11 Chapter-5

5.
1 INTRODUCTION
The financial management constitutes one of the major functions in the

management of business companies; it takes care about taking of the optimal
decisions for money investment effectively, to maximize the market value of
the company and thus contribution into the achievement of growth and survival
goals of the company. Accordingly the function of financial management
relates to the management of the company’s investments with maximum
returns at the lowest risk level, with a finance that realizes the appropriate
mixing of finance resources that leads to minimization of capital cost to the
lowest limit.
Investment has great importance as it contributes into the infrastructure
development of the national economy of the nations. Investment tools are
diversified specially in the case of securities issued by companies, most noted
of it being equities that represent one of the most important tools to finance the
companies owned capital. Due to the investment importance; the investment
decisions are considered among the most risky ones as they are tied with a long
term periods which may extend to several years. They are decisions related to
the investment of money right now for the purpose of gaining profits or returns
in the relatively far future. It is known that it is difficult to predict what will
happen in the future in absolute adequacy, so these are risky decisions, require
adaptation of information to evaluate the financial performance of the equities
issuing parties that enable the investor in equities to know market prices, to be
akin to increase the returns from the profits of these equities and shares being
periodical or capitalist, thus increasing the market price of these shares. The
investor relies on a number of indicators, whether those based on profit (such
as return on assets ROA,) or indicators based on the cash flow basis and finally
the modern financial performance indicators like economic value added and
market value added, which gained lately the concern of those concerned with
money and investment issues.
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And thus, the study of the impact of multiple approaches financial performance
indicators on stock prices of the Indian companies which are listed on Bombay
Stock Exchange, is considered of more importance due to the occurrence of a
lot of modern financial performance indicators; such economic value added and
market value added, and other indicators which are based on profits or cash
flows.
Shareholders, or owners' equity, are generally large in number, and an average
shareholder controls a minute proportion of the shares of the firm. This gives
rise to the tendency for such a shareholder to take no interest in the monitoring
of managers, who, left to themselves, may pursue interests different from those
of the owners of equity. The compatibility of corporate governance practices
with global standards has also become an important part of corporate success.
(Ross, 1973).
5.2 FACTORS AFFECTING INVESTMENT DECISION BY

SMALL INVESTORS IN EQUITY MARKET
5.2.1 The Neutral-Information
Kadiyala and Rau, (2004) investigated investor reaction to corporate event
announcements. They concluded that investors appear to under-react to prior
information as well as to information conveyed by the event, leading to
different patterns. The behavioral finance literature has proposed two
contradictory models of irrational investor behavior. In the first model,
investors have a tendency to overreact to information, leading to a pattern of
long term return reversals when firms announce corporate events such as new
issues of stock. In the second model, investors under react to information,
leading to long term return continuations when firms announce corporate
events such as open-market share repurchases or cash-financed tender offers.
Behavioral models have been viewed with skepticism partly because they do
not reconcile why investors seemingly overreact to a corporate event such as a
seasoned equity offering, while seeming to under react to an event such as a
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share repurchase. For instance, Fama, (1998) argues that behavioral models
cannot explain the long run abnormal return evidence since the overreaction of
investors to some events and under reaction to others implies that, on average,
investors are unbiased in their reaction to information. Loughran and Ritter,
(1995) argue that investor overreaction explains the negative long-run
abnormal returns following a seasoned equity offering (SEO), a conclusion
based on the good past performance of firms announcing an SEO. Ikenberry et
al, (1995) argue that investor underreaction explains the positive long-run
abnormal returns following a share repurchase, a conclusion based on the
information conveyed by the share repurchase itself. Lack of evidence for a
common behavioral explanation bolsters (Fama’s, 1998) argument that, on
average, investors are unbiased in their response to information. Merikas et al.,
(2003) adopted a modified questionnaire to analyze factors influencing Greek
investor behavior on the Athens Stock Exchange.
The results indicated that individuals base their stock purchase decisions on
economic criteria combined with other diverse variables. The results also
revealed that there is a certain degree of correlation between the factors that
behavioral finance theory and previous empirical evidence identify as the
influencing factors for the average equity investor, and the individual behavior
of active investors in the Athens Stock Exchange (ASE) influencing by the
overall trends prevailing at the time of the survey in the ASE.
De Bondt et al., (1985) published a paper about behavioral finance in which
they asked the following question: “Does the stock market overreact?” the
article gave evidence to support the hypothesis that cognitive bias (investor
over-reaction to a long series of bad news) could produce predictable
mispricing of stocks traded on the NYSE.
Phau and Poon, (2000) explain that a number of factors influence the choice
between a retail store and in-home shopping methods, such as mail order,
telephone order and the Internet. These influences include socio-economic and
demographic factors, product type and distribution methods, perceived
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purchase risk, personal characteristics and traits as well as shopping or delivery
time.
5.2.2 The Accounting-Information
Baker and Haslem, (1973) argue that investors are primarily concerned with
expectations about the future, considering earnings projection and historical
data to be of high interest to investors. On the other hand, research by Lee and
tweedie, (1975, 1976, and 1977) reveals that the general public faces problems
in understanding financial reporting in the corporate sector. Blume and Friend,
(1978) provide evidence that both price and earnings volatility are the primary
measures of risk employed by individuals, while Schlarbaum et al., (1978)
compare individuals’ performance with that of professional fund managers and
find that the former exhibit considerable skill in their investment decision
making. Lease et al., (1974) describe individuals as “investors” rather than
“traders” since they are long-term minded and give little interest to short-term
yields. Moreover, lewellen et al., (1977) reveal that investors' main source of
information is through fundamental or technical analysis. Antonides and Van
Der Sar, (1990) argue that the perceived risk of an investment is lower if an
asset has recently increased in value, consistent with (blume and friend’s,
1978) findings.
Nagy and Obenberger, (1994) investigated the extent to which a listing of 34
variables influence shareholders' perception, and provide evidence of a role for
a mix of financial and non-financial variables. Fisher and Statman, (1997),
relying on general agreement that the investment decision is a complex one,
suggest that investors are not only concerned about risk and return when
buying shares, but also several other parameters taken into consideration.
5.2.3 The Self-Image/Firm-Image Coincidence
Epstein, (1994) examined the demand for social information by individual
investors. The results indicate the usefulness of annual reports to corporate
shareholders. Furthermore, a majority of the shareholders surveyed also want
the company to report on corporate ethics, employee relations and community
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involvement. Behavioral models proposed by Daniel, Hirshleifer, and
Subrahmanyam, (1998) and Hong and Stein, (1999) also predict short-run
return continuations and long-run return reversals. Daniel et al. argue that
informed investors are overconfident about the private signal they receive
about a stock’s value. Biased self-attribution reinforces their overconfidence
when public information is in agreement with their private information. When
public information is not in agreement with their private signal, biased self-
attribution leads to dismissal of the information as noise.
5.2.4 The Advocate-Recommendation
The investor who already holds a stock may respond to an analyst
recommendation in one of four ways: the investor may hold stock on a sell
recommendation, the investor may sell stock on a hold recommendation, the
investor may hold stock on a hold recommendation, or the investor may sell
stock on a sell recommendation. Prior accounting research has examined how
the type of analyst and the nature of the analyst report affect investor behavior,
(Francis and Soffer, 1997). They found that because of the existence of
incentives for analysts to issue favorable recommendations, investors weight
other information in the analyst report more heavily when they observe a buy
rather than a sell recommendation. This factor includes purchase
recommendations from brokerage houses and individual stock brokers.
Recommendations from friends or coworkers marginally loaded on this factor
as well.
They found that large investors generate abnormal volumes of buyer-initiated
trades after a positive recommendation only if the analyst is unaffiliated. Small
traders exert abnormal buy pressure after all positive recommendations,
including those of affiliated analysts. Krishnan and Booker, (2002) analyzed
the factors influencing the decisions of investor who use analysts’
recommendations to arrive at a short-term decision to hold or sell a stock. The
results indicate that a strong form of the analyst summary recommendation
report, i.e., one with additional information supporting the analysts’ position
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further, reduces the disposition error for gains and also reduces the disposition
error for losses.
5.2.5 The Personal-Financial-Needs
Prospect theory proposes that certain outcomes are overweighted relative to
uncertain outcomes and that the value functions are different for gains and
losses, (Shefrin and Statman, 1985); (Weber and Camerer, 1998). Rational
logic suggests that when faced with a stock with unfavorable future
expectations, individuals should sell the stock regardless of their current gain or
loss condition. However, prior research on sunk costs and escalation of
commitment shows that people can become stuck in losing courses of action
even to the point of throwing good money after bad (Arkes and Blumer 1985;
Brockner 1992; Staw and Hoang 1995). Thus, individuals may prefer to hold a
losing stock and gamble on the future rather than selling and taking a sure loss
and may even become more committed to holding the stock.
5.3 LIQUIDITY POSITION OF SELECTED COMPANIES

