return on
16.62 10.50 12.16 16.64
19.66
Fluctuating
Equity) (%)
ROA (Return on
7.01
6.85
7.07
8.70
8.46
Fluctuating
Asset) (%)
We can observe from table 4.9 that all the three overall performance variables namely
ROIC, ROE and ROA have the fluctuating trend. The average ROIC of the sample firms
slightly comes down [by 0.20%] in the year 2011 compared to 2010 and it goes down
further in the year 2012 [from 17.34% to 14.89%].The average ROIC of the firms
increase in the year 2013 while compared to that of 2012[from 14.89% to 20.63%].
The average of this variable comes down in the year 2014 in comparison to the 2013
figure [from 20.63% to 20.53%]. The average ROE comes down [from 16.62% to
10.50%] in the year 2011 as compared to 2010 and then its average goes up to 12.16%
from 10.50%. And then the average ROE increases to 16.64% in the fourth year and it
increases further to 19.66% in the fifth year. The ROA goes down to 6.85% in the FY
2011 as compared to 2010 [at 7.01%] and then goes up to 7.07% in the third year. This
figure goes up further in the fourth year to 8.70 % and then goes down in the fifth year
from 8.70% to 8.46%.
20.63
17.54 16.62
17.34
12.16
10.5
YEAR 1
16.64
14.89
7.01
20.53 19.66
YEAR 2
ROIC (Return on Invested Capital) (%)
8.7
7.07
6.85
YEAR 3
YEAR 4
ROE (Return on Equity) (%)
8.46
YEAR 5
ROA (Return on Asset) (%)
4.9 Trend Analysis of indicators of Overall Financial Performance Ratio
Table 4.10
Variable Name
EBITDA (Earnings
before Interest,
Taxes, Depreciation
& Amortization) (%)
EBIT (Earnings
before Taxes) (%)
PBT (Profit before
Tax) (%)
PAT (Profit after
Tax) (%)
Trend Analysis of Profitability Ratios

Year 1 Year 2 Year 3 Year 4 Year 5
Observed Trend
20.02
13.71
25.40
23.34
91.20
Fluctuating
21.73
14.45
21.67
36.79
140.55
Fluctuating
-0.39
28.99
2.93
62.69
88.83
Fluctuating
13.33
27.83
32.52
30.61
48.92
Fluctuating
From Table 4.10 we can infer that EBITDA margin (Earnings before Interest, Taxes,
Depreciation & Amortization), EBIT (Earnings before Taxes), PAT (Profit after Tax) and
PBT (Profit before Tax) have fluctuating trend. In the first year EBITDA is at average of
20% and the average goes down in second year [from 20.02% to 13.71%]. In the third
year, the average EBITDA goes up to 25% and then again goes down to 23.34% in the
next year. And In the fifth year the average EBITDA goes higher compared to the
previous years.
The average EBIT margin is about 22% in the first year and in the second year it goes
down to 14%. Then in the third year it goes up from 14.45% to 21.67% and in fourth
year, the average EBIT margin of the firms goes up from 21.67% to 36.79%. And in the
fifth year the average EBIT margin of the firms go up by a higher magnitude to
140.55%.
The average PBT margin is a negative figure at -0.39%. The average EBIT margin
increases to 28.99% in the second year but the average comes down in the third year
and keeps increasing in the fourth and the fifth year.
The average PAT margin increases from 13.33% to 32.52% in the third year. In 2013 it
goes down to 30.61% from 32.52%. But again it follows increasing trend in the fifth
year [from 30.61% to 48.92%].
140.55
62.69
36.79
21.67
20.02
13.33
14.45
13.71
21.73
-0.39
YEAR
1
88.83
91.2
48.92
27.83
25.4 2.93 32.52
28.99
YEAR 2
YEAR 3
30.61
23.34
YEAR 4
YEAR 5
EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization) (%)

EBIT (Earnings before Taxes) (%)
PBT (Profit before Tax) (%)
PAT (Profit after Tax) (%)
4.10 Trend Analysis of matrix of Profitability Ratio
Table 4.11
Variable Name
Asset
Turnover[Times]
Trend Analysis of Investment Utilization Ratio

