CHAPTER - 4

CALCULATIONS AND PREPARATION OF REPORTS

The data which was needed to be analyzed in the present study

are prepared in this chapter. This data is classified into four sections:

1. Calculation of the Economic Value Added (EVA)

2. Calculation of the Market Value Added (MVA)

3. Calculation of the Created Shareholders Value

4. Calculation of the Return on Capital Employed (ROCE) and

Return on Net Worth

4.1 CALCULATION OF THE ECONOMIC VALUE ADDED (EVA)

EVA is the difference between Net Operation Profits after taxes

(NOPAT) and capital charge i.e., Cost of net Operating of Capital

Employed (COCE). In other word, EVA is the product of capital employed

with the difference between the Return on Capital Employed (ROCE) and

the Cost of Capital Employed (COCE).

The components of EVA formula are:

1. Cost of Capital that includes:

a) Cost of Debt Capital

b) Cost of Equity Capital

2. Capital Employment (CE)

3. Weighted Average Cost of Capital (WACC)

4. Net Operation Profit after Tax (NOPAT)

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4.1.1 Cost of Capital:

4.1.1.1 Cost of Debt Capital

Cost of Debt Capital: refers to the average rate of interest that

company pays for its debt obligation i.e., a companys effective debt cost

is taken by measuring interest paid against total borrowing and then

adjusting it for taxes.

For calculation the cost of debt capital, calculation of rate of

interest after tax and the average of debts are necessary.

Table No. 4.1

Debt of Car Manufacturer Companies
Figures in Million Rs
Company Amount of Debt at the 31 March
Name 2000 2001 2002 2003 2004 2005
Ashok
1 Leyland 9657 9330 8884 7172 4989 8804

2 Bajaj Auto 4957 5137 6261 8402 10057 12270

3 Escorts 6510 6180 7183 8159 8875 6680

4 Hero Honda 510 660 1160 1343 1747 2018

Hindustan
5 Motors 3906 3874 3570 3807 3734 3801
Mahindra &
6 Mahindra 9537 11339 13771 11398 7298 10526

7 Maruti 5461 11121 4560 3119 3119 3076

Punjab
8 Tractors 130 130 1245 599 599 394

9 Tata Motors 30043 29989 14583 12598 12598 24954

TVS Motors
10 Co 1195 1187 1219 1190 1190 1868
Source: Annual reports of selected companies from 2000 to 200

134
 Table No. 4.1 show us the amount of debt at the 31 March of

2001 to 2005.

Calculation of the average of debts:

Average of Debts = (Secured and Unsecured Debts in previous year) +

(Secured and Unsecured Debts in current year) / 2

Table No. 4. 2
Average of Debts
Figures in Million Rs
Company Average of Debts
Name 2000 2001 2002 2003 2004 2005
Ashok
1 Leyland 9639 9494 9107 8028 6081 6897

2 Bajaj Auto 4226 5047 5699 7332 9230 11164

3 Escorts 6970 6802 6674 7671 8567 7830

4 Hero Honda 734 660 910 1251 1545 1882

Hindustan
5 Motors 6741 3874 3722 3688 3771 3734
Mahindra &
6 Mahindra 12099 10438 12555 12585 9348 8912

7 Maruti 3214 8291 8841 5560 3840 3098

Punjab
8 Tractors 130 130 1037 1594 922 497

9 Tata Motors 32247 30016 26548 18830 13590 18776

TVS Motors
10 Co 1175 1187 1196 1212 1205 1529

Source: Table No. 4.1

In the Table No.4.2, the debts in the end of previous year and current

year have been used for calculation of average of debts.

135
 Cost of Debt Capital is the discount rate that equates the present

value of after tax interest payment cash outflows, to the current market

value of the Debt Capital.

Table No. 4.3

Cost of Interest before Tax of Car Manufacturer Companies
Figures in Million Rs
Company Cost of Interest before Tax
Name 2000 2001 2002 2003 2004 2005
1 Ashok Leyland 1437 1352 1170 956 594 304

2 Bajaj Auto 32 74 34 11 9 7

3 Escorts 530 612 662 850 1210 1411

4 Hero Honda 46 27 15 17 17 19
Hindustan
5 Motors 1233 1001 605 549 553 483
Mahindra &
6 Mahindra 1415 1127 1156 1159 769 302

7 Maruti 668 746 764 518 434 360

8 Punjab Tractors - -1 119 165 107 75

9 Tata Motors 5391 4989 3954 2248 2066 2207

10 TVS Motors Co 169 150 133 112 103 83

Source: Annual reports of selected companies from 2000 to 2005

Interest rates are dependant on the credit rating assigned to

individual account and are differentiated by different spread under credit

rating.

For calculating the rate of interest in each company, the amount of

paid interest (data in Table No. 4.3) has been divided to the amount of

136
end year debts. These rates (data in Table No. 4.4) are the actual rate of

interest after tax which any company has paid for every year.

Table No. 4.4

Rate of Interest before Tax

Figures in percent
Company Rate of Interest before Tax
Name 2000 2001 2002 2003 2004 2005
1 Ashok Leyland 14.9 14.2 12.9 11.1 9.08 4.4

2 Bajaj Auto 0.75 1.46 0.6 0.15 0.1 0.05

3 Escorts 7.54 8.99 9.63 11.1 14.1 18

4 Hero Honda 9.05 4 1.66 1.39 1.11 1.02

Hindustan
5 Motors 18.3 17.1 16.3 14.9 14.7 12.9
Mahindra &
6 Mahindra 11.7 10.8 9.22 9.21 8.23 3.39

7 Maruti 20.8 9 8.64 9.3 11.3 11.6

8 Punjab Tractors 12 12 11.5 10.4 11.6 15

9 Tata Motors 16.7 16.6 14.9 11.9 15 11.8

10 TVS Motors Co 14.4 12.7 11.1 9.27 8.55 5.44

Source: Calculated upon the amount of interests and amount of

debts in annual reports of selected companies

Based on the annual reports of companies under investigation,

the rate of companies income tax in the period of study was between 30

to 40 percent. So in the present study, the rate of companies income

tax has been considered as 35%.

137
 Table No.4.5 show the rate of interest of post tax in companies

under study. For this, following formula has been used:

Rate of interest post tax = rate of interest before tax * (1-rate of income

tax)

Table No. 4.5

Rate of Interest post Tax
Figures in percent
Company Rate of Interest post Tax
Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland 9.69 9.25 8.35 7.21 5.9 2.86

2 Bajaj Auto 0.49 0.95 0.39 0.1 0.07 0.03

3 Escorts 4.9 5.85 6.26 7.21 9.18 11.7

4 Hero Honda 5.88 2.6 1.08 0.9 0.72 0.66

Hindustan
5 Motors 11.9 11.1 10.6 9.66 9.54 8.44
Mahindra &
6 Mahindra 7.6 7.01 5.99 5.95 5.35 2.2

7 Maruti 13.5 5.85 5.62 6.05 7.35 7.55

8 Punjab Tractors 7.8 7.6 7.46 6.74 7.53 9.76

9 Tata Motors 10.9 10.8 9.68 7.73 9.76 7.64

10 TVS Motors Co 9.36 8.23 7.21 6.02 5.56 3.54

Source: Table No. 4.4 And tax rate from budgets of Government of
India and annual reports of selected companies

In order to calculate the cost of debt after tax, the amount of

average debt in every year (data in Table No. .4.2) is multiplied by rate

of interest after tax (data in Table No. . 4.5).

138
 Tables number 1 to 5 in appendix show the calculated cost of

debts from 2001 to 2005.

Table No. 4.6

Cost of Debt (Post Tax) in Car Manufacturer Companies
Figures in Million Rs
Company Cost of Debt (Post Tax)
Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland 934 878 760 579 359 197

2 Bajaj Auto 21 48 22 7 6 4

3 Escorts 342 398 418 553 786 916

4 Hero Honda 43 17 10 11 11 12
Hindustan
5 Motors 801 429 393 356 360 315
Mahindra &
6 Mahindra 920 732 752 749 500 196

7 Maruti 434 485 497 336 282 234

8 Punjab Tractors 10 10 77 107 69 48

9 Tata Motors 3502 3239 2570 1456 1326 1434

10 TVS Motors Co 110 98 86 73 67 54

Source: Tables No: from 1 to 5 in Appendix

Table No. .4.6 shows the calculated cost of debts for each

company. This data is the first information which need for calculation of

the cost of capital employed.

139
4.1.1.2 Cost of Equity Capital:

Cost of equity is an opportunity cost equal to the total return that an

investor in a companys equity could expect to earn from alternative

investment of comparable risk.

Cost of equity = Average of Equity Capital * Rate of Cost of Equity

In order to calculation the cost of equity it is necessary to calculate

the average of capital, reserves and surplus that are employed by

companies during the fiscal year.

