As the corporates’ most vital objective at this moment is to maximise shareholder value, establishing a relationship between the financial variables and the corporate objective is imperative. This article tests whether value based frameworks are applicable in Indian condition, an attempt has been made in the current study to apply the valuation methods (as adapted from S.David and Stephen F.O'Byrne) to the Indian Engineering Industry. With this objective in mind, the present study intends to examine the relationship between shareholder's value and financial variables. The Market based measures like Total Shareholder Return (TSR), Market Value Added (MVA) and Future Growth Value (FGV) are considered as dependent variables. Residual Income measures viz., Economic Value Added (EVA) and Cash Value Added (CVA); Residual Income components viz., Earnings Before Interest and Tax (EBIT), Earnings before Interest, Tax and Depreciation &Amortization (EBITDA), Net Operating Profit After Tax (NOPAT),and Return on Net Assets (RONA); Cash flow measures viz., Cash From Operations (CFO) and Free Cash Flow (FCF); Traditional Valuation Measures viz., Earnings per Share (EPS), Price Earning ratio (P/E), Return on Capital Employed (ROCE), together through variable wise, year wise, have been considered as autonomous variables. All the financial information required for the study was sourced from the CMIE ‘s Prowess database. A sample of 15 top companies has been taken from Engineering industries during the period spanning 1996–2010.
Value Based Metrics, Shareholder Value Creation, Traditional Performance Measures, Value Framework