Year 1
Year 2
Year 3 Year 4 Year 5
0.98
0.99
1.00
0.98
0.95
Observed Trend
Fluctuating
From table 4.11 we can infer that variables of Investment Utilization ratio has
fluctuating trend. Starting from year 2010 to 2012 the average asset turnover has
slightly increased from 0.98 times to 1 time. Then, it goes down in fourth and fifth year
to 0.95 times.
1
0.99
0.98
0.98
0.95
YEAR 1
YEAR 2
YEAR 3
YEAR 4
4.11 Trend Analysis of Asset Turnover
YEAR 5
Table 4.12
Variable Name
Dividend Payout
Ratio(%)
Trend Analysis of Dividend Ratio

Year 1
Year 2
Year 3 Year 4 Year 5
33.52
23.37
23.23 21.17 24.13
Observed Trend
Fluctuating
From Table 4.12 we can observe that the average Dividend payout ratio of the sample
firms has decreased in second, third and fourth year compared to its first year ratio at
33.52% and then goes up in the fifth year to 24.13%.
33.52
23.37
24.13
23.23
21.17
YEAR 1
YEAR 2
YEAR 3
YEAR 4
YEAR 5
4.12 Trend Analysis of Dividend Payout Ratio
Table 4.13
Variable Name
CR (Current
Ratio)[Times]
QR (Quick Ratio)
[Times]
D/E Ratio (Debt
Equity Ratio)
[Times]
[Times]
Trend Analysis of Financial Condition Ratio

Year 1 Year 2 Year 3 Year 4 Year 5
1.82
1.85
2.03
2.05
5.23
Observed Trend
Increasing
1.21
1.25
1.49
1.42
4.39
Fluctuating
0.63
0.70
0.55
1.51
0.76
Fluctuating
115.35
112.15
57.51
Decreasing
166.24 132.79
From table 4.13 it can be observed that Current Ratio follows increasing trend. CR goes
up to 5.23% in the 2014 from 1.82% in the 2010. Quick Ratio and D/E Equity Ratio both
have fluctuating trends. QR goes up in second and third year and then goes down in
fourth year. In fifth year it remains at 4.39% comparing previous years. In 2010 average
D/E ratio is .63% which goes up in 2011 and then goes down in 2012. In fourth year
again it goes up from 0.55% to 1.51% and then again in 2014 it goes down [from 1.51%
to 0.76%]. Interest Cover Ratio has decreasing trend. In 2010 average Interest Cover
Ratio is 166% which goes on decreasing and is around 58% in 2014.
166.24
132.79
115.35
112.15
57.51
0.63
1.85
1.21
1.49
0.7
1.42
0.55
4.39
1.82
1.25
1
2.03
2
2.05
3
1.51
4
CR (Current Ratio)[Times]
QR (Quick Ratio) [Times]
D/E Ratio (Debt Equity Ratio) [Times]
[Times]
4.13 Trend Analysis of Financial Condition Ratio
5.23
0.76
5
Table 4.14
Variable Name
Days Receivable
Days Inventory
Days Payable
Cash Conversion
Cycle (Days)
Trend Analysis of Working Capital Ratio

Year 1 Year 2 Year 3 Year 4 Year 5 Observed Trend
58.90 56.33 52.53 51.34 55.67
Fluctuating
80.32 78.98 79.39 74.34 76.16
Fluctuating
59.69 58.28 90.29 86.38 107.10
Fluctuating
79.52 76.51 41.98 39.64 24.73
Decreasing
From table 4.14 it can be observed that average days receivable decreases in 2011,
2012 and 2013 and comes to 51.34% from 58.90% in comparison of 2010 and again
goes up in 2014 by 8.43%. Days Inventory in first year is 80.32% which goes down in
second year [from 80.32% to 78.98%]. In third year the average increases by 0.51%
[from 78.98% to 79.39%]. Again in fourth year the average goes down to 74.34% [from
79.39%] which again increases by 2.44% in fifth year. Cash Conversion Cycle has
decreasing trend. Average CCC goes down to 24.73% in the fifth year from 79.52% in
the first year.
107.1
58.28
59.69
79.52
80.32
58.9
78.98
52.53
79.39
76.51
90.29
74.34
86.38
76.16
51.34
56.33
55.67
41.98
39.64
24.73
YEAR 1
Days Receivable
YEAR 2
Days Inventory
YEAR 3
Days Payable
YEAR 4
YEAR 5
Cash Conversion Cycle (Days)
4.14 Trend Analysis of Working Capital Ratio
[c] Correlation
To understand the relationship between dependent and independent variable