Average of Equity Capital= [(Capital + Reserves & Surplus in Previous year) +

(Capital + Reserves &Surplus in Current year)] / 2

Table No. 4.7

Average of Capital and Reserves & Surplus
Figures in Million Rs
Company Average of Capital and R & S
Name 2000 2001 2002 2003 2004 2005
Ashok
1 Leyland 11,248 11,595 11,079 9,982 10,056 11,098

2 Bajaj Auto 29,529 29,203 27,512 30,532 34,671 39,140

3 Escorts 9,560 8,853 8,328 7,916 6,531 5,118

4 Hero Honda 4,247 5,384 6,574 7,734 9,999 13,013

Hindustan
5 Motors 2,502 2,272 2,097 1,856 1,789 1,789
Mahindra &
6 Marinara 17,596 20,430 17,864 15,369 16,724 18,936

7 Marti 27,673 27,773 26,749 29,027 33,446 39,850

Punjab
8 Tractors 4,100 4,343 4,442 4,653 4,821 5,001

9 Tata Motors 37,575 35,040 28,594 25,311 30,954 38,525

TVS Motors
10 Co 3,855 3,571 3,401 3,641 4,900 6,269
Source: Annual reports of selected companies

140
 The balance sheets of companies under study have been used for

obtaining the necessary data in this section.

Cost of Equity Capital is the market expected rate of return. Equity

capital, accumulated reserves and surpluses that are free to equity

shareholders carry the same cost. The reserves and surplus are created

out of appropriation of profit, that is, by retention of profit attributable to

equity shareholders. As it is shareholders money, the expectation of the

shareholders to have value appreciation on this money will be the same

as in the case of equity share capital. Hence, it bears the same cost as

the cost of equity share capital.

Cost of equity is equal to the average of equity capital multiply by

the rate of cost of equity. So, the second step after calculating the

average of capital equity is calculation of the Rate of Cost of Equity.

Rate of Cost of Equity = (Risk Free Rate + Market Risk Premium) Beta

The Risk-Free Rate represents the most secure returns that can be

achieved. In India, long-term tax-free government bond is a risk-free rate

manner to investing.

The Market Risk Premium is the expected excess of the

aggregate return in the stock market over the risk free rate. This is

a critical quantity in the Capital Asset Pricing Model which states

that the excess of the expected return on any stock over the risk

free rate is equal to the equity risk premium, as measured by its beta. The

141
equity risk premium is therefore important in asset pricing. Since the

expected return on any stock also represents the cost of equity

capital for the company, the equity risk premium play an important role in

corporate finance as well.

In order to calculate the Rate of Cost of Equity, it is necessary to

calculate the Beta. Beta is a relative measure of volatility that is

determined by comparing the returns on a share, to the returns on the

stock market. In simple terms, the greater volatility is equal with more

risky share and higher Beta.

Table No. 4.8

Beta (B) of Car Manufacturer Companies
Figures in Percent
Company The Amount of Beta (B)
Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland 1 1 1 1 1 1
2 Bajaj Auto 1.2 1.2 1.2 1.2 1.2 0.8

3 Escorts 1.1 1.2 1.1 1.2 1 1.2

4 Hero Honda 0.7 0.7 0.6 0.9 1 0.9

Hindustan
5 Motors 1.1 1.1 1.2 1.2 1.1 1.4
Mahindra &
6 Mahindra 0.7 0.7 0.7 0.7 0.7 1
7 Maruti 1.3 1.3 1.3 1.3 1.2 1.2
8 Punjab Tractors 0.6 0.6 0.6 0.6 0.6 0.6

9 Tata Motors 1.3 1.3 1.3 1.3 1.3 1.3

10 TVS Motors Co 0.7 0.6 0.7 0.7 0.6 0.8

Source: Capital Market Magazine from 2002 to 2005 and the
calculation of Beta for the years that was not available in capital
market magazine

142
 Capital Market Magazine as an extensive magazine is published

every fifteen days. Beta as a most valuable data is present in this

magazine.

Reserve Bank of India advertises the rate of risk free rate of

Government bonds every year. Market Risk Premium also is calculated by

capital market specialists in BSE every year. The researcher used the

Web site of Reserve Bank of India (Appendix) and the paper of A First

Cut Estimate of the Equity Risk Premium in India (Jayanth R. Varma,

Samir K. Barua, 2006, W.P. No 2006-06-04, page 1) for obtaining the risk

free rate and market risk premium respectively.

Rate of cost of equity capital has been calculated in tables No. 6

to11 in appendix

The formula for calculation of the Rate of Cost of Equity is:

Rate of Cost of Equity = Risk Free Rate + Market Risk Premium * Beta

Table No. 4.9

Rate of cost of Equity
Figures in Percent
Company Rate of cost of Equity
Name 2000 2001 2002 2003 2004 2005
1 Ashok Leyland 20.17 20.93 19.49 17.43 15.59 16.23
2 Bajaj Auto 24.2 25.12 23.39 20.92 18.71 12.98
3 Escorts 22.19 25.12 21.44 20.92 15.59 19.48
4 Hero Honda 14.12 14.65 11.69 15.69 15.59 14.61
Hindustan
5 Motors 22.19 23.02 23.39 20.92 17.15 22.72
Mahindra &
6 Mahindra 14.12 14.65 13.64 12.2 10.91 16.23
7 Maruti 26.22 27.21 25.34 22.66 18.71 19.48
8 Punjab Tractors 12.1 12.56 11.69 10.46 9.35 9.74
9 Tata Motors 26.22 27.21 25.34 22.66 20.27 21.1
10 TVS Motors Co 14.12 12.56 13.64 12.2 9.35 12.98
Source: Tables No from 6 to 11 in Appendix

143
 Table No.4.9 show the summary of the calculated rate of cost of

equity.

Table No. 4.10

Cost of Equity of Car Manufacturer Companies
Figures in Million Rs

Company Cost of Equity Capital

Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland 2269 2427 2159 1740 1568 1801

2 Bajaj Auto 7146 7336 6435 6387 6487 5080

3 Escorts 2121 2224 1786 1656 1018 997

4 Hero Honda 600 789 769 1214 1559 1901

5 Hindustan Motors 555 523 491 388 307 407

Mahindra &
6 Mahindra 2485 2993 2437 1875 1825 3073

7 Maruti 7256 7557 6778 6577 6258 7763

8 Punjab Tractors 496 545 519 487 451 487

9 Tata Motors 9852 9534 7246 5735 6274 8129

10 TVS Motors Co 544 449 464 444 458 814

Source: Tables No. 4.7 and 4.9

Cost of Equity capital has been calculated in Table No.4.10

The formula of calculation of Cost of Equity Capital is:

144
Cost of Equity Capital = Average of Capital and Reserves & Surplus (Table No.

.4.7) * Rate of cost of Equity (Table No. . 4.9)

Capital Employed (CE) is the next data that is required for

calculating EVA.

EVA= NOPAT Capital Employed * WACC

Capital Employed = Average of Debt + Average of Equity

Table No.4.2 shows the average of debts and Table No.4.7 shows

the average of equity capital.

Table No. 4.11

Average of Capital Employed by Car Manufacturer Companies
Figures in Million Rs
Company Average of Capital Employed
Name 2000 2001 2002 2003 2004 2005
Ashok
1 Leyland 20,888 21,088 20,186 18,011 16,137 17,995
2 Bajaj Auto 33,755 34,250 33,211 37,864 43,901 50,303

3 Escorts 16,530 15,655 15,002 15,587 15,098 12,949

4 Hero Honda 4,981 6,044 7,484 8,986 11,544 14,895
Hindustan
5 Motors 9,242 6,146 5,819 5,544 5,560 5,523
Mahindra &
6 Mahindra 29,696 30,868 30,419 27,954 26,073 27,849
7 Maruti 30,887 36,064 35,590 34,587 37,286 42,948
Punjab
8 Tractors 4,230 4,473 5,478 6,247 5,743 5,497
9 Tata Motors 69,823 65,055 55,142 44,141 44,544 57,301
1 TVS Motors
0 Co 5,030 4,758 4,597 4,853 6,105 7,798
Source: Tables No from 4.2 to 4.7

145
 So it is necessary to calculate the WACC. WACC is the weighted

average of the cost of debt, cost of equity, with weights equivalent to the

proportion of each in the total capital.

WACC = (Average of Debts * Rate of Interest Post Tax) + (Average of Equity

Capital * Rate of Cost of Equity) / Average of Capital Employed

Tables No. 4.12 to 4.21 in appendix has shown the calculated

WACC in the sample companies under study.

Table No.4.12 show the summary of WACC that has been

calculated in the Table No.12 to 21in appendix.