5.3.1 CURRENT RATIO
This is a fundamental measure of the company’s financial condition, viz., its
ability to meet normal operating obligations. The current ratio compares the
total current assets with the total current liabilities. It is computed by dividing
current assets by current liabilities. Current Assets include cash, stock, work-
in-progress, marketable securities, and account receivable. On the other hand,
current liabilities include account payable, sundry creditors, accrued income
taxes, proposed dividend, borrowings from financial institutions and
outstanding expenses. Usually current ratio is used by trade creditors to
estimate the company’s ability to repay its credit. The current ratio is calculated
as:
Current Ratio = Current Assets___

Current Liabilities
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A high current ratio indicates a large proportion of current assets to current
liabilities. Usually the higher the ratio, the better is a company’s current
position and normally the better it can meet current obligations. But at the same
time a higher current ratio would mean that the company may have an
excessive investment in current assets that does not produce a significant
return. On the other hand, a low current ratio would indicate that sufficient cash
is not available to pay current liabilities.
A frequently used guideline to evaluate the adequacy of the current ratio is 2:1
or 2. Table No.: 5.1
Current Ratio of the Selected Companies (in :1)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 1.57 0.97 0.91 1.35 1.06 1.10 3.34 0.65 0.97 2.80
2005-06 1.54 0.85 0.94 1.35 1.18 1.03 5.46 0.71 1.25 4.96
2006-07 1.47 0.90 0.88 1.23 1.29 0.90 4.62 1.27 1.33 3.30
2007-08 1.45 0.85 0.94 1.14 1.19 0.98 3.04 2.88 1.36 4.71
2008-09 1.40 0.91 0.98 1.18 1.05 1.06 2.56 2.30 1.42 4.28
2009-10 1.37 1.05 0.81 1.21 1.08 1.07 2.38 1.11 0.92 5.34
2010-11 1.56 1.12 0.70 1.12 0.92 1.03 2.66 1.13 1.09 4.91
2011-12 1.78 1.12 0.71 1.07 0.82 1.15 2.89 0.85 1.12 4.75
2012-13 1.81 1.07 0.76 1.15 0.88 1.25 2.45 0.65 1.22 3.70
2013-14 1.99 0.91 0.82 1.22 0.94 1.07 1.39 0.55 1.25 3.41
Avg. 1.60 0.98 0.85 1.20 1.04 1.06 3.08 1.21 1.19 4.22
(Sources: Annual report of Selected Companies)
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Chart No. 5.1
Current Ratios of the Selected Companies (Individual)
95
96
97
Chart No. 5.2
Combined Company-Wise Current Ratio of the Selected Companies
98
Chart No. 5.3
Combined Year-Wise Current Ratios of the Selected Companie
99
Interpretation
From the above Table No. 5.1 showing the Current Ratios of the selected
companies, it can be seen that there is a fluctuating trend observed in case of
BHEL Ltd. In the year 2004-05, it was 1.57:1 which reduced to 1.54:1, 1.47:1,
1.45:1, 1.4:1, 1.37:1 continuously year after year till the year 2009-10
respectively. Thereafter, in the year 2010-11, it raised up to 1.56:1, 1.78:1,
1.81:1 and 1.99:1 respectively till the year 2013-14 showing a fluctuating trend.
Thus, during the study period the minimum current ratio was observed in the
year 2009-10 which was 1.37:1, while, the highest being in the year 2013-14 of
about 1.99:1 showing an average of about 1.60:1 during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the
current ratios during the study period. It was 0.97:1 in the year 2004-05 which
reduced to 0.85:1 during the year 2005-06, followed by 0.90:1, 0.85:1, 0.91:1,
1.05:1, 1.12:1, 1.12:1, 1.07:1 and 0.91:1 respectively during the years 2006-07
to 2013-14, average being 0.98:1 during the study period. Thus, during the
study period the lowest current ratio was 0.90:1 in the year 2006-07 almost
nearer to 0.91:1 in the years 2008-09 and 2013-14. However, it was highest i.e.,
1.12:1 in the years 2010-11 and 2011-12 during the study period.
HPCL also observed a fluctuating trend in its current ratios during the study
period. It was 0.91:1 in the year 2004-05 and increased further up to 0.94:1 in
the year 2005-06, followed by 0.88:1, 0.94:1, 0.98:1, 0.81:1, 0.70:1, 0.71:1,
0.76:1 and 0.82:1 in the respective years. The average was about 0.85:1 during
the study period, lowest being 0.70:1 in the year 2010-11 and highest being
0.98:1 in the year 2008-09.
In case of L & T Ltd. also, a fluctuating trend regarding the current ratio was
observed during the period. In the year 2004-05 and 2005-06, it was highest
1.35:1, followed by 1.23:1, 1.14:1, 1.18:1, 1.21:1, 1.12:1, 1.07:1, 1.15:1 and
1.22:1 in the respective years during the study period. However, the average
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was about 1.20:1 during the study period, lowest being 1.07:1 in the year 2011-
12.
Mahindra Ltd. also showed a fluctuating trend regarding its current ratio during
the study period. It was 1.06:1 in the year 2004-05 which increased to 1.18:1 in
the year 2005-06, followed by the highest 1.29:1 in the 2006-07, 1.19:1, 1.05:1,
1.08:1, 0.92:1, 0.82:1, 0.88:1 and 0.94:1 in the respective years. However, the
average current ratio during the study period was 1.04:1, lowest being 0.82:1 in
the year 2011-12.
In case of Reliance Ltd. also there was a fluctuating trend observed during the
study period. It was 1.10:1 in the year 2004-05, followed by 1.03:1, 0.90:1
(lowest), 0.98:1, 1.06:1, 1.07:1, 1.03:1, 1.15:1, 1.25:1 (highest) and 1.07:1 in
the respective years. However, the average current ratio during the study period
was about 1.06:1.
Sun Pharma Ltd. also observed a fluctuating trend in its current ratio. During
the year 2004-05 it was 3.34:1 which increased to 5.46:1 and reduced later to
4.62:1, 3.04:1, 2.56:1, 2.38:1, 2.66:1, 2.89:1, 2.45:1 and 1.39:1 in the
respective years. However, the average current ratio during the study period
was 3.08:1, lowest being 1.39:1 in the year 2013-14 and the highest being
5.46:1 in the year 2005-06.
Tata Steel Ltd. too observed a fluctuating trend regarding its current ratio
during the study period. It was 0.65:1 in the 2004-05 and increased to 0.71:1 in
the year 2005-06. Thereafter, it increased and came to 1.27:1 in the year 2006-
07, followed by 2.88:1, 2.30:1, 1.11:1, 1.13:1, 0.85:1, 0.65:1 and 0.55:1 in the
following years respectively. However, the average current ratio was 1.21:1
during the study period, highest being 2.88:1 during the year 2007-08 and least
being 0.55:1 in the year 2013-14.
In case of ITC Ltd. also, there was a fluctuating trend observed in its current
ratio during the study period. It was 0.97:1 in the year 2004-05, followed by
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1.25:1, 1.33:1, 1.36:1, 1.42:1, 0.92:1, 1.09:1, 1.12:1, 1.22:1 and 1.25:1
respectively in the following years. The average current ratio of ITC Ltd. was
1.19:1 during the study period, the lowest being 0.92:1 in the year 2009-10 and
highest being 1.42:1 in the year 2008-09.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its
current ratio during the study period. It was 2.80:1 in the year 2004-05 and
increased up to 4.96:1 in the year 2005-06. Further, it was 3.30:1, 4.71:1,
4.28:1, 5.34:1, 4.91:1, 4.75:1, 3.70:1 and 3.41:1 respectively in the following
years of study period. However, the average current ratio was about 4.22:1
during the study period, the highest being 5.34:1 in the year 2009-10 and the
lowest being 2.80:1 in the year 2004-05.
Thus, it can be seen that Infosys Ltd. has a Current ratio of about 4.22:1 on an
average during the study period, which is the highest among all the selected
companies and also higher than the normal expected thumb rule which is 2:1.
On the other hand, HPCL has the lowest current ratio of about 0.85:1 on an
average during the study period.
5.3.2 QUICK RATIO
Quick ratio is an indicator of a company’s short-term liquidity. It measures a

company’s ability to meet its short-term obligations with its most liquid assets.
For this reason, the ratio excludes inventories from current assets, and is
calculated as follows:
The quick ratio is calculated as:
Quick Ratio = Current Assets - Inventories

Current Liabilities
The quick ratio is more conservative than the current ratio because it
excludes inventories from current assets. The ratio derives its name presumably
from the fact that assets such as cash and marketable securities are quick
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sources of cash. Inventories generally take time to be converted into cash, and
if they have to be sold quickly, the company may have to accept a lower price
than book value of these inventories. As a result, they are justifiably excluded
from assets that are ready sources of immediate cash.
Table No.: 5.2