correlation has been studied.
Table 4.15
Correlation between Shareholders Return and Overall Performance Ratio
Return on
Invested Capital
Return on
Return on
Shareholders'
(ROIC)
Equity (ROE)
Asset (ROA)
Return (%)
Return on
Invested Capital
(ROIC)
1
Return on
Equity (ROE)
0.550
1
Return on Asset
(ROA)
0.772
0.643
1
Shareholders'
Return (%)
0.172
0.164
0.217
1
In Table 4.15 we have shown correlation between Shareholders Return and the
Overall Performance Ratios. We can observe that there is a very low degree of positive
correlation between shareholders return and the overall performance ratios i.e. ROIC,
ROE and ROA.
0.217
0.172
0.164
RETURN ON INVESTED
CAPITAL (ROIC)
RETURN ON EQUITY (ROE)
RETURN ON ASSET (ROA)
4.15 Correlation between Shareholders Return and Overall Performance Ratio
Table 4.16
Correlation between Shareholders Return and Profitability Ratio
EBITDA
EBIT
PBT
PAT
Shareholders
Return (%)
Earnings before
Interest, Taxes,
Depreciation &
Amortization
(EBITDA)
1
0.631
0.024
0.428
0.014
Earnings
before
Interest
(EBIT)
Profit
Before
Tax (PBT)
Profit
After Tax
(PAT)
1
0.019
0.378
1
0.012
0.018
-0.031
0.011
Shareholders
' Return (%)
From Table 4.16 it can be observed that Shareholders Return is positively correlated
with EBITDA, EBIT and PAT margins of the sample firms. But there is a negative
correlation between Shareholders Return and PBT margin.
0.018
0.014
0.011
EARNINGS BEFORE
INTEREST, TAXES,
DEPRECIATION &
AMORTIZATION (EBITDA)
EARNINGS BEFORE
INTEREST (EBIT)
PROFIT BEFORE TAX (PBT)
PROFIT AFTER TAX (PAT)
-0.031
4.16 Correlation between Shareholders Return and Matrix of Profitability Ratio
Table 4.17
Correlation between Shareholders Return and Investment Utilization Ratio
Asset Turnover
Shareholders' Return (%)
Asset Turnover
1
Shareholders'
Return (%)
0.190
1
From Table 4.17 it can be inferred that the asset turnover is positively correlated with
Shareholders Return.
0.19
ASSET TURNOVER
4.17 Correlation between Shareholders Return and Matrix of Investment Utilization Ratio
Table 4.18
Correlation between Shareholders Return and Dividend Ratio
Shareholders' Return (%)
(%)
-0.056
In table 4.18 we have shown correlation between Shareholders Return and Dividend
Ratio. It can be inferred that there is a negative correlation between the shareholders
return and Dividend Payout Ratio.
DIVIDEND PAYOUT
RATIO
-0.056
4.18 Correlation between Shareholders Return and Dividend Payout Ratio
Table 4.19
Correlation between Shareholders Return and Financial Condition Ratio
Interest Shareholder
Current
Debt/Equity
Cover
s' Returns
Ratio
Quick Ratio
Ratio
Ratio
(%)
Current Ratio
1
Quick Ratio
0.868
1
Debt/Equity Ratio
-0.063
-0.055
1
Interest Cover
1
Ratio
0.021
0.040
-0.077
Shareholders'
Returns (%)
-0.026
-0.084
0.005
-0.029
1
In Table 4.19 we have shown correlation between shareholders return and variables
of financial condition ratio. We can observe from the data that shareholders return is
negatively correlated with current ratio and quick ratio. Whereas it is positively
correlated with debt/equity ratio.
0.005
CURRENT RATIO
-0.026
QUICK RATIO
DEBT/EQUITY RATIO
INTEREST COVER
-0.029
RATIO
-0.084
4.19 Correlation between Shareholders Return and Financial Condition Ratio
Table 4.20
Correlation between Shareholders Return and Working Capital Ratio
Cash
Days'
Days'
Days'
Conversion
Shareholders
Receivable Inventory Payable
Cycle
' Return (%)
Days'
Receivable
1
Days'
Inventory
0.278
1
Days' Payable
0.082
0.019
1
Cash
Conversion
Cycle
0.190
0.471
-0.863
1
Shareholders'
Return (%)
-0.159
-0.094
-0.077
0.003
1
From Table 4.20 we observe that shareholders return is negatively correlated with the
variables of days receivable, days inventory, and days payable and positively
correlated with cash conversion cycle. These results are consistent with the view that
the shorter the period between production and sales of products the larger is the firms
profitability and thereby the returns to the shareholders. But the number of days of
payable is supposed to have a positive correlation as increase in days payables releases
more funds in the hands of the organization which is supposed to get resulted in higher
accounting profits and thereby higher shareholders returns. Shareholders return is
negatively correlated with days inventory relating the conceptual understanding of
increased days inventory getting resulted in decreased accounting profits and thereby
decreased shareholder return.
0.003
DAYS' RECEIVABLE
DAYS' INVENTORY
DAYS' PAYABLE
CASH CONVERSION
CYCLE
-0.077
-0.094
-0.159
4.20 Correlation between Shareholders Return and Working Capital Ratio
[d] Regression
So far we have established the framework of literature and data analysis in order to
investigate the impact of accounting variables on shareholders returns. In order to
further strengthen our argument on the relationship between the accounting variables
and shareholders return we have used regression analysis.
The objective of our work is to establish a causal relationship between the identified
accounting variables (Independent Variables) and shareholders return (Dependent
Variable). In order to validate our work the causal relationship has been established
using multiple linear regression analysis. Moreover for robustness the analysis has
been carried taking five years average data of each accounting variable results of
which are reported below.
Regression analysis has been studied using year wise data of accounting variables of
sample companies listed in Bombay Stock Exchange. The analysis is based on the five
years data for the sample firms on all the variables considered by the study. In running
the analysis, SPSS software has been used following backward method of linear
multiple regression to discard irrelevant information from the analysis and best fit
model is depicted in the table. Confidence interval (C.I) is to taken to be 95% for all
five years data. In our model, the shareholders returns are regressed against
accounting variables of the sample firms.
Y= +1X1 + 2X2 + 3X3..nXn
Where:
Y = Shareholders Return
Xi = the variable that we are using to predict Y
, i = Regression Parameters
This section also tests the various alternate hypotheses formulated by the researcher
in order to accomplish the objectives of the research.
H1: There is significant relationship between shareholders return and overall financial
performance indicators.
Table - 4.21
Sig.
(Constant)
ROA
ROE
Coefficients
Unstandardized
Standardized
Coefficients
Coefficients
B
Std. Error
Beta
1.551
.749
.219
.124
.186
.015
.029
.042
2.072
1.767
.518
.039
.078
.605
ROCE
.002
.053
.958
Model
.036
.005
Dependent Variable: Shareholders' Return