Table No. 4.12

Weighted Average Cost of Capital (WACC) for Car Manufacturer
Companies
Figures in Percent
Company Weighted Average Cost of Capital (WACC)
Name 2000 2001 2002 2003 2004 2005
1 Ashok Leyland 15.33 15.67 14.6 12.87 11.94 11.11
2 Bajaj Auto 21.23 21.56 19.44 16.89 14.79 10.11

3 Escorts 14.91 16.75 14.69 14.17 11.95 14.78

4 Hero Honda 17.5 13.33 10.4 13.63 13.6 12.85

5 Hindustan Motors 16.43 15.49 15.18 13.43 11.99 13.07

Mahindra &
6 Mahindra 11.46 12.07 10.48 9.39 8.92 11.74
7 Maruti 11.08 22.3 20.44 19.99 17.54 18.62
8 Punjab Tractors 11.97 12.42 10.89 9.51 9.03 9.74
9 Tata Motors 19.12 19.63 17.8 16.29 17.06 16.69
10 TVS Motors Co 13 11.48 11.97 10.66 8.6 11.13
Source: Tables No from 12 to 4.21 in Appendix

146
 Table No.4.13 show the Cost of Capital Employed in Companies

under study. The term Cost of Capital means the cost of long-term funds

of a company. It is the multiple of Capital Employed and Weighted

Average Rate of Debt Capital and Cost of Equity Capital. This is cost of

capital or is known as Weighted Average Cost of Capital (WACC)

Table No. 4.13

Cost of Capital Employed by Car Manufacturer Companies
Figures in Million Rs
Company Cost of Capital Employed
Name 2000 2001 2002 2003 2004 2005
1 Ashok Leyland 3202 3305 2947 2318 1927 1999

2 Bajaj Auto 7166 7384 6456 6395 6493 5086

3 Escorts 2465 2622 2204 2209 1804 1914

4 Hero Honda 872 806 778 1225 1570 1914

5 Hindustan Motors 1518 952 883 745 667 722

Mahindra &
6 Mahindra 3403 3726 3188 2625 2326 3269

7 Maruti 3422 8042 7274 6914 6540 7997

8 Punjab Tractors 506 556 597 594 519 535

9 Tata Motors 13350 12770 9815 7191 7599 9564

10 TVS Motors Co 654 546 550 517 525 868

Source: Tables No from 12 to 21 in Appendix

Next step in preparation of EVA is to calculate the Net Operation

Profit after Tax (NOPAT). Net Operation Profit after Tax refers to quantum

of net operation profit remaining in the business after the payment taxes

but before the interest. Addition and subtraction of non-operating income

147
 and expenses to the net profit figure and making certain other

adjustments for turning accounting profits into economic profits is being

also advocated. Formula of NOPAT is:

NOPAT = Profit after Tax + Cost of Debt Capital

Table No. 4.14 shows the profit after tax of companies under study

and Table No. 4.6 has shown the cost of debt capital.

Table No. 4.14

Amount of Profit after Tax and before Expectation items
Figures in Million Rs

Company Profit after Tax before Expectation items

Name 2000 2001 2002 2003 2004 2005
1 Ashok Leyland 785 917 923 1202 1936 2714
2 Bajaj Auto 6137 3425 4041 5384 7315 7668
3 Escorts 1120 1074 81 241 -2886 391

4 Hero Honda 1920 2470 4630 5810 7280 8105

5 Hindustan Motors -175 -189 -338 -267 -810 612

Mahindra &
6 Mahindra 2741 1357 1200 879 3191 4991

7 Maruti 3850 -2663 1045 1464 5421 8536

8 Punjab Tractors 1333 1125 1000 431 420 629

9 Tata Motors 712 -5004 -537 3001 8104 12370

10 TVS Motors Co 700 630 540 1280 1380 1380

Source: Annual Reports of selected companies

148
 Table No.4.15 show the calculated NOPAT for samples under

study.

Table No. 4.15

Net Operation Profit after Tax (NOPAT) for Car Manufacturer

Companies

Figures in Million Rs
Company Net Operation Profit after Tax (NOPAT)
Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland 1719 1795 1683 1781 2295 2911

2 Bajaj Auto 6158 3473 4063 5391 7321 7672

3 Escorts 1462 1472 499 794 -2100 1307

4 Hero Honda 1963 2487 4640 5821 7291 8117

5 Hindustan Motors 626 240 55 89 -450 927

Mahindra &
6 Mahindra 3661 2089 1952 1628 3691 5187

7 Maruti 4284 -2178 1542 1800 5703 8770

8 Punjab Tractors 1343 1135 1077 538 489 677

9 Tata Motors 4214 -1765 2033 4457 9430 13804

10 TVS Motors Co 810 728 626 1353 1447 1434

Source: Tables No. 4.6 and 4.14

Economic Value Added report for selected companies has been

prepared using previous tables. Tables No. 4.16 to 4.25 shows the EVA

report of sample companies under study from 2001 to 2005. In these

tables column No.1 shows the resources tables that have been used in

149
 preparing the EVA report. Some operations which are needed to prepare

the EVA report are mentioned in same column.

Table No. 4.16

Economic Value Added (EVA) for Car Manufacturer Companies

Ashok Leyland
Economic Value
Sources Added 2001 2002 2003 2004 2005
Cost of Capital:
1: Table No.
4.2 Average Debt(MR) 9,494 9,107 8,028 6,081 6,897
2: Table No.
4.7 Average Equity(MR) 11,595 11,079 9,982 10,056 11,098
Average Capital
3=1+2 Employed(MR) 21,088 20,186 18,011 16,137 17,995
4: Table No. Cost of Debt
4.5 (percent) 9.25 8.35 7.21 5.9 2.86
5: Table No. Cost Of Equity
4.9 (percent) 20.93 19.46 17.43 15.59 16.23

6=(1*4)+(5*2)/3 WACC 0.16 0.14 0.13 0.12 0.11

Cost of Capital
Employed
7=6*3 (COCE)(MR) 3305 2916 2319 1927 1999

Profit after Tax

8: Table No. before Expectation
4.14 items(MR) 917 923 1202 1936 2714
9: Table No. Add: Interest after
4.6 Tax(MR) cost ofdebt(post878
tax) 760 579 359 197
Net Operation Profit
after Tax
10=8+9 (NOPAT)(MR) 1795 1683 1781 2295 2911
11=7 COCE(MR) 3305 2916 2319 1927 1999

Economic Value
12=10-11 Added (EVA)(MR) -1510 -1233 -538 368 913

150
 Table No. 4.17
Economic Value Added (EVA) for Car Manufacturer Companies

Bajaj Auto
Economic Value
Sources Added 2001 2002 2003 2004 2005
Cost of Capital:
1:Table No.
4.2 Average Debt(MR) 5,047 5,699 7,332 9,230 11,164
2:Table No.
4.7 Average Equity(MR) 29,203 27,512 30,532 34,671 39,140
Average Capital
3=1+2 Employed(MR) 34,250 33,211 37,864 43,901 50,303
4: Table No. Cost of Debt
4.5 (percent) 0.95 0.39 0.1 0.07 0.03
5:Table No. Cost Of Equity
4.9 (percent) 25.12 23.39 20.92 18.71 12.98

6=(1*4)+(5*2)/3 WACC 0.22 0.19 0.17 0.15 0.1

Cost of Capital
Employed
7=6*3 (COCE)(MR) 7384 6457 6395 6493 5084
Profit after Tax
8:Table No. before Expectation
4.14 items(MR) 3425 4041 5384 7315 7668
9:Table No. Add: Interest after
4.6 Tax(MR) 48 22 7 6 4
Net Operation Profit
after Tax
10=8+9 (NOPAT)(MR) 3473 4063 5391 7321 7672

11=7 COCE(MR) 7384 6457 6395 6493 5084

Economic Value
12=10-11 Added (EVA)(MR) -3911 -2394 -1003 828 2588

151
 Table No. 4.18
Economic Value Added (EVA) for Car Manufacturer Companies

Escorts
Economic Value
Sources Added 2001 2002 2003 2004 2005
Cost of Capital:
1:Table No.
4.2 Average Debt(MR) 6,802 6,674 7,671 8,567 7,830
2:Table No.
4.7 Average Equity(MR) 8,853 8,328 7,916 6,531 5,118
Average Capital
3=1+2 Employed(MR) 15,655 15,002 15,587 15,098 12,949
4: Table No. Cost of Debt
4.5 (percent) 5.85 6.26 7.21 9.18 11.7
5:Table No. Cost Of Equity
4.9 (percent) 25.12 21.44 20.92 15.59 19.48

6=(1*4)+(5*2)/3 WACC 0.17 0.15 0.14 0.12 0.15

Cost of Capital
Employed
7=6*3 (COCE)(MR) 2622 2203 2209 1805 1913
Profit after Tax
8:Table No. before Expectation
4.14 items(MR) 1074 81 240 -2886 391
9:Table No. Add: Interest after
4.6 Tax(MR) 398 418 553 786 916
Net Operation Profit
after Tax
10=8+9 (NOPAT)(MR) 1472 499 794 -2100 1307
11=7 COCE(MR) 2622 2203 2209 1805 1913

Economic Value
12=10-11 Added (EVA)(MR) -1150 -1704 -1416 -3905 -606

152
 Table No. 4.19
Economic Value Added (EVA) for Car Manufacturer Companies

Hero Honda
Sources Economic Value Added 2001 2002 2003 2004 2005
Cost of Capital:
1:Table No.
4.2 Average Debt(MR) 660 910 1251 1545 1882
2:Table No.
4.7 Average Equity(MR) 5384 6574 7734 9999 13013
Average Capital
3=1+2 Employed(MR) 6044 7484 8986 11544 14895
4: Table No.
4.5 Cost of Debt (percent) 2.6 1.08 0.9 0.72 0.66
5:Table No.
4.9 Cost Of Equity (percent) 14.65 11.69 15.69 15.59 14.61