Quick Ratio of the Selected Companies (in :1)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 1.22 0.55 0.45 1.12 0.79 0.97 5.07 0.33 0.43 2.77
2005-06 1.17 0.63 0.34 1.03 0.84 0.67 5.04 0.30 0.57 4.91
2006-07 1.13 0.63 0.29 0.93 1.01 0.69 5.25 1.37 0.58 3.28
2007-08 1.09 0.59 0.51 0.86 0.74 0.89 2.27 3.52 0.56 4.67
2008-09 1.02 0.80 0.53 0.97 0.83 0.87 2.17 0.57 0.61 4.20
2009-10 1.04 0.84 0.43 1.15 0.86 0.69 1.52 0.76 0.39 5.28
2010-11 1.04 0.83 0.44 1.16 0.73 0.89 2.74 1.31 0.53 4.88
2011-12 1.11 0.76 0.52 1.22 0.72 1.19 2.33 0.69 0.56 4.69
2012-13 1.33 0.82 0.71 1.29 0.77 1.12 1.82 0.61 0.66 3.65
2013-14 1.49 0.57 0.57 1.47 0.93 1.03 1.03 0.32 0.68 3.38
Avg. 1.16 0.70 0.48 1.12 0.82 0.90 2.92 0.98 0.56 4.17
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Chart No. 5.4
Quick Ratios of the Selected Companies (Individual)
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105
106
Chart No. 5.5
Combined Company-Wise Quick Ratio of the Selected Companies
107
Chart No. 5.6
Combined Year-Wise Quick Ratios of the Selected Companies
108
Interpretation
From the above Table No. 5.2 showing the Quick Ratios of the selected
BHEL Ltd. In the year 2004-05, it was found to be 1.22:1 which reduced to
1.17:1, 1.13:1, 1.09:1, 1.02:1, 1.04:1, 1.04:1, 1.11:1, 1.33:1 and 1.49:1
respectively till 2013-14. Thus, during the study period the minimum current
ratio was observed in the year 2008-09 which was 1.02:1, while, the highest
being in the year 2013-14 of about 1.49:1 showing an average of about 1.16:1
during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the quick
ratios during the study period. It was 0.55:1 in the year 2004-05 which
increased and came to 0.63:1 for two consecutive years i.e., during the year
2005-06 and 2006-07, followed by 0.59:1, 0.80:1, 0.84:1, 0.83:1, 0.76:1, 0.82:1
and 0.57:1 respectively during the years 2007-08 to 2013-14, average being
0.70:1 during the study period. Thus, during the study period the lowest current
ratio was 0.55:1 in the year 2004-05. However, it was highest i.e., 0.84:1 in the
year 2009-10 during the study period.
HPCL also observed a fluctuating trend in its quick ratios during the study
period. It was 0.45:1 in the year 2004-05 and reduced to 0.34 in the year 2005-
06, followed by 0.29:1, 0.51:1, 0.53:1, 0.43:1, 0.44:1, 0.52:1, 0.71:1 and 0.57:1
in the respective years. The average was about 0.48:1 during the study period,
lowest being 0.29:1 in the year 2006-07 and the highest being 0.71:1 in the year
2012-13.
In case of L & T Ltd. also, a fluctuating trend regarding the quick ratio was
observed during the period. In the year 2004-05 it was 1.12:1, followed by
1.03:1, 0.93:1, 0.86:1, 0.97:1, 1.15:1, 1.16:1, 1.22:1, 1.29:1 and 1.47:1 in the
respective years during the study period. However, the average was about
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1.12:1 during the study period, lowest being 0.86:1 in the year 2007-08, while
the highest being 1.47:1 in the year 2013-14 during the study period.
Mahindra Ltd. also showed a fluctuating trend regarding its quick ratios during
the study period. It was 0.79:1 in the year 2004-05 which increased to 0.84:1 in
the year 2005-06, followed by the highest 1.01:1 in the 2006-07 and further,
0.74:1, 0.83:1, 0.86:1, 0.73:1, 0.72:1, 0.77:1 and 0.93:1 in the respective years.
However, the average quick ratio during the study period was 0.82:1, lowest
being 0.72:1 in the year 2011-12.
study period. It was 0.97:1 in the year 2004-05, followed by 0.67:1 (lowest),
0.69:1, 0.89:1, 0.87:1, 0.69:1, 0.89:1, 1.19:1 (highest), 1.12:1 and 1.03:1 in the
respective years. However, the average quick ratio during the study period was
about 0.90:1.
Sun Pharma Ltd. also observed a fluctuating trend in its quick ratio. During the
year 2004-05 it was 5.07:1 which reduced to 5.04:1 in the year 2005-06.
Further, they were 5.25:1, 2.27:1, 2.17:1, 1.52:1, 2.74:1, 2.33:1, 1.82:1 and
1.03:1 in the respective years. However, the average quick ratio during the
study period was 2.92:1, lowest being 1.03:1 in the year 2013-14 and the
Tata Steel Ltd. too observed a fluctuating trend regarding its quick ratio during
the study period. It was 0.33:1 in the 2004-05 and decreased to 0.30:1 being the
lowest in the year 2005-06. Thereafter, it increased and came to 1.37:1 in the
year 2006-07, followed by 3.52:1 (highest) in the year 2007-08; 0.57:1, 0.76:1,
1.31:1, 0.69:1, 0.61:1 and 0.32 in the following years respectively. However,
the average quick ratio was 0.98:1 during the study period.
In case of ITC Ltd. also, there was a fluctuating trend observed in its quick
ratio during the study period. It was 0.43:1 in the year 2004-05, followed by
0.57:1, 0.58:1, 0.56:1, 0.61:1, 0.39:1, 0.53:1, 0.56:1, 0.66:1 and 0.68:1
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respectively in the following years. The average quick ratio of ITC Ltd. was
0.56:1 during the study period, the lowest being 0.39:1 in the year 2009-10 and
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its quick
ratio during the study period. It was 2.77:1 (lowest) in the year 2004-05 and
increased up to 4.91:1 in the year 2005-06. Further, it was 3.28:1, 4.67:1,
4.20:1, 5.28:1, 4.88:1, 4.69:1, 3.65:1 and 3.38:1 respectively in the following
years of study period. However, the average quick ratio was about 4.17:1
during the study period, the highest being 5.28:1 in the year 2009-10.
Thus, it can be seen that Infosys Ltd. has a Quick Ratio of about 4.17:1 on an
companies. On the other hand, HPCL has the lowest i.e., only 0.48:1 on an
5.3.3 DEBT EQUITY RATIO

Debt- Equity ratio develops relationship between owned funds and the
borrowed funds. This reflects the extent to which borrowed capital is used in
place of equity capital. Business firms acquire assets both with owners and
creditors funds. The larger the portion of funds provided by owners, the less
risk is assumed by creditors. The debt-equity ratio is worked out as:
Debt-Equity Ratio = Total Debt_________