R-Square = .048
S.R. = 1.551+ .219*ROA + .015*ROE +.002*ROCE
The regression results presented in Table (4.21) above is indicating that coefficients of the
return on assets (ROA) variable is at .219, the return on equity (ROE) variable at 0.015 and
that of the return on capital employed (ROCE) variable is at .002 . All three overall
performance ratios have a positive relationship with shareholders return which reveals
that an increase in the return on asset, equity and employed capital will generate more
profits for a company as well for the shareholders. It is also noted that the R-Square value
is at 0.048 which is quite a low value. Further, the p value ROE & ROCE are quite high even
though the p value of ROA is significant. Hence, we cannot accept the first hypothesis that
there is a significant statistical relationship between all indicators of overall financial
performance and shareholders return. However ROA has a statistically significant
relationship with the shareholders return.
0.219
0.015
ROA
ROE
0.002
ROCE
4.21 Regression between Shareholders Return and matrix of Overall Financial Performance
H2: There is significant relationship between shareholders return and indicators of

profitability ratio.
Table - 4.22
Model
(Constant)
EBITDA
1EBIT
Coefficients
Unstandardized
Standardized
Coefficients
Coefficients
B
Std. Error
Beta
3.473
.550
.000
.005
.003
.001
.004
.015
PBT
-.001
.002
PAT
.000
.003
-.032
.004
Sig.
6.316
.042
.187
.000
.967
.852
-.505
.060
.614
.952
R-Square = .001
S.R. = 3.473+ .000*EBITDA + .001*EBIT -.001*PBT+.000*PAT