6=(1*4)+(5*2)/3 WACC 0.13 0.1 0.14 0.14 0.13

Cost of Capital
7=6*3 Employed (COCE)(MR) 806 778 1225 1570 1914
8:Table No. Profit after Tax before
4.14 Expectation items(MR) 2470 4630 5810 7280 8105
9:Table No. Add: Interest after
4.6 Tax(MR) 17 10 11 11 12
Net Operation Profit
10=8+9 after Tax (NOPAT)(MR) 2487 4640 5821 7291 8117

11=7 COCE(MR) 806 778 1225 1570 1914

Economic Value Added

12=10-11 (EVA)(MR) 1681 3861 4596 5721 6204

153
 Table No. 4.20
Economic Value Added (EVA) for Car Manufacturer Companies

Hindustan Motors

Sources Economic Value Added 2001 2002 2003 2004 2005

Cost of Capital:
1:Table No.
4.2 Average Debt(MR) 3874 3722 3688 3771 3734
2:Table No.
4.7 Average Equity(MR) 2272 2097 1556 1789 1789
Average Capital
3=1+2 Employed(MR) 6146 5819 5244 5560 5523
4: Table No.
4.5 Cost of Debt (percent) 11.08 10.56 9.66 9.54 8.44
5:Table No.
4.9 Cost Of Equity (percent) 23.02 23.39 20.92 17.15 22.72

6=(1*4)+(5*2)/3 WACC 0.15 0.15 0.13 0.12 0.13

Cost of Capital
7=6*3 Employed (COCE)(MR) 952 884 682 667 722
8:Table No. Profit after Tax before
4.14 Expectation items(MR) -190 -339 -267 -809 612
9:Table No. Add: Interest after
4.6 Tax(MR) 429 393 356 360 315
Net Operation Profit
10=8+9 after Tax (NOPAT)(MR) 240 55 89 -450 927
11=7 COCE(MR) 952 884 682 667 722

Economic Value Added

12=10-11 (EVA)(MR) -713 -829 -593 -1116 205

154
 SHIVA TELEVISION LTD

Table No. 4.21

Economic Value Added (EVA) for Car Manufacturer Companies

Mahindra & Mahindra

Economic Value
Sources Added 2001 2002 2003 2004 2005
Cost of Capital:
1:Table No.
4.2 Average Debt(MR) 10,438 12,555 12,585 9,348 8,912
2:Table No.
4.7 Average Equity(MR) 20,430 17,864 15,369 16,724 18,936
Average Capital
3=1+2 Employed(MR) 30,868 30,419 27,954 26,073 27,849
4: Table No. Cost of Debt
4.5 (percent) 7.01 5.99 5.95 5.35 2.2
5:Table No. Cost Of Equity
4.9 (percent) 14.65 13.64 12.2 10.91 16.23

6=(1*4)+(5*2)/3 WACC 0.12 0.1 0.09 0.09 0.12

Cost of Capital
Employed
7=6*3 (COCE)(MR) 3725 3189 2624 2325 3269
Profit after Tax
8:Table No. before Expectation
4.14 items(MR) 1358 1200 879 3190 4991
9:Table No. Add: Interest after
4.6 Tax(MR) 732 752 749 500 196
Net Operation Profit
after Tax
10=8+9 (NOPAT)(MR) 2089 1952 1628 3690 5187

11=7 COCE(MR) 3725 3189 2624 2325 3269

Economic Value
12=10-11 Added (EVA)(MR) -1635 -1237 -996 1365 1918

155
 Table No. 4.22
Economic Value Added (EVA) for Car Manufacturer Companies

Maruti
Economic Value
Sources Added 2001 2002 2003 2004 2005
Cost of Capital:
1:Table No.
4.2 Average Debt(MR) 8,291 8,841 5,560 3,840 3,098
2:Table No.
4.7 Average Equity(MR) 27,773 26,749 29,027 33,446 39,850
Average Capital
3=1+2 Employed(MR) 36,064 35,590 34,587 37,286 42,948
4: Table No.
4.5 Cost of Debt (percent) 5.85 5.62 6.05 7.35 7.55
5:Table No. Cost Of Equity
4.9 (percent) 27.21 25.34 22.66 18.71 19.48

6=(1*4)+(5*2)/3 WACC 0.22 0.2 0.2 0.18 0.19

Cost of Capital
Employed
7=6*3 (COCE)(MR) 8042 7275 6914 6540 7997
Profit after Tax before
8:Table No. Expectation
4.14 items(MR) -2663 1045 1464 5421 8536
9:Table No. Add: Interest after
4.6 Tax(MR) 485 497 336 282 234
Net Operation Profit
after Tax
10=8+9 (NOPAT)(MR) -2178 1542 1800 5703 8770

11=7 COCE(MR) 8042 7275 6914 6540 7997

Economic Value -
12=10-11 Added (EVA)(MR) 10220 -5733 -5114 -837 773

156
 Table No. 4.23
Economic Value Added (EVA) for Car Manufacturer Companies

Punjab Tractor
Sources Economic Value Added 2001 2002 2003 2004 2005
Cost of Capital:
1:Table No.
4.2 Average Debt(MR) 130 1037 1594 922 497
2:Table No.
4.7 Average Equity(MR) 4343 4442 4653 4821 5001
Average Capital
3=1+2 Employed(MR) 4473 5478 6247 5743 5497
4: Table No.
4.5 Cost of Debt (percent) 7.6 7.46 6.74 7.35 9.76
5:Table No.
4.9 Cost Of Equity (percent) 12.56 11.69 10.46 9.35 9.74

6=(1*4)+(5*2)/3 WACC 0.12 0.11 0.1 0.09 0.1

Cost of Capital
7=6*3 Employed (COCE)(MR) 555 597 594 519 536

8:Table No. Profit after Tax before

4.14 Expectation items(MR) 1125 1000 431 420 629
9:Table No. Add: Interest after
4.6 Tax(MR) 10 77 107 69 48
Net Operation Profit
10=8+9 after Tax (NOPAT)(MR) 1135 1077 538 489 677

11=7 COCE(MR) 555 597 594 519 536

Economic Value Added

12=10-11 (EVA)(MR) 580 481 -56 -29 142

157
 Table No. 4.24
Economic Value Added (EVA) for Car Manufacturer Companies

Tata Motors
Economic Value
Sources Added 2001 2002 2003 2004 2005
Cost of Capital:
1:Table No.
4.2 Average Debt(MR) 30,016 26,548 18,830 13,590 18,776
2:Table No.
4.7 Average Equity(MR) 35,040 28,594 25,311 30,954 38,525
Average Capital
3=1+2 Employed(MR) 65,055 55,142 44,141 44,544 57,301
4: Table No. Cost of Debt
4.5 (percent) 10.79 9.68 7.73 9.76 7.64
5:Table No. Cost Of Equity
4.9 (percent) 27.21 25.34 22.66 20.27 21.1

6=(1*4)+(5*2)/3 WACC 0.2 0.18 0.16 0.17 0.17

Cost of Capital
Employed
7=6*3 (COCE)(MR) 12773 9816 7191 7601 9563
Profit after Tax
8:Table No. before Expectation
4.14 items(MR) -5003 -537 3001 8103 12370
9:Table No. Add: Interest after
4.6 Tax(MR) 3239 2569 1456 1326 1434
Net Operation Profit
after Tax
10=8+9 (NOPAT)(MR) -1765 2032 4457 9430 13804
11=7 COCE(MR) 12773 9816 7191 7601 9563

Economic Value -
12=10-11 Added (EVA)(MR) 14538 -7784 -2734 1829 4241

158
 Table No. 4.25
Economic Value Added (EVA) for Car Manufacturer Companies

TVS Motor
Sources Economic Value Added 2001 2002 2003 2004 2005
Cost of Capital:

1:Table No.
4.2 Average Debt(MR) 1,187 1,196 1,212 1,205 1,529
2:Table No.
4.7 Average Equity(MR) 3,571 3,401 3,641 4,900 6,269
Average Capital
3=1+2 Employed(MR) 4,758 4,597 4,853 6,105 7,798
4: Table No.
4.5 Cost of Debt (percent) 8.23 7.21 6.02 5.56 3.54
5:Table No.
4.9 Cost Of Equity (percent) 12.56 13.64 12.2 9.35 12.98

6=(1*4)+(5*2)/3 WACC 0.11 0.12 0.11 0.09 0.11

Cost of Capital
7=6*3 Employed (COCE)(MR) 546 550 517 525 868
8:Table No. Profit after Tax before
4.14 Expectation items(MR) 630 540 1280 1380 1380
9:Table No. Add: Interest after
4.6 Tax(MR) 98 86 73 67 54
Net Operation Profit
10=8+9 after Tax (NOPAT)(MR) 728 626 1353 1447 1434