Total Owner’s Equity
The ratio represents the proportion of external equity to internal equity in the
capital structure of the firm. The external equity represents the amount of
debts/liabilities to outsiders. It includes both short- term as well as long-term
liabilities. On the other hand, owners equity includes all such liabilities that
belong to the shareholders e.g., share capital, reserves and surpluses. However,
the accumulated losses and deferred expenses are to be deducted from the
owner’s equity in the calculation of debt-equity ratio.
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Either too high or too low a ratio may be disadvantageous. As a rule of thumb,
debt equity ratio of less than 1.00 times is taken as acceptable.
Table No.: 5.3
Debt Equity Ratio of the Selected Companies (in times)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 0.10 0.01 0.24 0.52 0.48 0.57 1.08 0.53 0.03 0.00
2005-06 0.08 0.02 0.52 0.42 0.40 0.49 1.39 0.31 0.02 0.00
2006-07 0.04 0.02 0.94 0.34 0.39 0.47 0.72 0.51 0.02 0.00
2007-08 0.01 0.02 1.35 0.37 0.54 0.45 0.18 0.67 0.02 0.00
2008-09 0.01 0.02 1.86 0.46 0.69 0.57 0.01 0.78 0.02 0.00
2009-10 0.01 0.02 1.98 0.43 0.53 0.56 0.00 0.78 0.01 0.00
2010-11 0.01 0.01 1.92 0.35 0.29 0.47 0.01 0.64 0.01 0.00
2011-12 0.01 0.00 2.14 0.36 0.27 0.44 0.01 0.55 0.01 0.00
2012-13 0.03 0.00 2.37 0.34 0.26 0.41 0.01 0.50 0.00 0.00
2013-14 0.07 0.00 2.29 0.32 0.24 0.43 0.16 0.48 0.00 0.00
Avg. 0.04 0.01 1.56 0.39 0.41 0.49 0.36 0.58 0.01 0.00
112
Chart No. 5.7
Debt Equity Ratios of the Selected Companies (Individual)
113
114
115
Chart No. 5.8
Combined Company-Wise Debt Equity Ratio of the Selected Companies
116
Chart No. 5.9
Combined Year-Wise Debt Equity Ratios of the Selected Companies
117
Interpretation
From the above Table No. 5.3 showing the Debt Equity Ratios of the selected
BHEL Ltd. In the year 2004-05, it was 0.10 times which reduced to 0.08 times,
0.04 times in the years 2005-06 and 2006-07 respectively. Further, it remained
0.01 time continuously till the year 2011-12. Thereafter, in the year 2012-13, it
came to 0.03 times and in the year 2013-14 it came to 0.07 times showing a
fluctuating trend. Thus, during the study period the minimum debt equity ratio
was observed in the years 2007-08 to 2011-12 which was 0.01 times while, the
highest being in the year 2004-05 of about 0.10 times showing an average of
about 0.04 during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the debt
equity ratios during the study period. It was 0.01 times in the year 2004-05 and
increased to 0.02 times in the year 2005-06 and continued till the year 2009-10.
Further, it was 0.01 times in the year 2010-11, followed by 0.00 times till the
year 2013-14 respectively. However, the average ratio was 0.01 times during
the study period. Thus, during the study period the lowest debt equity ratio was
0.00 times in the years 2011-12, 2012-13 and 2013-14 respectively, while, the
highest ratio was 0.02 times in the years 2005-06 to 2009-10 during the study
period.
HPCL also observed a fluctuating trend in its debt equity ratios during the
study period. It was 0.24 times in the year 2004-05 and increased further up to
0.52 times in the year 2005-06, followed by 0.94 times, 1.35 times, 1.86 times,
1.98 times, 1.92 times, 2.14 times, 2.37 times and 2.29 times in the respective
years. The average was about 1.56 times during the study period, lowest being
0.24 times in the year 2004-05 and highest being 2.37 times in the year 2012-
13.
118
In case of L & T Ltd. also, a fluctuating trend regarding the debt equity ratio
was observed during the period. In the year 2004-05 it was 0.52 times, which
reduced and came to 0.42 times in the year 2005-06. Further, it was 0.34 times
in the year 2006-07, followed by 0.37 times, 0.46 times, 0.43 times, 0.35 times,
0.36 times, 0.34 times and 0.32 times in the respective years during the study
period. However, the average was about 0.39 times during the study period,
lowest being 0.32 times in the year 2011-12 and the highest being 0.52 times in
the year 2004-05.
Mahindra Ltd. also showed a fluctuating trend regarding its debt equity ratio
during the study period. It was 0.48 times in the year 2004-05 which reduced to
0.40 times in the year 2005-06, followed by 0.39 times in the 2006-07, 0.54
times, 0.69 times, 0.53 times, 0.29 times, 0.27 times, 0.26 times and 0.24 times
in the respective years. However, the average debt equity ratio during the study
period was 0.41 times, the lowest being 0.24 times in the year 2013-14 and the
highest being 0.69 times in the year 2008-09.
study period. It was 0.57 times in the year 2004-05, followed by 0.49 times,
0.47 times, 0.45 times, 0.57 times, 0.56 times, 0.47 times, 0.44 times, 0.41
times and 0.43 times in the respective years. However, the average debt equity
ratio during the study period was about 0.49 times, the highest being 0.57 times
in the years 2004-05 and 2008-09. On the other hand, the lowest was 0.41
times in the year 2012-13.
Sun Pharma Ltd. also observed a fluctuating trend in its debt equity ratio.
During the year 2004-05 it was 1.08 times which increased to 1.39 times
(highest) in the year 2005-06. Further, it was 0.72 times, 0.18 times, 0.01 times,
years. However, the average debt equity ratio during the study period was 0.36
times, lowest being 0.00 times in the year 2009-10.
119
Tata Steel Ltd. too observed a fluctuating trend regarding its debt equity ratio
during the study period. It was 0.53 times in the 2004-05 and reduced to 0.31
times (lowest) in the year 2005-06. Thereafter, it increased and came to 0.51
times in the year 2006-07, followed by 0.67 times, 0.78 times, 0.78 times, 0.64
times, 0.55 times, 0.50 times and 0.48 times in the following years respectively.
However, the average debt equity ratio was 0.58 times during the study period,
highest being 0.78 times during the years 2008-09 and 2009-2010.
In case of ITC Ltd. also, there was a fluctuating trend observed in its debt
equity ratio during the study period. It was 0.03 times (highest) in the year
2004-05, followed by 0.02 times for four consecutive years till 2008-09.
Thereafter, it came to 0.01 times for the years 2009-10 to 2011-12. Further, it
was 0.00 times (lowest) for the years 2012-13 and 2013-14 respectively. The
average debt equity ratio of ITC Ltd. was 0.01 times during the study period.
Lastly, in case of Infosys Ltd. the debt equity ratio disclosed was 0.00 during
the entire study period so the company was no debt company during the study
period.
Thus, it can be seen that HPCL has the highest debt-equity ratio of about 1.56
times on an average during the study period among all the selected companies.
While, Colgate Ltd. and ITC Ltd. has the lowest Debt-Equity Ratio of about
0.01 times on an average during the study period. Also, Infosys Ltd. did not
disclose any information on the same during the study period.
5.4 MEASURE FINANCIAL PERFORMANCE OF

SELECTED COMPANIES
5.4.1 NET PROFIT RATIO/NET PROFIT MARGIN RATIO
Net profit/ net profit margin ratio monitors the net profit made in relation to
sales. This ratio, also known as net operating margin is calculated by dividing
the net profit after tax by the amount of sales. Thus, net profit margin ratio can
be written as under:
120
Net Profit Margin Ratio = Net Profit after Tax x 100
Sales
In interpreting the net profit margin ratio, it is important to bear in mind that
such ratios vary considerably from firm to firm. Firms engaged in retailing are
likely to have quite rapid turnover and to operate on low margin allied to high
volume, while those firms engaged in selling a few large items must make a
high profit in relation to the sales value of each one.
Table No.: 5.4

Net Profit Ratio of the Selected Companies(in %)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 10.02 11.78 2.12 7.48 7.78 11.49 25.37 23.97 28.00 27.28
2005-06 12.49 12.20 0.57 6.87 10.57 11.21 27.45 23.17 22.19 26.82
2006-07 13.94 12.36 1.75 7.97 10.85 10.69 28.04 24.18 21.40 28.77
2007-08 14.67 15.71 1.08 8.7 9.78 14.54 32.17 23.85 21.50 28.57
2008-09 11.80 17.12 0.46 10.27 6.72 10.78 32.77 21.36 21.18 28.72
2009-10 12.94 21.57 1.20 11.82 11.37 8.44 36.16 20.17 21.30 24.28
2010-11 14.23 17.61 1.14 9.01 11.35 8.17 44.53 23.36 22.63 25.60
2011-12 14.68 16.58 0.51 8.38 9.04 6.07 42.27 19.73 23.70 23.38
2012-13 13.48 15.70 0.43 9.51 8.29 5.83 21.24 13.25 24.05 21.72
2013-14 8.71 15.09 0.77 9.71 9.28 5.64 -99.99 15.37 25.57 24.02
Avg. 12.70 15.57 1.00 8.97 9.50 9.29 19.00 20.84 23.15 25.92
121
Chart No. 5.10
Net Profit Ratios of the Selected Companies (Individual)
122
123
124
Chart No. 5.11
Combined Company-Wise Net Profit Ratio of the Selected Companies
125
Chart No. 5.12
Combined Year-Wise Net Profit Ratios of the Selected Companies
126
Interpretation
From the above Table No. 5.4 showing the Net Profit Ratios of the selected
BHEL Ltd. In the year 2004-05, it was 10.02%. Further, it was 12.49%,
13.94%, 14.67%, 11.80%, 12.94%, 14.23%, 14.68%, 13.48% and 8.71%
respectively. Thus, during the study period the minimum net profit ratio was
observed in the year 2013-14 which was 8.71%, while, the highest being in the
year 2011-12 of about 14.68% showing an average of about 12.70% during the
study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Net
Profit Ratios during the study period. It was 11.78% (lowest) in the year 2004-
05. Further, it was 12.20%, 12.36%, 15.71%, 17.12%, 21.57%, 17.61%,
16.58%, 15.70% and 15.09% in the respective years. However, the average
ratio was 15.57% during the study period. While, the highest net profit ratio
was 21.57% in the year 2009-10 during the study period.
HPCL also observed a fluctuating trend in its Net Profit Ratios during the study
period. It was 2.12% (highest) in the year 2004-05 and reduced further up to
0.57% in the year 2005-06, followed by 1.75%, 1.08%, 0.46%, 1.20%, 1.14%,
0.51%, 0.43% and 0.77% in the respective years. The average was about 1.00%
during the study period, lowest being 0.43 in the year 2012-13.
In case of L & T Ltd. also, a fluctuating trend regarding the Net Profit Ratios
was observed during the period. In the year 2004-05 it was 7.48% which
reduced and came to 6.87% (lowest) in the year 2005-06, followed by 7.97%,
8.70%, 10.27%, 11.82%, 9.01%, 8.38%, 9.51% and 9.71% in the respective
years during the study period. However, the average was about 8.97% during
the study period, the highest being 11.82% in the year 2009-10.
Mahindra Ltd. also showed a fluctuating trend regarding its Net Profit Ratios
during the study period. It was 7.78% in the year 2004-05 which increased to
127
10.57% in the year 2005-06, followed by 10.85% in the year 2006-07 and
years. However, the average net profit ratio during the study period was 9.50%,
the lowest being 6.72% in the year 2008-09, while the highest was 11.37% in
the year 2009-10.
study period. It was 11.49% in the year 2004-05, followed by 11.21%, 10.69%,
years. However, the average net profit ratio during the study period was about
9.29%, highest being 14.54% in the year 2007-08 and the lowest being 5.64%
in the year 2013-14..
Sun Pharma Ltd. also observed a fluctuating trend in its Net Profit Ratios.
During the year 2004-05 it was 25.37% which increased to 27.45% in the year
2005-06, followed by 28.04%, 32.17%, 32.77%, 36.16%, 44.53%, 42.27%,
21.24% and -99.99% in the respective years. However, the average net profit
ratio during the study period was 19.00%, lowest being -99.99% in the year
2013-14 and the highest being 44.53% in the year 2010-11.
Tata Steel Ltd. too observed a fluctuating trend regarding its Net Profit Ratios
during the study period. It was 23.97% in the 2004-05 reduced to 23.17% in the
year 2005-06. Thereafter, it increased and came to 24.18% (highest) in the year
2006-07, followed by 23.85%, 21.36%, 20.17%, 23.36%, 19.73%, 13.25% and
15.37% in the following years respectively. However, the average net profit
ratio was 20.84% during the study period and the least being 13.25% in the
year 2012-13.
In case of ITC Ltd. also, there was a fluctuating trend observed in its Net Profit
Ratios during the study period. It was 28.00% (highest) in the year 2004-05,
followed by 22.19%, 21.40%, 21.50%, 21.18%, 21.30%, 22.63%, 23.70%,
24.05% and 25.57% respectively in the following years. The average net profit
128
ratio of ITC Ltd. was 23.15% during the study period, the lowest being 21.18%
in the year 2008-09.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its Net
Profit Ratios during the study period. It was 27.28% in the year 2004-05 and
reduced up to 26.82% in the year 2005-06. Further, it was 28.77%, 28.57%,
28.72%, 24.28%, 25.60%, 23.38%, 21.72% and 24.02% respectively in the
following years of study period. However, the average net profit ratio was
about 25.92% during the study period, the highest being 28.77% in the year
2006-07 and the lowest being 21.72% in the year 2012-13.
Thus, it can be seen that that Infosys Ltd. has a Net Profit ratio of about
25.92% on an average during the study period, which is the highest among all
the selected companies .While, HPCL has the lowest i.e., only 1.00 % on an
5.4.2 RETURN ON NET WORTH/EQUITY RATIO
The amount of net income returned as a percentage of shareholders