The regression equation shows that there is a positive relationship between EBITDA, EBIT
& PAT margin and shareholders return which is consistent with the view that increase in
earnings of companies will lead to increase in shareholders return. The table above
indicates the coefficients of the EBITDA at .000, EBIT at .001, PAT at .000 and PBT at -.001.
PBT margin has a negative coefficient indicating a negative relationship with the
shareholders return. It is also noted that the R-Square value is at 0.001 which is a very
low value. Further the p value of all the profitability ratios is quite higher and hence, we
cannot accept the second hypothesis that there is a significant statistical relationship
between the variables of profitability ratios and shareholders return.
0.001
0
0
EBITDA
EBIT
-0.001
Series1
PBT
PAT
Series2
4.22 Regression between Shareholders Return and matrix of Profitability Ratio
H3: There is significant relationship between shareholders return and investment

utilization matrix.
Table - 4.23
Model
Coefficients
Unstandardized
Standardized
Coefficients
Coefficients
B
Std. Error
Beta
1.320
.862
(Constant)
Asset
2.207
.709
Turnover
.190
Sig.
1.532
.127
3.113
.002
R-Square = .036
S.R. = 1.320+ 2.207*Asset Turnover

The regression results presented in Table (4.3) above is indicating that the coefficient
of the asset turnover is at 2.207 which indicates a positive relationship between asset
turnover and shareholders returns which insists the fact that growth in asset turnover
generates higher income to shareholders. It is also noted that the R-Square value is
0.036. The p value of the variable is 0.002 and hence, we can accept the third
hypothesis that there is a statistically significant relationship between asset turnover
and shareholders return.
2.207
ASSET TURNOVER
4.23 Regression between Shareholders Return and matrix of Investment Utilization Ratio
H4: There is significant relationship between shareholders return and investment

utilization matrix.
Table - 4.24
Model
Coefficients
Unstandardized
Standardized
Coefficients
Coefficients
B
Std. Error
Beta
3.826
.649
(Constant)
Dividend Payout
-.014
.015
Ratio
-.056
Sig.
5.896
.000
-.895
.372
R-Square = .003
S.R. = 3.826 - .014* Dividend Payout Ratio

From the regression equation it can be observed that the coefficient of dividend
payout ratio is at -.014. There is a negative relationship between dividend payout ratio
and shareholders return which is consistent with the view that market observers often
view low dividend payout as a signal for high future earnings growth. The rationale is
that companies pay fewer dividends or retain more earnings when growth
opportunities are ample so low payout indicates the possibility of a strong future
earnings growth. The value of R square is 0.003 which is very low and the variables p
value is higher and hence, we cannot accept the fourth hypothesis that there is a
significant statistical relationship between dividend payout ratio and shareholders
return.
DIVIDEND PAYOUT RATIO
-0.014
4.24 Regression between Shareholders Return and Dividend Payout Ratio
H5: There is significant relationship between shareholders return and financial

condition matrix.
Table - 4.25
Coefficients
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
Std. Error
Beta
(Constant)
3.576
.627
CR
.302
.198
.191
QR
-.445
.224
-.249
D/E
-.002
.219
-.001
Interest Cover
.000
.001
-.022
Sig.
5.701
1.526
-1.985
-.010
-.350
.000
.128
.048
.992
.727
R-Square = .017
S.R. = 3.576 + .302*CR - .445*QR -.002*D/E + .000*Interest Cover
The regression results presented in Table (4.5) above is indicating that the coefficients
of the Current Ratio is .302, of quick ratio is -.445, of D/E ratio is -.002 and of interest
cover ratio is .000. We can see that there is positive relationship of Current ratio and
of Interest Cover ratio with Shareholders return. And Quick ratio and D/E ratio are
negatively related with shareholders return. Current ratio being positively related
with shareholders return indicates that the higher the current ratio & interest cover
ratio, the more capable the company is of paying its obligations.
However, quick ratio and debt-equity ratio are having negative relationship with
shareholders return which is indicated by their negative coefficient sign. Quick ratio
having negative relationship with shareholders return is contradictory to the
conceptual relationship it has with shareholders return.
It is also noted that the R-Square value is 0.017 and all the ratios except quick ratio
have a significant p value and hence, we cannot accept the fifth hypothesis that all the
indicators of the financial condition are significantly related with shareholders return.
However, the p-value for QR (-.445) is lower than the common alpha level of 0.05
which indicates that QR is statistically significant.
0.302
0
CR
QR
D/E
INTEREST COVER
-0.002
-0.445
4.25 Regression between Shareholders Return and Financial Condition Ratio
H6: There is significant relationship between shareholders return and measures of

working capital ratio.
Table - 4.26
Coefficients
Model
Unstandardized
Coefficients
B
Std. Error
5.270
.819
-.027
.012
-.005
.004
(Constant)
Days' Receivable
Days' Inventory
Cash Conversion
.002
.002
Cycle
Standardized
Coefficients
Beta
Sig.
-.149
-.087
6.437
-2.319
-1.219
.000
.021
.224
.073
1.040
.300
R-Square = .032
Table - 4.27
Model
Beta In
Excluded Variablesa
t
Sig.
Partial
Correlation
Collinearity Statistics
Tolerance
Days'
-98.184b
-.489
.625
-.031
9.404E-008
Payable
a. Dependent Variable: Shareholders' Return
b. Predictors in the Model: (Constant), Cash Conversion Cycle, Days' Receivable,
Days' Inventory
S.R. = 5.270 - .027* Days Receivable -.005*Days Inventory+.002*CCC