11=7 COCE(MR) 546 550 517 525 868

Economic Value Added

12=10-11 (EVA)(MR) 181 76 836 922 566

159
 Table No.4.26 shows the summary of prepared EVA reports for
sample under study for five years.

Table No. 4.26

Economic Value Added (EVA) for Car Manufacturer Companies
Figures in Million Rs
Company Economic Value Added (EVA)
Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland -1484 -1510 -1233 -538 368 913

2 Bajaj Auto -1010 -3911 -2394 -1003 828 2588

3 Escorts -1001 -1150 -1704 -1416 -3905 -606

4 Hero Honda 1194 1681 3861 4596 5721 6204

5 Hindustan Motors -730 -713 -829 -593 -1116 205

Mahindra &
6 Mahindra 257 -1635 -1237 -996 1365 1918
-
7 Maruti 860 10220 -5733 -5114 -837 773

8 Punjab Tractors 837 580 481 -56 -29 142

-
9 Tata Motors -9140 14538 -7784 -2734 1829 4241

10 TVS Motors Co 156 181 76 836 922 566

Source: Tables No. 4.16 to 4.25

160
4.2 CALCULATION OF MARKET VALUE ADDED (MVA)

EVA is the best performance measurement tool for financial

institutions as it has the strongest correlation with MVA. MVA is the

present value of future stream of EVAs. Market Value Added (MVA) also,

is the definitive measure of wealth creation because it is the cumulative

amount by which a company has enhanced or diminished its shareholders

wealth. MVA tells us how much value the market adds over the book

value of invested capital. MVA, therefore, denotes the confidence of the

capital market on the performance of a company.

In order to analyze the relationship between EVA and created

shareholders wealth, MVA reports need to be prepared. In this section,

the researcher has prepared the MVA report for companies under study

for five years.

Market Value Added = Equity Market Value - Book Value of Equity

Equity Market Value = Number of Issued Shares * Marker Share Price

Number of issued shares in the period of study is the first

necessary data for preparing the MVA report. In addition to number of

issued shares, the market share price in the period of study also is

necessary for calculation of the Market Value Added. Table No. . 4.27

shows the number of issued shares for the selected companies under

study.

161
 Table No. 4.27
Number of issued shares by Car Manufacturer Companies
Figures in Thousands

Company Number of issued shares

Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland 118929 118929 118929 118929 1189294 1189294

2 Bajaj Auto 119391 101184 101184 101184 101184 101184

3 Escorts 72230 72230 72230 72230 72230 72230

4 Hero Honda 199688 199688 199688 199688 199688 199688

5 Hindustan Motors 161257 161257 161257 161257 161257 161257

Mahindra &
6 Mahindra 110484 110484 116009 116009 116009 116009

7 Maruti 13229 13229 13229 288910 288910 288910

8 Punjab Tractors 60756 60756 60756 60756 60756 60756

9 Tata Motors 255900 255900 319830 319830 356830 361790

10 TVS Motors Co 231000 231000 231000 231000 237544 237544

Source: Annual reports of selected companies from 2000 to 2005

Table No.4.28 shows the marker share price of the companies

under study in the end of year. This data is collected form BSE website.

162
 Table No. 4.28
Share Price of Car Manufacturer Companies in the Bombay Stock
Exchange (BSE) at the End of March
Figures in Rs

Company Share Price in the BSE in the End of March

Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland 49.0 69.6 99.2 293.7 24.4 31.9

2 Bajaj Auto 268.0 379.0 502.3 1137.4 1131.5 2000.8

3 Escorts 61.3 55.0 46.4 86.4 74.1 73.0

4 Hero Honda 257.5 250.7 271.4 448.9 571.1 859.7

5 Hindustan Motors 4.2 4.6 10.0 18.8 23.3 30.2

Mahindra &
6 Mahindra 156.5 89.3 112.7 389.1 544.5 512.1

7 Maruti 4453.0 4453.0 5789.2 376.3 461.3 636.5

8 Punjab Tractors 248.0 173.7 148.7 239.3 195.8 215.2

9 Tata Motors 92.5 99.8 161.4 452.3 505.2 663.0

10 TVS Motors Co 178.0 162.2 507.8 106.9 81.8 100.2

Source: BSE website (www.BSE.com)

Tables No 4.29 to 4.38 show calculated Market Value Added in car

manufacturer companies. As has been shown in the same tables, Market

Value Added is equal to Equity Market Value of companies minus Book

Value of equity companies. For calculation of MVA, in addition to tables

No 27 and 4.28, the balance sheet of companies under study also has

been used.

163
 Table No. 4.29
Calculation Market Value Added (MVA) on March 31

Ashok Leyland
Price at Book Market Value
Number of 31 of EMV Value of Added(MVA)
Year Shares March Rs MR Equity MR (MR)

2000 118929420 49 5,828 11,401 -5,574

2001 118929420 69.6 8,277 11,788 -3,510

2002 118929420 99.15 11,792 10,370 1,422

2003 118929420 293.7 34,930 9,595 25,335

2004 1189294200 24.4 29,019 10,518 18,501

2005 1189294200 31.85 37,879 11,679 26,200
Source: Tables No 4.27 and 4.28

Table No. 4.30

Calculation Market Value Added (MVA) on March 31

Bajaj Auto
Price at 31 Book Value Market Value
Number of of March EMV of Equity Added(MVA)
Year Shares Rs MR MR (MR)

2000 119390814 268 31997 32041 -44

2001 101183510 378.95 38343 26365 11978

2002 101183510 502.3 50824 28658 22167

2003 101183510 1,137.35 115081 32406 82675

2004 101183510 1,131.50 114489 36936 77553

2005 101183510 2,000.80 202448 41344 161104

Source: Tables No 4.27 and 4.28

164
 Table No. 4.31
Calculation Market Value Added (MVA) on March 31

Escorts
Price at Book Market Value
Number 31 of EMV Value of Added(MVA)
Year of Shares March Rs MR Equity MR (MR)

2000 72230000 61.25 4424 8861 -4437

2001 72230000 54.95 3969 8861 -4892

2002 72230000 46.4 3351 7796 -4444

2003 72230000 86.35 6237 8036 -1799

2004 72230000 74.05 5349 5027 322

2005 72230000 73 5273 5210 63
Source: Tables No 4.27 and 4.28

Table No. 4.32

Calculation Market Value Added (MVA) at March 31

Hero Honda
Price at Book Market Value
Number 31 of EMV Value of Added(MVA)
Year of Shares March Rs MR Equity MR (MR)

2000 199687500 257.5 51,420 4,480 46,940

2001 199687500 250.7 50,062 6,289 43,772

2002 199687500 271.4 54,195 6,859 47,336

2003 199687500 448.85 89,630 8,609 81,020

2004 199687500 571.1 114,042 11,389 102,652

2005 199687500 859.7 171,671 14,637 157,035
Source: Tables No 27 and 4.28

165
 Table No. 4.33
Calculation Market Value Added (MVA) at March 31

Hindustan Motor
Price at Book Market Value
Number 31 of EMV Value of Added(MVA)
Year of Shares March Rs MR Equity MR (MR)

2000 161256800 4.15 669 2272 -1603

2001 161256800 4.6 742 2272 -1530

2002 161256800 10 1613 1922 -309

2003 161256800 18.75 3024 1789 1234

2004 161256800 23.3 3757 1789 1968

2005 161256800 30.2 4870 1789 3081
Source: Tables No 4.27 and 4.28
Table No. 4.34
Calculation Market Value Added (MVA) at March 31

Mahindra & Mahindra

Price at Book Market Value
Number 31 of EMV Value of Added(MVA)
Year of Shares March Rs MR Equity MR (MR)

2000 110484380 156.5 17,291 20,171 -2,880

2001 110484380 89.25 9,861 20,688 -10,827

2002 116008599 112.65 13,068 15,040 -1,972

2003 116008599 389.05 45,133 15,698 29,435

2004 116008599 544.5 63,167 17,750 45,416

2005 116008599 512.05 59,402 20,123 39,280

Source: Tables No 4.27 and 4.28

166
 Table No. 4.35
Calculation Market Value Added (MVA) at March 31

Marti
Price at Book Market Value
Number 31 of EMV Value of Added(MVA)
Year of Shares March Rs MR Equity MR (MR)

2000 13229162 4,453.20 58,912 28,598 30,314

2001 13229162 4,453.20 58,912 26,425 32,487

2002 13229162 5,789.20 76,586 27,073 49,513

2003 288910060 376.3 108,717 30,980 77,737

2004 288910060 461.25 133,260 35,467 97,793

2005 288910060 636.5 183,891 43,788 140,103
Source: Tables No 4.27 and 4.28

Table No. 4.36

Calculation Market Value Added (MVA) at March 31

Punjab Tractor
Price at Book Market Value
Number 31 of EMV Value of Added(MVA)
Year of Shares March Rs MR Equity MR (MR)