equity. Return on equity measures a corporation's profitability by revealing
how much profit a company generates with the money shareholders have
invested.
RONW/E is expressed as a percentage and calculated as:

Return on Net Worth/Equity Ratio = Net Income______ x 100
Shareholder’s Equity
Net income is for the full fiscal year (before dividends paid to common stock
holders but after dividends to preferred stock.) Shareholder's equity does not
include preferred shares. It is also known as "Return on Net Worth"
(RONW). The RONW/E is useful for comparing the profitability of a company
to that of other firms in the same industry.
129
Table No.: 5.5
Return on Net Worth/Equity Ratio of the Selected Companies (in %)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 16.84 45.86 15.79 22.70 27.47 21.82 31.38 60.02 27.97 40.70
2005-06 25.20 52.84 4.72 21.27 28.03 21.90 35.93 41.70 24.83 39.89
2006-07 30.02 71.23 17.14 27.11 33.20 22.45 32.15 35.40 26.01 41.90
2007-08 29.23 104.67 12.61 28.47 24.05 21.64 30.47 25.97 25.99 36.26
2008-09 26.47 153.35 5.40 23.96 18.10 15.69 27.04 21.88 23.85 37.18
2009-10 29.88 156.07 11.68 21.48 31.96 13.37 16.54 14.19 28.98 29.13
2010-11 33.33 113.38 14.21 17.70 29.39 14.78 22.32 16.36 31.36 27.69
2011-12 30.93 108.97 7.10 18.95 25.71 12.97 23.32 13.51 32.88 31.22
2012-13 23.70 107.41 6.74 14.56 25.08 12.28 6.59 9.43 33.36 27.70
2013-14 10.90 99.11 12.07 15.55 23.92 11.69 -0.78 11.02 33.51 26.09
Avg. 25.65 101.29 10.75 21.18 26.70 16.86 22.50 24.95 28.87 33.78
130
Chart No. 5.13
Return on Net Worth/Equity Ratios of the Selected Companies (Individual)
131
132
133
Chart No. 5.14
Combined Company-Wise Return on Net Worth/Equity Ratio of the Selected Companies
134
Chart No. 5.15
Combined Year-Wise Return on Net Worth/ Equity Ratios of the Selected Companies
135
Interpretation
From the above Table No. 5.5 showing the Return on Net Worth/Equity Ratios
of the selected companies, it can be seen that there is a fluctuating trend
observed in case of BHEL Ltd. In the year 2004-05, it was 16.84% which
increased and came to 25.20% in the year 2005-06. Further, they were 30.02%,
29.23%, 26.47%, 29.88%, 33.33%, 30.93%, 23.70% and 10.90% till the year
2013-14 respectively. Thus, during the study period the minimum return on net
worth/equity ratio was observed in the year 2013-14 which was 10.90% while,
the highest being in the year 2010-11 of about 33.33% showing an average of
about 25.65% during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Return
on Net Worth/Equity ratios during the study period. It was 45.86% (lowest) in
the year 2004-05, which further increased to 52.84% during the year 2005-06,
followed by 71.23%, 104.67%, 153.35%, 156.07%, 113.38%, 108.97%,
107.41% and 99.11% respectively during the years 2006-07 to 2013-14,
average being 101.29% during the study period. Thus, during the study period
the highest return on net worth/equity ratio was in the year 2009-10 i.e.,
156.07%.
HPCL also observed a fluctuating trend in its return on net worth/equity ratios
during the study period. It was 15.79% in the year 2004-05 and reduced further
up to 4.72% (lowest) in the year 2005-06, followed by the highest 17.14% in
the year 2006-07. Further, they were 12.61%, 5.40%, 11.68%, 14.21%, 7.10%,
6.74% and 12.07% in the respective years. The average was about 10.75%
In case of L & T Ltd. also, a fluctuating trend regarding the Return on Net
Worth/Equity ratio was observed during the period. In the year 2004-05 it was
22.70% followed by 21.27%, 27.11%, 28.47%, 23.96%, 21.48%, 17.70%,
18.95%, 14.56% and 15.55% in the respective years during the study period.
136
However, the average was about 21.18% during the study period, lowest being
14.56% in the year 2012-13 and the highest being 28.47% in the year 2007-08.
Mahindra Ltd. also showed a fluctuating trend regarding its Return on Net
Worth/Equity ratio during the study period. It was 27.47% in the year 2004-05
which increased to 28.03% in the year 2005-06, followed by the highest
33.20% in the 2006-07. Further, they were 24.05%, 18.10%, 31.96%, 29.39%,
return on net worth/equity ratio during the study period was 26.70%, the lowest
being 18.10% in the year 2008-09.
21.64%, 15.69%, 13.37%, 14.78%, 12.97%, 12.28% and 11.69% in the
respective years. However, the average return on net worth/equity ratio during
the study period was about 16.86%.
Sun Pharma Ltd. also observed a fluctuating trend in its Return on Net
Worth/Equity ratio. During the year 2004-05 it was 31.38% which increased to
35.93% (highest) in the year 2005-06. Further, they were 32.15%, 30.47%,
27.04%, 16.54%, 22.32%, 23.32%, 6.59% and -0.78% in the respective years.
However, the average return on net worth/equity ratio during the study period
was 22.50%, lowest being -0.78% in the year 2013-14.
Tata Steel Ltd. too observed a fluctuating trend regarding its Return on Net
Worth/Equity ratio during the study period. It was 60.02% (highest) in the
2004-05 and reduced to 41.70% in the year 2005-06. Thereafter, it further
reduced and came to 35.40% in the year 2006-07, followed by 25.97%,
21.88%, 14.19%, 16.36%, 13.51%, 9.43% and 11.02% in the following years
respectively. However, the average return on net worth/equity ratio was
24.95% during the study period and the least being 9.43% in the year 2012-13.
137
In case of ITC Ltd. also, there was a fluctuating trend observed in its Return on
Net Worth/Equity ratio during the study period. It was 27.97% in the year
2004-05, followed by 24.83%, 26.01%, 25.99%, 23.85%, 28.98%, 31.36%,
32.88%, 33.36% and 33.51% respectively in the following years. The average
return on net worth/equity ratio of ITC Ltd. was 28.87% during the study
period, the lowest being 23.85% in the year 2008-09 and the highest being
33.51% in the year 2013-14.
Return on Net Worth/Equity ratio during the study period. It was 40.70% in the
year 2004-05 and reduced and came up to 39.89% in the year 2005-06. Further,
they were 41.90%, 36.26%, 37.18%, 29.13%, 27.69%, 31.22%, 27.70% and
26.09% respectively in the following years of study period. However, the
average return on net worth/equity ratio was about 33.78% during the study
period, the lowest being 26.09% in the year 2013-14, while, the highest being
41.90% in the year 2006-07.
Thus, it can be seen that that Colgate Ltd. has a Return on Net Worth/ Equity
ratio of about 101.29% on an average during the study period, which is the
highest among all the selected companies. On the other hand, HPCL has the
lowest i.e., only 10.75% on an average during the study period.
5.4.3 RETURN ON CAPITAL EMPLOYED/ ASSETS RATIO