From the regression equation it can be observed that the coefficient of Days
receivable, Days Inventory & Cash Conversion Cycle is at -.027, -.005 & .002
respectively. We can see that the days receivable ratio is negatively related with the
shareholders return and there is a statistically significant relationship between days
receivable and shareholders return [ as its p value is less ]which is consistent with the
view that over-investment in accounts receivable can be costly and can negatively
affect companies and its shareholders. It can be observed from the table 4.7 that
model has excluded days payable as this variable is highly correlated with other
variables. Value of R square is 0.032 which is quite low and the p value of days
inventory and ccc are quite high and hence we cannot accept the hypothesis which
states that there is a significant relationship between shareholders return and
measures of working capital of the sample firms
0.002
2
-0.005
-0.027
Days' Receivable
Days' Inventory
Cash Conversion Cycle
4.26 Regression between Shareholders Return and Working Capital Ratio
Chapter 5: Findings and Inferences
5. Findings and Inferences

This chapter presents the major findings and inferences made by the researcher based
on the results of the data analysis performed for the collected data
1. The average shareholders return of the sample firms was at 3.47% which is slightly
higher than the median for the variable at 2.45%.
2. The mean for ROIC, ROE and ROA is at 18.18%, 15.11% and 7.61% respectively and
the standard deviation of the said variables is at 22.42%, 23.50% and 7.11%. The
median for these variables is at 15.90%, 15.75% and 6.33%. ROIC is in the range
between -240.10% and 148.63%. ROE is in the range between -174.92% and
116.98%. And ROA is in the range between -26.37% and 30.75% for the sample
firms.
3. The mean of sample firms EBITDA, EBIT, PBT and PAT margins is at 34.73%,
47.03%, 32.90% and 36.61% respectively. Median of EBITDA, EBIT, PBT and PAT is
at 17.16%, 19.10%, 12.05% and 19.33%. Range of EBITDA is between -143.87% to
2101.94%. Range of EBIT is between -852.11% and 1923.89%. Range of PBT is
between -101.45% and 2976.94%. Range of PAT is between -1480% and 1263.57%.
Standard deviation is the lowest for the EBITDA margin while it is the highest for
the PBT margin of the sample firms.
4. The sample firms average turnover on asset is 0.97 times with maximum
observation of 4.18 times and a minimum observation of zero times. The sample
firms have a standard deviation of 0.722.
5. It is observed that an average of 25% dividend has been paid to the shareholders
with maximum observed payout ratio of 400%. It can be seen that the median
payout ratio of the sample firms is at 21.69% which is close to the mean payout
ratio. The standard deviation for the sample firms is at 33.67% on this metric.
6. The sample firms have average current assets that are about 2.59 times to pay the
current liabilities with a maximum of 59 times and a minimum of 0.27 times.
7. The firms ability to meet their short-term obligations with its most liquid assets is
at 2 times with a median quick ratio of 1.1 times with a maximum of 59 times and
a minimum of 0.24 times.
8. The sample firms have an average debt-equity ratio of 0.82 times and the ratio
ranges between -4.80 times and 33.63 times. The firms average interest coverage
ratio is 132 times with a maximum observation of 4927 times and a minimum
observation of -549 times.
9. The average outstanding days with the customers of the sample firms are about 55
days whereas the average due days to the suppliers by the sample firms are 80
days. It is also inferred that the sample firms have an average days inventory is
around 78 days. The five year average cash conversion cycle of the sample firms is
at 52 days.
10. Three out of five years has given positive returns and two of the five years has given
a negative SHR to the shareholders of the sample firms during the period of
observation. The average shareholders return for the sample firms is at 9.44%
which has fallen down to a negative 13.50% in the second year and it has gone up
in the third year to 25%. The SHR of the firms has gone down to a negative 9.84%
in year 4 and then in fifth year it has increased to 6.20%.
11. All the three overall performance variables namely ROIC, ROE and ROA have the
fluctuating trend during the study period. The average ROIC of the sample firms
slightly comes down [by 0.20%] in the year 2011 compared to 2010 and it goes
down further in the year 2012 [from 17.34% to 14.89%].The average ROIC of the
firms increase in the year 2013 while compared to that of 2012[from 14.89% to
20.63%]. The average of this variable comes down in the year 2014 in comparison
to the 2013 figure [from 20.63% to 20.53%].
12. The average ROE comes down [from 16.62% to 10.50%] in the year 2011 as
compared to 2010 and then its average goes up to 12.16% from 10.50% in the FY
2012. And then the average ROE increased to 16.64% in FY 2013 and it increased
further to 19.66% in FY 2014.
13. The ROA came down to 6.85% in the FY 2011 as compared to FY 2010[at 7.01%]
and then it went up to 7.07% in FY 2012. This figure has gone up further in FY 2012
and then came down to 8.46% in FY 2014.
14. All the profitability ratios are observed to be having a fluctuating trend in the five
years period of time considered by the study.
15. The Asset Turn ratio has a fluctuating trend during the period of the study.
16. The dividend payout ratio of the sample firms is in the fluctuating trend during FY
2010 to FY 2014.
17. Among the financial condition ratios, the current ratio has an increasing trend
during the five years considered by the study. The Interest Cover ratio has a
decreasing trend during this period while the quick ratio and the Debt to Equity
ratio of the sample firms have shown a fluctuating trend.
18. All the three components of the cash conversion cycle have shown a fluctuating
trend while the cash conversion cycle has exhibited a decreasing trend during the
study period.
19. There is a very low degree of positive correlation between shareholders return
and the overall performance ratios i.e. ROIC, ROE and ROA.
20. The shareholders Return is positively correlated with EBITDA, EBIT and PAT
margins of the sample firms. But there is a negative correlation between
Shareholders Return and PBT margin.
21. The asset turnover is positively correlated with Shareholders Return. It can be
inferred that there is a negative correlation between the shareholders return and
Dividend Payout Ratio of the sample firms.
22. The shareholders return is negatively correlated with current ratio and quick ratio
whereas it is positively correlated with debt/equity ratio and the interest coverage
ratio.
23. The shareholders return is negatively correlated with the days receivable, days
inventory, and days payable and positively correlated with cash conversion cycle
of the sample firms.
24. All three overall performance ratios have a positive relationship with shareholders
return which reveals that an increase in the return on asset, equity and employed
capital will generate more profits for a company as well for the shareholders. There
is no significant statistical relationship between all indicators of overall financial
performance and shareholders return. However ROA has a statistically significant