2000 60755700 248 15,067 4,147 10,920

2001 60755700 173.65 10,550 4,343 6,207

2002 60755700 148.65 9,031 4,540 4,491

2003 60755700 239.3 14,539 4,765 9,774

2004 60755700 195.75 11,893 4,877 7,016

2005 60755700 215.2 13,075 5,124 7,951

Source: Tables No 4.27 and 4.28

167
 Table No. 4.37
Calculation Market Value Added (MVA) at March 31

Tata Motors
Price at Book Market Value
Number 31 of EMV Value of Added(MVA)
Year of Shares March Rs MR Equity MR (MR)

2000 255900000 92.5 23,671 37,541 -13,870

2001 255900000 99.8 25,539 32,538 -6,999

2002 319830000 161.35 51,605 24,651 26,954

2003 319830000 452.3 144,659 25,972 118,688

2004 356830000 505.15 180,253 35,936 144,317

2005 361790000 663 239,867 41,114 198,753
Source: Tables No 4.27 and 4.28

Table No. 4.38

Calculation Market Value Added (MVA) at March 31

TVS Motor
Price at Book Market Value
Number 31 of EMV Value of Added(MVA)
Year of Shares March Rs MR Equity MR (MR)

2000 231000000 178 41,118 3,830 37,288

2001 231000000 162.2 37,468 3,571 33,897

2002 231000000 507.75 117,290 3,231 114,059

2003 231000000 106.85 24,682 4,051 20,631

2004 237543557 81.8 19,431 5,750 13,682

2005 237543557 100.15 23,790 6,788 17,002

Source: Tables No 4.27 and 4.28

168
 Table No.4.39 shows the summary of calculated MVA reports in

previous tables. This data is necessary for the analysis of the relationship

between Economic Value added and created Shareholders value.

Table No. 4.39

Market Value Added (MVA) of Car Manufacturer Companies
Figures in Million Rs

Company Market Value Added (MVA)

Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland -5574 -3510 1422 25335 18501 26200

2 Bajaj Auto -44 11978 22167 82675 77553 161104

3 Escorts -4437 -4892 -4444 -1799 322 63

4 Hero Honda 46940 43772 47336 81020 102652 157035

5 Hindustan Motors -1603 -1530 -309 1234 1968 3081

Mahindra & -
6 Mahindra -2880 10827 -1972 29435 45416 39280

7 Maruti 30314 32487 49513 77737 97793 140103

8 Punjab Tractors 10920 6207 4491 9774 7016 7951

-
9 Tata Motors 13870 -6999 26954 118688 144317 198753

10 TVS Motors Co 37288 33897 114059 20631 13682 17002

Source: Tables No, from 4.29 to 4.38

169
4.3 CALCULATION OF CREATED SHAREHOLDERS VALUE

A company creates value for its shareholders when the

shareholder returns exceed the required returns to equity. In other words,

a company creates value in one year when it outperforms expectations,

(Pablo Fernndez and Laura Reinoso 2001). In this section, for

calculation of the Created Shareholders Value the Figure No. . 2.1 has

been used.

The created shareholder value is quantified as follows:

Created Shareholder Value = Equity Market Value x (Shareholder Return - Ke)

Ke = (Risk Free Rate +Risk Premium) Beta

Created Shareholder Value (CSV) can also be calculated as

follows:

Created Shareholder Value = Shareholder Value Added - (Equity Market Value * Ke)

The Equity Market Value of a company is defined as the

companys market value.

Equity Market Value= Share Price * Number of Shares

Shareholder value added is the term used for the difference

between the wealth held by the shareholders at the end of a given year

and the wealth they held the previous year. The increase of equity market

value is not the shareholder value added.

Shareholder value added = Increase of Equity Market Value + Dividends paid

during the year - Outlays for capital increases+ Other payments to shareholders

(discounts on par value, share buy-backs....) - Conversion of convertible

debentures

170
 The Shareholder Value Added has exceeded the increase of

Equity Market Value every year. This is because the dividends and other

payments to shareholders exceeded the outlays the shareholders had to

make.

Table No.4.40 shows the changes in market share price in the

period of study.

Table No. 4.40

Yearly change in share price in BSE for Car Manufacturer
Companies
Figures in Rs

Company Yearly change in share price in BSE

Name 2001 2002 2003 2004 2005
1 Ashok Leyland 20.6 29.6 194.6 -269.3 7.5
2 Bajaj Auto 111.0 123.4 635.1 -5.9 869.3
3 Escorts -6.3 -8.6 40.0 -12.3 -1.1
4 Hero Honda -6.8 20.7 177.5 122.3 288.6
5 Hindustan Motors 0.5 5.4 8.8 4.6 6.9
Mahindra &
6 Mahindra -67.3 23.4 276.4 155.5 -32.5

7 Maruti 4453.0 1336.2 -5412.9 85.0 175.3

8 Punjab Tractors -74.4 -25.0 90.7 -43.6 19.5
9 Tata Motors 7.3 61.6 291.0 52.9 157.9

10 TVS Motors Co -15.8 345.6 -400.9 -25.1 18.4

Source: BSE website
For calculation of the Shareholder Value Added, changes in the

market share price (Table No. . 4.40) during the year, dividends, outlays

and other payments to shareholders are needed.

Table No. .4.41 shows the EPS as the dividends to shareholders

in the period of study.

171
 Table No. 4.41
Earning Per Share (EPS) for Car Manufacturer Companies
Figures in Rs

Company Earning Per Share (EPS)

Name 2000 2001 2002 2003 2004 2005

1 Ashok Leyland 6.6 7.7 7.8 10.1 16.3 22.8
2 Bajaj Auto 53.0 22.5 51.2 52.8 73.0 75.6
3 Escorts 14.8 14.8 1.1 3.3 -40.0 5.4
4 Hero Honda 9.6 12.4 23.2 29.1 36.5 40.6
5 Hindustan Motors -2.1 0.0 -2.1 -1.7 -5.0 3.8
Mahindra &
6 Mahindra 23.8 10.9 8.6 12.6 30.0 44.2
7 Maruti 0.0 -10.2 4.0 5.1 18.8 29.6
8 Punjab Tractors 65.8 18.5 16.5 7.1 6.9 10.4
9 Tata Motors 2.8 -18.5 -2.0 9.4 24.7 34.4
10 TVS Motors Co 2.1 2.7 2.3 5.5 5.8 5.8
Source: Annual reports of selected companies
Table No. 4.42 shows the summarized SVA that is calculated in

the Tables No. 22 to 31 in appendix.

Table No. 4.42

Shareholder Value Added (SVA) for Car Manufacturer Companies

Figures in Rs
Company Shareholder Value Added (SVA)
Name 2001 2002 2003 2004 2005
1 Ashok Leyland 28.31 37.31 204.66 -253 30.25
2 Bajaj Auto 133.41 174.56 687.89 67.13 944.9
3 Escorts 8.5 -7.42 43.28 -52.26 4.36
4 Hero Honda 5.6 43.9 206.53 158.72 329.19
5 Hindustan Motors 0.45 3.3 7.09 -0.47 10.7
Mahindra &
6 Mahindra -56.34 32.02 288.95 185.49 11.71
7 Marti 23.27 70.8 91.94 103.72 204.8
8 Punjab Tractors -55.85 -8.5 97.78 -38.65 29.85
9 Tata Motors -11.15 99.87 373.01 163.78 267.33
-
10 TVS Motors Co -13.12 347.87 395.37 -17.98 24.48
Source: Tables No 22 to 31 in Appendix

172
 However, the Shareholder Value Added is not the created

shareholder value. For value to be created during a period, the

Shareholder Returns must exceed the Required Return to Equity.

The Shareholder Returns are the Shareholder Value Added in one

year, divided by the Equity Market Value at the beginning of the year.

Shareholder Return (SR) = Shareholder Value Added / Equity Market Value in the

beginning of the year

Table No.4.43 shows the summarized of Shareholder Returns of

Companies under study in the 2001 to 2005 that have been prepared in

Table No.32 to 36 in appendix.

Table No. 4.43

Shareholder Return (SR) for Car Manufacturer Companies
Figures in Percent

Company Shareholder Return (SR)

Name 2001 2002 2003 2004 2005

1 Ashok Leyland 57.78 53.61 206.41 -86.15 123.98
2 Bajaj Auto 49.78 46.06 136.95 5.9 83.51
3 Escorts 13.88 -13.5 93.28 -60.52 5.89
4 Hero Honda 2.17 17.51 76.1 35.36 57.64
5 Hindustan Motors 10.84 71.74 70.9 -2.51 45.92
Mahindra &
6 Mahindra -36 35.88 256.5 47.68 2.15
7 Maruti 0.52 1.59 1.59 27.56 44.4
8 Punjab Tractors -22.52 -4.89 65.78 -16.15 15.25
9 Tata Motors -12.05 100.07 231.18 36.21 52.92
10 TVS Motors Co -7.37 214.47 -77.87 -16.83 29.93
Source: Tables No from 32 to 36 in Appendix

173
 Shareholder Value has been created when the Shareholder

Returns exceed the Share Cost (Required Return to Equity).