One of the most widely used ratios is the return on assets. Since assets are used
to generate income, the higher the income, the more productive assets were
during the period. In computing the return on assets the analyst must bear in
mind that both borrowed as well as owned funds are used by the business for
the acquisition of the assets, therefore, the return on assets should be computed
before accounting for the interest on borrowed capital. At the same time,
income-tax too is not considered while calculating this ratio because taxes are
calculated on income after interest deductions. Consequently, earning (income)
before interest and taxes is usually used to measure the return on assets. Thus,
138
Return on Assets/Capital Employed = EBIT____ x 100
Average Assets
Table No.: 5.6

Return on Capital Employed/Assets Ratio of the Selected Companies (in %)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 26.86 71.69 17.16 22.12 27.16 19.31 16.37 63.79 33.09 48.10
2005-06 36.37 71.23 3.54 24.16 26.33 18.76 16.31 50.13 36.26 45.09
2006-07 45.16 90.01 13.46 30.92 32.25 20.12 19.30 36.63 37.24 45.99
2007-08 45.23 129.95 8.76 31.82 21.47 18.66 27.01 23.27 36.60 41.52
2008-09 40.73 178.61 9.19 26.89 14.83 13.21 27.37 17.23 34.60 42.92
2009-10 45.47 176.29 9.13 23.85 30.06 11.89 17.39 13.57 42.64 37.76
2010-11 35.94 140.48 9.28 22.17 29.92 13.63 23.28 16.14 45.88 37.89
2011-12 28.56 134.36 7.54 21.77 25.44 12.77 23.39 14.53 47.69 43.00
2012-13 23.37 133.73 5.60 16.80 26.27 12.15 8.30 11.41 48.29 37.48
2013-14 11.01 126.51 7.24 18.20 22.63 11.52 0.13 12.69 48.21 35.63
Avg. 33.87 125.29 9.09 23.87 25.64 15.20 17.89 25.94 41.05 41.54
139
Chart No. 5.16
Return on Capital Employed/Assets Ratios of the Selected Companies (Individual)
140
141
142
Chart No. 5.17
Combined Company-Wise Return on Capital Employed/Assets Ratio of the Selected Companies
143
Chart No. 5.18
Combined Year-Wise Return on Capital Employed/ Assets Ratios of the Selected Companies
144
Interpretation
From the above Table No. 5.6 showing the Return on Capital Employed/Assets
Ratios of the selected companies, it can be seen that there is a fluctuating trend
observed in case of BHEL Ltd. In the year 2004-05, it was 26.86%. Further,
they were 45.16%, 45.23%, 40.73%, 45.47%, 35.94%, 28.56%, 23.37% and
11.01% respectively in the following years of the study period. Thus, during
the study period the minimum return on capital employed/assets ratio was
observed in the year 2013-14 which was 11.01%, while, the highest being in
the year 2009-10 of about 45.47% showing an average of about 33.87% during
the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Return
on Capital Employed/ Assets ratios during the study period. It was 71.69% in
the year 2004-05 which reduced to 71.23% (lowest) during the year 2005-06,
followed by 90.01%, 129.95%, 178.61%, 176.29%, 140.48%, 134.36%,
133.73% and 126.51% respectively during the years 2006-07 to 2013-14,
average being 125.29% during the study period. Thus, during the study period
the highest return on capital employed/assets ratio was 178.61% in the year
2008-09.
HPCL also observed a fluctuating trend in its Return on Capital

Employed/Assets ratios during the study period. It was 17.16% (highest) in the
year 2004-05 and reduced further up to 3.54% (lowest) in the year 2005-06,
followed by 13.46%, 8.76%, 9.19%, 9.13%, 9.28%, 7.54%, 5.60% and 7.24%
in the respective years. The average was about 9.09% during the study period.
In case of L & T Ltd. also, a fluctuating trend regarding the Return on Capital
Employed/Assets ratio was observed during the period. In the year 2004-05 it
was 22.12% and increased to 24.16% in the year 2005-06, followed by 30.92%,
31.82%, 26.89%, 23.85%, 22.17%, 21.77%, 16.80% and 18.20% in the
145
23.87% during the study period, lowest being 16.80% in the year 2012-13 and
the highest being 31.82% in the year 2007-08.
Mahindra Ltd. also showed a fluctuating trend regarding its Return on Capital
Employed/Assets ratio during the study period. It was 27.16% in the year 2004-
05 which reduced to 26.33% in the year 2005-06, followed by the highest
32.25% in the 2006-07. Further, they were 21.47%, 14.83%, 30.06%, 29.92%,
return on capital employed/assets ratio during the study period was 25.64%,
lowest being 14.83% in the year 2008-09.
18.66%, 13.21%, 11.89%, 13.63%, 12.77%, 12.15% and 11.52% in the
respective years. However, the average return on capital employed/assets ratio
during the study period was about 15.20%, highest being 20.12% in the year
2006-07 and the lowest being 11.52% in the year 2013-14.
Sun Pharma Ltd. also observed a fluctuating trend in its Return on Capital
Employed/Assets ratio. During the year 2004-05, it was 16.37% which reduced
to 16.31% in the year 2005-06. Further they were 19.30%, 27.01%, 27.37%,
17.39%, 23.28%, 23.39%, 8.30% and 0.13% in the respective years. However,
the average return on capital employed/assets ratio during the study period was
17.89%, lowest being 0.13% in the year 2013-14 and the highest being 27.37%
Tata Steel Ltd. too observed a fluctuating trend regarding its Return on Capital
Employed/Assets ratio during the study period. It was 63.79% (highest) in the
2004-05 and reduced to 50.13% in the year 2005-06. Thereafter, they were
36.63%, 23.27%, 17.23%, 13.57%, 16.14%, 14.53%, 11.41% and 12.69% in
the following years respectively. However, the average return on capital
146
employed/assets ratio was 25.94% during the study period and the least being
11.41% in the year 2012-13.
In case of ITC Ltd. also, there was a fluctuating trend observed in its Return on
Capital Employed/Assets ratio during the study period. It was 33.09% (lowest)
in the year 2004-05, followed by 36.26%, 37.24%, 36.60%, 34.60%, 42.64%,
45.88%, 47.69%, 48.29% and 48.21% respectively in the following years. The
average return on capital employed/assets ratio of ITC Ltd. was 41.05% during
the study period, the highest being 48.29% in the year 2012-13.
Return on Capital Employed/Assets ratio during the study period. It was
48.10% (highest) in the year 2004-05 and reduced up to 45.09% in the year
2005-06. Further, it was 45.99%, 41.52%, 42.92%, 37.76%, 37.89%, 43.00%,
37.48% and 35.63% respectively in the following years of study period.
However, the average return on capital employed/assets ratio was about
41.54% during the study period, the lowest being 35.63% in the year 2013-14.
Thus, it can be seen that that Colgate Ltd. has a Return on Capital
Employed/Assets ratio of about 125.29% on an average during the study
period, which is the highest among all the selected companies. On the other
hand, HPCL has the lowest i.e., only 9.09% on an average during the study
period.
5.4.4 EARNINGS PER SHARE (EPS)
Earnings per share (EPS): This is a well known and widely used indicator of
profitability because it can easily be compared to the previous EPS figure and
to the EPS figure of other companies. The earnings per share represent an
average amount of net income earned by single equity share. This is calculated
with the help of the following formula:
EPS = Net Profit after Tax – Preference Dividend