relationship with the shareholders return.
25. There is a positive relationship between EBITDA, EBIT & PAT margin of the sample
firms and the shareholders return which is consistent with the view that increase
in earnings of companies will lead to increase in shareholders return.
26. The PBT margin of the sample firms has a negative coefficient indicating a negative
relationship with the shareholders return. However there is no significant
statistical relationship between the variables of profitability ratios and
shareholders return.
27. There is a positive relationship between the asset turnover of sample firms and the
shareholders returns which insists the fact that growth in asset turnover generates
higher income to shareholders. However there is no statistically significant
relationship between asset turnover of the sample firms and shareholders return.
28. There is a negative relationship between dividend payout ratio and shareholders
return which is consistent with the view that market observers often view low
dividend payout as a signal for high future earnings growth. The rationale is that
companies pay fewer dividends or retain more earnings when growth
opportunities are ample so low payout indicates the possibility of a strong future
earnings growth. However, there is no significant statistical relationship between
dividend payout ratio and shareholders return.
29. There is positive relationship of Current ratio and of Interest Cover ratio with
Shareholders return. And Quick ratio and D/E ratio are negatively related with
shareholders return. The indicators of the financial condition are not significantly
related with shareholders return.
Chapter 6: Conclusion and Scope for Further Research
This chapter concludes on the research work and spells out the possible
areas for future research work.
This study examines the determinants of shareholders return with special reference
to 260 sample firms of Bombay Stock Exchange. The analyses are performed using data
derived from ACE Equity Software for five financial years (AY 2010 to 2014). The
analysis of relationship between the shareholders return and the accounting
performance measures [independent variables ]such as ROE, ROCE, EBITDA, EBIT, PAT,
D/E Ratio, Cash Conversion Cycle indicates a positive but no statistically significant
relationship between SHR and these accounting variables. This research work shows
that there is statistically significant relationship between the accounting variables such
as days receivable, Quick Ratio, Asset Turnover, Return on Asset of the sample firms
and the Shareholders return. This study adds value to the existing body of literature
(Deloof) who found the negative relationship between profitability and number of
days of accounts receivable, inventories and accounts payable of Belgian firms for the
period1992-1996. The negative relationship between accounts receivables and firms'
profitability suggests that profitable firms will pursue a decrease of their accounts
receivables in an attempt to reduce their cash gap in the cash conversion cycle. The
research supports the findings of Lamberson(1995), Singh &Pndy (2008) who
insisted on good asset management in order to generate income to shareholders.
This study reveals that shareholders returns are positively related with return on asset
which is supportive for the findings of AL Khalayleh (2001) who concluded that there
is significant positive relationship between the market price per share with the ratios
of return on assets and return on equity.
SCOPE FOR FURTHER RESEARCH