The required returns of equity (share cost) are the returns that

shareholders expect to obtained in order to feel sufficiently remunerated.

The required returns to equity depend on the interest rates of long-term

treasury bonds and the companys risk. As is mentioned in previous

sections, CSV is:

Created Shareholder Value = Equity Market Value x (Shareholder Return - Ke)

Equity Market Value and Shareholder Returns are calculated in the

above equation.

As it is mentioned in the EVA section:

Ke = (risk free rate +risk premium) Beta

Table No.4.9 shows the Ke.

Table No.4.44 has shown the summary of calculated Shareholder

returns minus Ke in companies under study using tables No. 37 to 41 in

appendix.

174
 Table No. 4.44
Shareholder Returns Ke for Car Manufacturer Companies
Figures in Percent

Company Shareholder Return Ke

Name 2001 2002 2003 2004 2005
1 Ashok Leyland 36.85 34.12 188.98 -101.7 107.75
2 Bajaj Auto 24.66 22.67 116.03 -12.81 70.53
3 Escorts -11.24 -34.94 72.36 -76.11 -13.59
4 Hero Honda -12.48 5.82 60.41 19.77 43.03
5 Hindustan Motors -12.18 48.35 49.98 -19.66 23.2
Mahindra &
6 Marinara -50.65 22.24 244.3 36.77 -14.08
7 Marti -26.69 -23.75 -21.07 8.85 24.92
8 Punjab Tractors -35.08 -16.58 55.32 -25.5 5.51
9 Tata Motors -39.26 74.73 208.52 15.94 31.82
10 TVS Motors Co -19.93 200.83 -90.07 -26.18 16.95
Source: Tables No from 37 to 41in Appendix
Next data for calculation of CSV is Equity Market Value. EMV has

been shown as a column in Tables No. 4.29 to 4.38. Table No.4.45 shows

the summary of that column.

Table No. 4.45

Equity Market Value (EMV) for Car Manufacturer Companies
Figures in Million Rs

Company Equity Market Value (EMV)

Name 2001 2002 2003 2004 2005
1 Ashok Leyland 8277 11792 34930 29019 37879
2 Bajaj Auto 38343 50824 115081 114489 202448
3 Escorts 3969 3351 6237 5349 5273
4 Hero Honda 50062 54195 89630 114042 171671
5 Hindustan Motors 742 1613 3024 3757 4870
Mahindra &
6 Marinara 9861 13068 45133 63167 59402
7 Marti 58909 76586 108717 133260 183891
8 Punjab Tractors 10550 9031 14539 11893 13075
9 Tata Motors 25539 51605 144659 180253 239867
10 TVS Motors Co 37468 117290 24682 19431 23790
Source: Tables No from 4.29 to 4.3

175
 As it is mentioned in the last section, the Created Shareholder

Value is equal to Equity Market Value multiply by the difference between

Shareholder return and Ke. In tables No. 4.46 to 4.50 the Created

Shareholder Value is calculated for companies under study. In the present

research the CSV is an important data for analysis the relationship

between EVA and Shareholders Wealth. Indeed the main aim of the

present study is finding out the relationship between EVA and CSV.

Table No. 4.46

Created Shareholder Value (CSV) for Car Manufacturer Companies

Created Shareholder Value (CSV)-2001

Created Created
EMV SR-Ke Value No of Value Per
Company Name (MR) Percent MR Shares Share(Rs)
1 Ashok Leyland 8277 36.85 3050 118929420 25.7

2 Bajaj Auto 38343 24.66 9456 101183510 93.5

3 Escorts 3969 -11.24 -446 72230000 -6.2

4 Hero Honda 50062 -12.48 -6248 199687500 -31.3

Hindustan
5 Motors 742 -12.18 -90 161256800 -0.6
Mahindra &
6 Mahindra 9861 -50.65 -4994 110484380 -45.2

7 Maruti 58909 -26.69 -15723 13229162 -1188.5

8 Punjab Tractors 10550 -35.08 -3701 60755700 -60.9

9 Tata Motors 25539 -39.26 -10027 255900000 -39.2

10 TVS Motors Co 37468 -19.93 -7467 231000000 -32.3

Source: Tables No 4.27, 4.44 and 4.45

176
 Table No. 4.47
Created Shareholder Value (CSV) for Car Manufacturer Companies

Created Shareholder Value (CSV)-2002

Created Created
EMV SR-Ke Value No of Value Per
Company Name (MR) Percent MR Shares Share(Rs)
1 Ashok Leyland 11,792 34.12 4023 118929420 33.83
2 Bajaj Auto 50,824 22.67 11522 101183510 113.87
3 Escorts 3,351 -34.94 -1171 72230000 -16.21
4 Hero Honda 54,195 5.82 3154 199687500 15.8
5 Hindustan Motors 1,613 48.35 780 161256800 4.84
Mahindra &
6 Mahindra 13,068 22.24 2906 116008599 25.05
7 Maruti 76,586 -23.75 -18189 13229162 -1,374.93
8 Punjab Tractors 9,031 -16.58 -1497 60755700 -24.65
9 Tata Motors 51,605 74.73 38564 319830000 120.58
10 TVS Motors Co 117,290 200.83 235554 231000000 1,019.71
Source: Tables No 4.27, 4.44 and 4.45

Table No. 4.48

Created Shareholder Value (CSV) for Car Manufacturer Companies

Created Shareholder Value (CSV)-2003

Created Created
EMV SR-Ke Value No of Value Per
Company Name (MR) Percent MR Shares Share(Rs)
1 Ashok Leyland 34,930 188.98 66,010 118929420 555.03
2 Bajaj Auto 115,081 116.03 133,529 101183510 1,319.67
3 Escorts 6,237 72.36 4,513 72230000 62.48
4 Hero Honda 89,630 60.41 54,145 199687500 271.15
5 Hindustan Motors 3,024 49.98 1,511 161256800 9.37
Mahindra &
6 Mahindra 45,133 244.3 110,260 116008599 950.45
7 Maruti 108,717 -21.07 -22,907 288910060 -79.29
8 Punjab Tractors 14,539 55.32 8,043 60755700 132.38
9 Tata Motors 144,659 208.52 301,643 319830000 943.14
10 TVS Motors Co 24,682 -90.07 -22,231 231000000 -96.24

Source: Tables No 4.27, 4.44 and 4.45

177
 Table No. 4.49
Created Shareholder Value (CSV) for Car Manufacturer Companies

Created Shareholder Value (CSV) 2004

Created Created
EMV SR-Ke Value No of Value Per
Company Name (MR) Percent MR Shares Share(Rs)
1 Ashok Leyland 29,019 -101.74 -29524 118929420 -24.82
2 Bajaj Auto 114,489 -12.81 -14666 101183510 -144.95
3 Escorts 5,349 -76.11 -4071 72230000 -56.36
4 Hero Honda 114,042 19.77 22546 199687500 112.91
5 Hindustan Motors 3,757 -19.66 -739 161256800 -4.58
Mahindra &
6 Mahindra 63,167 36.77 23226 116008599 200.21
7 Maruti 133,260 8.85 11793 288910060 40.82
8 Punjab Tractors 11,893 -25.5 -3033 60755700 -49.92
9 Tata Motors 180,253 15.94 28732 356830000 80.52
10 TVS Motors Co 19,431 -26.18 -5087 237543557 -21.42
Source: Tables No 4.27, 4.44 and 4.45
Table No. 4.50
Created Shareholder Value (CSV) for Car Manufacturer Companies

Created Shareholder Value (CSV) 2005

Created Created
EMV SR-Ke Value No of Value Per
Company Name (MR) Percent MR Shares Share(Rs)
1 Ashok Leyland 37,879 107.75 40815 1189294200 34.32
2 Bajaj Auto 202,448 70.53 142787 101183510 1,411.16
3 Escorts 5,273 -13.59 -717 72230000 -9.92
4 Hero Honda 171,671 43.03 73870 199687500 369.93
Hindustan
5 Motors 4,870 23.2 1130 161256800 7.01
Mahindra &
6 Mahindra 59,402 -14.08 -8364 116008599 -72.1
7 Maruti 183,891 24.92 45826 288910060 158.62
8 Punjab Tractors 13,075 5.51 720 60755700 11.86
9 Tata Motors 239,867 31.82 76326 361790000 210.97
10 TVS Motors Co 23,790 16.95 4032 237543557 16.98
Source: Tables No 4.27, 4.44 and 4.45

178
 Table No. 4.51 is summary of tables No 4.46 to 4.50.
Table No. 4.51
Created Shareholder Value (CSV) for Car Manufacturer Companies
Figures in Million Rs
Company Created Shareholder Value (CSV)
Name 2001 2002 2003 2004 2005
1 Ashok Leyland 3050 4023 66010 -29524 40815
2 Bajaj Auto 9456 11522 133529 -14666 142787
3 Escorts -446 -1171 4513 -4071 -717
4 Hero Honda -6248 3154 54145 22546 73870
5 Hindustan Motors -90 780 1511 -739 1130
Mahindra &
6 Mahindra -4994 2906 110260 23226 -8364
7 Maruti -15723 -18189 -22907 11793 45826
8 Punjab Tractors -3701 -1497 8043 -3033 720
9 Tata Motors -10027 38564 301643 28732 76326
10 TVS Motors Co -7467 235554 -22231 -5087 4032
Source: Tables No from 4.46 to 50
Table No.4.52 shows the Created Shareholder Value per share.