Number of Equity Shares
147
Table No.: 5.7
Earnings per share (EPS) of the Selected Companies (in Rs.)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 37.86 7.40 35.59 71.94 44.02 53.30 15.94 60.91 88.28 187.38
2005-06 66.57 9.07 11.55 70.58 35.26 63.70 24.06 61.51 5.95 81.41
2006-07 94.86 10.39 43.47 47.65 43.10 84.28 31.57 69.95 7.18 64.35
2007-08 55.82 13.30 32.97 71.73 44.54 131.97 47.16 61.06 8.28 72.50
2008-09 61.22 18.83 16.07 57.71 30.60 95.24 58.75 66.75 8.65 97.74
2009-10 84.15 27.75 36.40 70.83 35.58 48.59 41.10 54.97 10.64 96.92
2010-11 117.69 25.95 43.13 63.15 43.69 60.80 12.79 69.93 6.45 102.35
2011-12 27.72 28.77 25.51 71.11 47.16 60.01 15.70 67.07 7.88 139.93
2012-13 26.12 31.99 25.24 78.40 55.22 63.66 4.14 50.79 9.39 151.79
2013-14 13.66 35.11 48.51 58.42 61.91 66.55 0.00 65.33 11.05 167.47
Avg. 58.57 20.86 31.84 66.15 44.11 72.81 25.12 62.83 16.38 116.18
148
Chart No. 5.19
Earnings per share (EPS) of the Selected Companies (Individual)
149
150
151
Chart No. 5.20
Combined Company-Wise Earnings per share (EPS) of the Selected Companies
152
Chart No. 5.21
Combined Year-Wise Earnings per share (EPS) of the Selected Companies
153
Interpretation
From the above Table No. 5.7 showing the Earnings per share (EPS) of the
selected companies, it can be seen that there is a fluctuating trend observed in
case of BHEL Ltd. In the year 2004-05, it was Rs. 37.86 followed by Rs.66.57,
Rs.94.86, Rs.55.82, Rs.61.22, Rs.84.15, Rs.117.69, Rs.27.72, Rs.26.12 and
Rs.13.66 respectively during the study period. Thus, during the study period
the minimum EPS was observed in the year 2013-14 which was Rs.13.66
while, the highest being in the year 2010-11 of about Rs.117.69 showing an
average of about Rs.58.57 during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the EPS
during the study period. It was Rs.7.40 (lowest) in the year 2004-05 which
increased and came to Rs.9.07 during the year 2005-06, followed by Rs.10.39,
Rs.13.30, Rs.18.83, Rs.27.75, Rs.25.95, Rs.28.77, Rs.31.99 and Rs.35.11
respectively during the years 2006-07 to 2013-14, average being Rs.20.86
during the study period. Thus, during the study period the highest EPS was
Rs.35.11 in the years 2013-14.
HPCL also observed a fluctuating trend in its EPS during the study period. It
was Rs.35.59 in the year 2004-05 and reduced to Rs.11.55 (lowest) in the year
2005-06, followed by Rs.43.47, Rs.32.97, Rs.16.07, Rs.36.40, Rs.43.13,
Rs.25.51, Rs.25.24 and Rs.48.51 in the respective years. The average was
about Rs.31.84 during the study period, highest being Rs.48.51 in the year
2013-14.
In case of L & T Ltd. also, a fluctuating trend regarding the EPS was observed
during the period. In the year 2004-05 it was Rs.71.94 followed by Rs.70.58,
Rs.47.65, Rs.71.73, Rs.57.71, Rs.70.83, Rs.63.15, Rs.71.11, Rs.78.40 and
Rs.58.42 in the respective years during the study period. However, the average
was about Rs.66.15 during the study period, lowest being Rs.47.65 in the year
2006-07, while the highest was Rs.78.40 in the year 2012-13.
154
Mahindra Ltd. also showed a fluctuating trend regarding its EPS during the
study period. It was Rs.44.02 in the year 2004-05 which reduced to Rs.35.26 in
the year 2005-06, followed by Rs.43.10, Rs.44.54, Rs.30.60, Rs.35.58,
Rs.43.69, Rs.47.16, Rs.55.22 and Rs.61.91 in the respective years. However,
the average EPS during the study period was Rs.44.11, lowest being Rs.30.60
in the year 2008-09 and the highest being Rs.61.91 in the year 2013-14.
study period. It was Rs.53.30 in the year 2004-05, followed by Rs.84.28,
Rs.131.97, Rs.95.24, Rs.48.59, Rs.60.80, Rs.60.01, Rs.63.66 and Rs.66.55 in
the respective years. However, the average EPS during the study period was
about Rs.72.81, lowest being Rs.48.59 in the year 2009-10 and the highest
being Rs.131.97 in the year 2007-08.
Sun Pharma Ltd. also observed a fluctuating trend in its EPS. During the year
2004-05 it was Rs.15.94 which increased to Rs.24.06 in the year 2005-06.
Further, they were Rs.31.57, Rs.47.16, Rs.58.75, Rs.41.10, Rs.12.79, Rs.15.70,
Rs.4.14 and Re.0.00 in the respective years. However, the average EPS during
the study period was Rs.25.12, lowest being Re. 0.00 in the year 2013-14 and
the highest being Rs.58.75 in the year 2008-09.
Tata Steel Ltd. too observed a fluctuating trend regarding its EPS during the
study period. It was Rs.60.91 in the 2004-05 and increased to Rs.61.51 in the
year 2005-06, followed by Rs.69.95 (highest) in the year 2006-07. Thereafter,
they were Rs.61.06, Rs.66.75, Rs.54.97, Rs.69.93, Rs.67.07, Rs.50.79 and
Rs.65.33 respectively in the following years. However, the average EPS was
Rs.62.83 during the study period, and least being Rs.50.79 in the year 2012-13.
In case of ITC Ltd. also, there was a fluctuating trend observed in its EPS
during the study period. It was Rs. 88.28 (highest) in the year 2004-05,
followed by Rs.5.95 (lowest) in the year 2005-06. Thereafter, they were
Rs.7.18, Rs.8.28, Rs.8.65, Rs.10.64, Rs.6.45, Rs.7.88, Rs.9.39 and Rs.11.05
155
respectively in the following years. The average EPS of ITC Ltd. was Rs.16.38
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its EPS
during the study period. It was Rs.187.38 (highest) in the year 2004-05 and
reduced up to Rs.81.41 in the year 2005-06. Further, it was Rs.64.35, Rs.72.5,
Rs.97.74, Rs.96.92, Rs.102.35, Rs.139.93, Rs.151.79 and Rs.167.47
respectively in the following years of study period. However, the average EPS
was about Rs.116.18 during the study period and the lowest being 64.35 in the
year 2006-07.
Thus, it can be seen that that Infosys Ltd. has an EPS of about Rs.116.18 on an
companies. On the other hand, ITC Ltd. has the lowest i.e., only Rs. 16.38 on
an average during the study period.
5.5 VALUATION RATIOS OF SELECTED COMPANIES

5.4.5 PRICE EARNING (P/E) RATIO
The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a
market prospect ratio that calculates the market value of a stock relative to its
earnings by comparing the market price per share by the earnings per share. In
other words, the price earnings ratio shows what the market is willing to pay
for a stock based on its current earnings.
Investors often use this ratio to evaluate what a stock's fair market value should
be by predicting future earnings per share. The PE ratio helps investors analyze
how much they should pay for a stock based on its current earnings. This is
why the price to earnings ratio is often called a price multiple or earnings
multiple. Investors use this ratio to decide what multiple of earnings a share is
worth. In other words, how many times earnings they are willing to pay.
156
The price to earnings ratio indicates the expected price of a share based on its
earnings. As a company's earnings per share being to rise, so does their market
value per share. A company with a high P/E ratio usually indicated positive
future performance and investors are willing to pay more for this company's
shares.
P/E Ratio = Market Value Price per share