Further studies can be carried out on
- The impact of accounting performance measures of companies operating in

different industries and shareholders return
- The impact of size of the firm on the relationship between the accounting
performance variables and the shareholders return
- The relationship between the relative valuation multiples and the shareholders
return
- The role of macroeconomic variables in determining the relationship between the
accounting performance measures and the shareholders return
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A Study On Determinants of Shareholders' Return With Special Reference To BSE 500 Companies

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PROJECT REPORT

A study on determinants of Shareholders Return with

Under the Guidance of

Prof. Hussain Ahmed

INDIRA GANDHI NATIONAL OPEN UNIVERSITY

Introduction to the study

Relationship between Accounting Performance

Findings and Inferences

Conclusion and Direction for Further Research

Table 4.27. Regression Analysis Excluded Variable55-56

Chapter 1: Introduction to the Study

1. Introduction to the Study

DEFINITION AND IMPORTANCE OF SHAREHOLDERS

[b] Market Capitalization or Market Value of Equity: This is computed by

COMPUTATION OF SHAREHOLDERS RETURN

DETERMINANTS OF SHAREHOLDERS RETURN

Chart 1.1: Determinants of Shareholders Return

Overall Accounting Performance

ROIC (Return on Invested Capital)

Working Capital Ratio

Investment Utilization Measures

Financial Condition Ratios

RATIONALE OF THE TOPIC CHOSEN FOR THE STUDY

Chapter 2: Research Methodology

This chapter presents the discussion on

STATEMENT OF THE RESEARCH PROBLEM

OBJECTIVES OF THE STUDY

impact of accounting performance variables on Shareholders return of the Sample

To find the accounting performance variables (Overall Performance measures,

SCOPE OF THE STUDY

NATURE & SOURCE OF DATA COLLECTED

SAMPLE & SAMPLING TECHNIQUES

DATA HANDLING TOOLS & TECHNIQUES

LIMITATIONS of the study

Chapter 3: Relationship between Accounting Variables and

3. RELATIONSHIP BETWEEN ACCOUNTING

SHAREHOLDERS RETURN (THEORETICAL BACKGROUND)

measure of what financial management should seek to maximize in making

Working Capital Ratios (THEORETICAL BACKGROUND)

Many researchers (Wang, 2002; Deloof, 2003) have established a relationship

Dividend Ratio (THEORETICAL BACKGROUND)

Investment Utilization Ratio (THEORETICAL BACKGROUND)

Overall Financial Performance Measures (THEORETICAL BACKGROUND)

Profitability Measures (THEORETICAL BACKGROUND)

Financial Condition Measures (THEORETICAL BACKGROUND)

Current ratio = Current assets / Current liabilities

Quick ratio = (Current assets Inventories) / Current liabilities

= (Cash and equivalents + Marketable securities + Accounts receivable) / Current

Debt to equity = Total debt / Total equity

Interest coverage ratio = Operating income (or EBIT) / Interest expense

Chapter 4: Data Analysis and Discussion

4. Analysis & Discussion

This is section is presented as below

[a] Descriptive Statistics of the Variables

[a] Descriptive Statistics

4.1 Descriptive Statistics of Shareholders Return

22.42 23.5 7.11

ROIC (Return on Invested Capital)

ROE (Return on Equity)

ROA (Return on Asset)

4.2 Descriptive Statistics of matrix of overall financial performance

EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization)

S.R. = 3.473+ .000EBITDA + .001EBIT -.001PBT+.000PAT

S.R. = 5.270 - .027* Days Receivable -.005Days Inventory+.002CCC