Created Shareholder Value per share = Created Shareholder Value / Number of

Issued Shares

Table No. 4.52

Created Shareholder Value (CSV) per Share
Figures in Rs
Company Created Shareholder Value Per Share
Name 2001 2002 2003 2004 2005
1 Ashok Leyland 25.65 33.83 555.03 -24.82 34.32
2 Bajaj Auto 93.45 113.87 1,319.67 -144.95 1,411.16
3 Escorts -6.18 -16.21 62.48 -56.36 -9.92
4 Hero Honda -31.29 15.8 271.15 112.91 369.93
Hindustan
5 Motors -0.56 4.84 9.37 -4.58 7.01
Mahindra &
6 Mahindra -45.21 25.05 950.45 200.21 -72.1
-
7 Maruti -1,188.51 1,374.93 -79.29 40.82 158.62
8 Punjab Tractors -60.92 -24.65 132.38 -49.92 11.86
9 Tata Motors -39.18 120.58 943.14 80.52 210.97
10 TVS Motors Co -32.33 1,019.71 -96.24 -21.42 16.98
Source: Tables No 4.46 to 50

179
 Table No. 4.53 shows the Rate of Return on Created Shareholder

Value.

Rate of Return on Created Shareholder Value = CSV per Share / Market Share Price

at End of Year

Rate of Return on Created Shareholder Value shows how many

percent values have been created by companies managers for

shareholders during one year.

Table No. : 4.53

Rate of Return on Created Shareholder Value for Car Manufacturer
Companies
Figures in percent

Rate of Return on Created

Company Shareholder Value

Name 2001 2002 2003 2004 2005

1 Ashok Leyland 0.52 0.49 5.6 -0.08 1.41

2 Bajaj Auto 0.35 0.3 2.63 -0.13 1.25

3 Escorts -0.1 -0.29 1.35 -0.65 -0.13

4 Hero Honda -0.12 0.06 1 0.25 0.65

5 Hindustan Motors -0.13 1.05 0.94 -0.24 0.3

Mahindra &
6 Marinara -0.29 0.28 8.44 0.51 -0.13

7 Marti -0.27 -0.31 -0.01 0.11 0.34

8 Punjab Tractors -0.25 -0.14 0.89 -0.21 0.06

9 Tata Motors -0.42 1.21 5.85 0.18 0.42

10 TVS Motors Co -0.18 6.29 -0.19 -0.2 0.21

Source: Tables No 4.28 and 4.52

180
4.4 CALCULATION OF RETURNS ON CAPITAL EMPLOYED (ROCE)
AND RETURN ON NET WORTH (RONW)
In this section, the other data needed for analysis of the

relationship between Shareholders wealth and other performance

measurement tools has been prepared. Earning before Depreciation,

Interest and Tax (EBDIT), Return on Capital Employed (ROCE) and

Return on Net worth (RONW) are three data that are calculated in this

section. In order to calculate the EBDIT, tables No. 4.54 and 4.55 shows

the amount of Depreciation and amount of paid tax in the period of study

respectively.

Table No. 4.54

Amount of Depreciation of Car Manufacturer Companies
Figures in Million Rs
Amount of
Company Depreciation
Name 2001 2002 2003 2004 2005
1 Ashok Leyland 884 954 1030 965 1092
2 Bajaj Auto 1773 1797 1712 1799 1854
3 Escorts 388 414 406 496 620
4 Hero Honda 443 510 580 733 894

5 Hindustan Motors 452 406 416 412 511

Mahindra &
6 Mahindra 1401 1394 1654 1652 1841

7 Maruti 3223 3429 3221 4949 4568

8 Punjab Tractors 201 179 171 164 159

9 Tata Motors 3474 3547 3621 3826 4502

10 TVS Motors Co 470 496 801 799 896

Source: Annual Reports of Car Manufacturer Companies

181
 Table No. : 4.55
Amount of Tax of Car Manufacturer Companies
Figures in Million Rs
Company Amount of Tax
Name 2001 2002 2003 2004 2005
1 Ashok Leyland 103 400 499 929 836
2 Bajaj Auto 270 1837 2502 2289 3196
3 Escorts 140 -31 -18 997 -81
4 Hero Honda 1301 2315 3038 3441 4068
5 Hindustan Motors 1 -201 -137 -190 -417
6 Mahindra & Mahindra 80 11 515 897 2015
7 Maruti 2 138 1357 2277 4513
8 Punjab Tractors 555 435 191 161 343
9 Tata Motors 0 -555 2103 4820 4150
10 TVS Motors Co 190 290 730 770 620
Source: Annual Reports of Car Manufacturer Companies

Table No. 4.56 shows the EBDIT in the sample study.

Table No. 4.56
Earning before Depreciation, Interest and Tax (EBDIT)
Figures in Million Rs
Earning before Depreciation, Interest
Company and Tax (EBDIT)
Name 2001 2002 2003 2004 2005
1 Ashok Leyland 2781 3036 3310 4188 4839
2 Bajaj Auto 5516 7697 9605 11409 12722
3 Escorts 2000 882 1182 -606 1846
4 Hero Honda 4231 7464 9439 11466 13079
5 Hindustan Motors 693 259 369 -227 1021
Mahindra &
6 Mahindra 3570 3356 3797 6239 9043
7 Maruti 1047 5109 6378 12929 17851
8 Punjab Tractors 1891 1691 900 814 1179
9 Tata Motors 1709 5025 10181 18076 22455
10 TVS Motors Co 1388 1412 2884 3016 2950
Source: Annual reports of selected companies and Tables No 4.54
and 4.55

182
 Table No.4.57 shows the Returns on Capital Employed of sample

under study. Average of debts plus average of equity is equal with Capital

Employed that has been given in Table No. 4.11 and return is equal with

EBDIT.

Return on Capital Employed Ratio (ROCE) = Earning before Depreciation, Interest

and Tax (EBDIT) / Capital Employed (Net worth + long term Debts)

Table No. 4.57

Return on Capital Employed (ROCE) of Car Manufacturer
Companies
Figures in percent

Company Return on Capital Employed (ROCE)

Name 2001 2002 2003 2004 2005
1 Ashok Leyland 0.13 0.15 0.18 0.26 0.27
2 Bajaj Auto 0.16 0.23 0.25 0.26 0.25
3 Escorts 0.13 0.06 0.08 -0.04 0.14
4 Hero Honda 0.7 1 1.05 0.99 0.88

5 Hindustan Motors 0.11 0.04 0.07 -0.04 0.18

Mahindra &
6 Mahindra 0.12 0.11 0.14 0.24 0.32

7 Maruti 0.03 0.14 0.18 0.35 0.42

8 Punjab Tractors 0.42 0.31 0.14 0.14 0.21

9 Tata Motors 0.03 0.09 0.23 0.41 0.39

10 TVS Motors Co 0.29 0.31 0.59 0.49 0.38

Source: Tables No 4.11 and 4.56

183
 Table No.4.58 shows the ratio of profit on equity capital. This ratio

shows the returns on equity capital that shareholders bring to the

company.

Return on Net worth (RONW) = Earning before Depreciation, Interest and Tax

(EBDIT) / Net Worth (Equity Capital)

Table No. 4.58

Return on Net worth (RONW) of Car Manufacturer Companies
Figures in percent

Company Return on Net Worth (RONW)

Name 2001 2002 2003 2004 2005
1 Ashok Leyland 0.24 0.27 0.33 0.42 0.44
2 Bajaj Auto 0.19 0.28 0.31 0.33 0.33
3 Escorts 0.23 0.11 0.15 -0.09 0.36
4 Hero Honda 0.79 1.14 1.22 1.15 1.01
5 Hindustan Motors 0.3 0.12 0.2 -0.13 0.57
Mahindra &
6 Mahindra 0.17 0.19 0.25 0.37 0.48

7 Maruti 0.04 0.19 0.22 0.39 0.45

8 Punjab Tractors 0.44 0.38 0.19 0.17 0.24
9 Tata Motors 0.05 0.18 0.4 0.58 0.58

10 TVS Motors Co 0.39 0.42 0.79 0.62 0.47

Source: Tables No 4.7 and 4.56
Last data which need for analysis is trend of Sensex. This data is

collected from BSE website on the internet.

Table No. 4.59

Trend of Sensex in Bombay Stock Exchange
Company
Name 2000 2001 2002 2003 2004 2005

Sensex 3972.1 3262.33 3377.28 5838.96 6602.69 9397.93

Source: BSE websit

184