AN EMPIRICAL ANALYSIS OF VALUE CREATION IN REFERENCE TO IT, TELECOM AND FMCG SECTOR

ABSTRACT

According to the principle of value management, firm must generate adequate returns for its owners, in line with the relative opportunity cost of investment. Companies whose returns exceed the opportunity cost to its owners create corporate value and hence shareholder’s value. Traditionally, the yardsticks used to measure the efficiency and profitability of a business organization were accounting based measures like ROI, ROE, ROCE, EPS, RONW and financial ratios. But, now a day’s value added measures have emerged as a replacement of the traditional accounting based measures. The reason behind this is that the financial performance of a business organization is measured from the shareholders’ value point of view. No companies can survive and grow, if it fails to generate value to its shareholders. Hence, value added is a basic measure which is used for measuring the financial performance of an enterprise. This study is to analyze the relationship between non-market value performance indicators and market value, with a view to understand the value creation process in the Indian Enterprises. Analysis will be done for total of 36 companies from 3 sectors i.e. IT, Telecommunication and FMCG. The various details will be taken from www.moneycontrol.com. For the purposes of this study the market value creation measure utilized was shareholder return. Each company’s shareholder return will be estimated using stock price and dividend information. Three different dimensions of non-market value creation measures will be utilized. These three dimensions will be accounting profitability, cash flow performance, and growth. 

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