Earnings per share
Table No: 5.8
Price Earnings Ratio of the Selected Companies (in times)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 20.27 24.53 8.60 13.83 11.29 10.24 29.57 6.58 16.01 26.35
2005-06 33.75 47.64 27.96 34.47 17.79 12.50 36.01 8.72 34.94 36.62
2006-07 23.83 31.99 5.68 33.98 18.10 16.24 33.39 6.43 22.62 31.28
2007-08 36.84 28.75 7.75 42.17 15.62 17.16 26.11 11.35 26.87 19.73
2008-09 24.57 25.00 16.75 11.66 12.52 15.99 18.93 3.09 23.04 13.55
2009-10 28.35 24.33 8.75 22.96 15.32 22.12 43.54 11.51 29.30 26.98
2010-11 17.51 31.40 8.28 26.18 15.99 17.23 34.54 8.87 31.72 31.62
2011-12 9.27 38.79 11.89 18.38 14.78 12.47 36.27 7.01 31.73 20.47
2012-13 6.77 38.96 11.30 17.41 15.59 12.15 197.67 6.15 36.36 19.04
2013-14 14.41 39.12 6.39 21.78 15.84 13.97 0.00 6.03 35.19 19.58
Avg. 21.56 33.05 11.34 24.28 15.28 15.01 45.60 7.57 28.78 24.52
157
Chart No. 5.22
Price Earnings (P/E) Ratio of the Selected Companies (Individual)
158
159
160
Chart No. 5.23
Combined Company-Wise Price Earnings (P/E) Ratio of the Selected Companies
161
Chart No. 5.24
Combined Year-Wise Price Earnings (P/E) Ratio of the Selected Companies
162
Interpretation
From the above Table No. 5.8 showing the Price Earnings (P/E) Ratios of the
case of BHEL Ltd. In the year 2004-05, it was 20.27 times which increased to
33.75 times in the year 2005-06. Further, they were 23.83 times, 36.84 times,
24.57 times, 28.35 times, 17.51 times, 9.27 times, 6.77 times and 14.41 times
respectively till the year 2013-14 showing a fluctuating trend. Thus, during the
study period the minimum P/E ratio was observed in the year 2012-13 which
was 6.77 times, while, the highest being in the year 2007-08 of about 36.84
times showing an average of about 21.56 times during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the P/E
ratios during the study period. It was 24.53 times in the year 2004-05 which
increased and came to 47.64 times (highest) during the year 2005-06, followed
by 31.99 times, 28.75 times, 25.00 times, 24.33 times, 31.40 times, 38.79
times, 38.96 times and 39.12 times respectively during the years 2006-07 to
2013-14, average being 33.05 times during the study period. Thus, during the
study period the lowest current ratio was 24.33 times in the year 2009-10.
HPCL also observed a fluctuating trend in its P/E ratios during the study
period. It was 8.60 times in the year 2004-05 and increased further up to 27.96
times (highest) in the year 2005-06, followed by 5.68 times (lowest) in the year
2006-07. Further, they were 7.75 times, 16.75 times, 8.75 times, 8.28 times,
11.89 times, 11.30 times and 6.39 times in the respective years. The average
was about 11.34 times during the study period.
In case of L & T Ltd. also, a fluctuating trend regarding the P/E ratio was
observed during the period. In the year 2004-05 it was 13.83 times followed by
34.47 times in the year 2005-06. Further, it was 33.98 times, 42.17 times, 11.66
times, 22.96 times, 26.18 times, 18.38 times, 17.41 times and 21.78 times in the
163
24.28 times during the study period, lowest being 11.66 times in the year 2008-
09 and the highest being 42.17 times during the year 2007-08.
Mahindra Ltd. also showed a fluctuating trend regarding its P/E ratio during the
study period. It was 11.29 times (lowest) in the year 2004-05 which increased
to 17.79 times in the year 2005-06, followed by 18.10 times, 15.62 times, 12.52
respective years. However, the average P/E ratio during the study period was
15.28 times, the highest being 18.10 times in the year 2006-07.
study period. It was 10.24 times (lowest) in the year 2004-05, followed by
12.50 times, 16.24 times, 17.16 times, 15.99 times, 22.12 times, 17.23 times,
12.47 times, 12.15 times and 13.97 times in the respective years. However, the
average P/E ratio during the study period was about 15.01 times, highest being
22.12 times in the year 2009-10.
Sun Pharma Ltd. also observed a fluctuating trend in its P/E ratio. During the
year 2004-05 it was 29.57 times which increased to 36.01 times in the year
2005-06. Further, they were 33.39 times, 26.11 times, 18.93 times, 43.54 times,
34.54 times, 36.27 times, 197.67 times and 0.00 time in the respective years.
However, the average P/E ratio during the study period was 45.60 times, the
lowest being 0.00 time in the year 2013-14 and the highest being 197.67 times
Tata Steel Ltd. too observed a fluctuating trend regarding its P/E ratio during
the study period. It was 6.58 times in the 2004-05 and increased to 8.72 times
in the year 2005-06, followed by 6.43 times, 11.35 times, 3.09 times, 11.51
times, 8.87 times, 7.01 times, 6.15 times and 6.03 times in the following years
respectively. However, the average P/E ratio was 7.57 times during the study
period, highest being 11.51 times during the year 2009-10 and the least being
164
In case of ITC Ltd. also, there was a fluctuating trend observed in its P/E ratio
during the study period. It was 16.01 times (lowest) in the year 2004-05,
followed by 34.94 times, 22.62 times, 26.87 times, 23.04 times, 29.30 times,
31.72 times, 31.73 times, 36.36 times and 35.19 times respectively in the
following years. The average P/E ratio of ITC Ltd. was 28.78 times during the
study period, the highest being 36.36 times in the year 2012-13.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its P/E
ratio during the study period. It was 26.35 times in the year 2004-05 and
increased up to 36.62 times (highest) in the year 2005-06. Further, it was 31.28
times, 19.73 times, 13.55 times, 26.98 times, 31.62 times, 20.47 times, 19.04
times and 19.58 times respectively in the following years of study period.
However, the average P/E ratio was about 24.52 times during the study period,
the lowest being 13.55 times in the year 2008-09.
Thus, it can be seen that that Sun Pharma Ltd. has a P/E ratio of about 45.60
times on an average during the study period, which is the highest among all the
selected companies. On the other hand, Tata Steel Ltd. has the lowest i.e., only
7.57 times on an average during the study period.
5.4.6 BOOK VALUE
Book Value indicates that in case of liquidation, the shareholder will get the
value equivalent of Book Value. Higher Book Value is considered good and
share value is strong.
Book Value of the company is to be calculated as follows:
Book Value = Equity Paid up + Reserves_

*Equity Paid up
(* Face Value of Equity Share)
165
Table No.: 5.9
Book Value of the Selected Companies (in Rs.)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 246.24 18.37 249.04 256.98 176.45 270.43 59.51 127.51 315.63 488.2
2005-06 298.31 19.93 257.74 335.57 123.99 324.11 78.80 176.19 23.97 249.89
2006-07 359.06 20.63 283.19 202.67 148.59 439.67 126.58 240.22 27.59 195.14
2007-08 220.10 11.93 311.59 325.95 181.27 542.83 203.15 298.70 31.85 235.84
2008-09 264.32 15.90 316.53 212.31 192.34 727.78 248.72 338.04 36.24 311.35
2009-10 325.16 23.98 340.93 298.56 137.96 392.51 276.07 416.51 36.69 383.90
2010-11 411.71 28.24 370.07 358.45 175.43 446.30 64.51 487.45 20.55 426.85
2011-12 103.67 32.01 387.08 411.53 205.31 498.22 76.07 537.53 23.97 518.41
2012-13 124.38 36.00 404.90 473.23 248.14 554.17 75.21 568.35 28.14 628.21
2013-14 135.02 44.11 442.82 362.96 284.26 609.76 35.77 629.48 32.95 735.87
Avg. 248.80 25.11 336.39 323.82 187.37 480.58 124.44 381.10 57.76 417.37
166
Chart No. 5.25
Book Value of the Selected Companies (Individual)
167
168
169
Chart No. 5.26
Combined Company-Wise Book Value of the Selected Companies
170
Chart No. 5.27
Combined Year-Wise Book Value of the Selected Companies
171
Interpretation
From the above Table No. 5.9 showing the Book Values of the selected
BHEL Ltd. In the year 2004-05, it was Rs. 246.24. Thereafter, they were
Rs.298.31, Rs.359.06, Rs.220.10, Rs.264.32, Rs.325.16, Rs.411.71, Rs.103.67,
Rs.124.38 and Rs.135.02 respectively till the year 2013-14 showing a
fluctuating trend. Thus, during the study period the minimum book value was
observed in the year 2011-12 which was Rs.103.67 while, the highest being in
the year 2010-11 of about Rs.411.71 showing an average of about Rs.248.80
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Book
Values during the study period. It was Rs.18.37 in the year 2004-05 which
increased to Rs.19.93 during the year 2005-06, followed by Rs.20.63, Rs.11.93,
Rs.15.90, Rs.23.98, Rs.28.24, Rs.32.01, Rs.36.00 and Rs.44.11 respectively
during the years 2006-07 to 2013-14, average being Rs.25.11 during the study
period. Thus, during the study period the lowest book value was Rs.11.93 in
the year 2007-08. However, it was highest i.e., Rs.44.11 in the year 2013-14
HPCL also observed a fluctuating trend in its Book Values during the study
period. It was Rs.249.04 (lowest) in the year 2004-05 and increased further up
to Rs.257.74 in the year 2005-06, followed by Rs.283.19, Rs.311.59,
Rs.316.53, Rs.340.93, Rs.370.07, Rs.387.08, Rs.404.90 and Rs.442.82 in the
respective years. The average was about Rs.336.39 during the study period, the
highest being Rs.442.82 in the year 2013-14.
In case of L & T Ltd. also, a fluctuating trend regarding the Book Value was
observed during the period. In the year 2004-05 it was Rs.256.98, followed by
Rs.335.57, Rs.202.67, Rs.325.95, Rs.212.31, Rs.298.56, Rs.358.45, Rs.411.53,
Rs.473.23 and Rs.362.96 in the respective years during the study period.
172
However, the average was about Rs.323.82 during the study period, lowest
being Rs.202.67 in the year 2006-07 while, the highest being Rs.473.23 in the
year 2012-13..
Mahindra Ltd. also showed a fluctuating trend regarding its Book Value during
the study period. It was Rs.176.45 in the year 2004-05 which reduced to
Rs.123.99 (lowest) in the year 2005-06, followed by Rs.148.59, Rs.181.27,
respective years. However, the average book value during the study period was
Rs.187.37, highest being Rs.284.26 in the year 2013-14.
study period. It was Rs.270.43 (lowest) in the year 2004-05, followed by
Rs.324.11, Rs.439.67, Rs.542.83, Rs.727.78, Rs.392.51, Rs.446.30, Rs.498.22,
Rs.554.17 and Rs.609.76 in the respective years. However, the average book
value during the study period was about Rs.480.58, while the highest being
Rs.727.78 during the year 2008-09.
Sun Pharma Ltd. also observed a fluctuating trend in its Book Value. During
the year 2004-05 it was Rs.59.51 which increased to Rs.78.80 in the year 2005-
06. Further, they were Rs.126.58, Rs.203.15, Rs.248.72, Rs.276.07, Rs.64.51,
Rs.76.07, Rs.75.21 and Rs.35.77 in the respective years. However, the average
book value during the study period was Rs.124.44, lowest being Rs.35.77 in
the year 2013-14 and the highest being Rs.276.07 in the year 2009-10.
Tata Steel Ltd. too observed a fluctuating trend regarding its Book Value
during the study period. It was Rs.127.51 (lowest) in the 2004-05 and increased
to Rs.176.19 in the year 2005-06. Thereafter, they were Rs.240.22, Rs.298.70,
following years respectively. However, the average book value was Rs.381.10
during the study period, highest being Rs.629.48 during the year 2013-14.
173
In case of ITC Ltd. also, there was a fluctuating trend observed in its Book
Value during the study period. It was Rs.315.63 (highest) in the year 2004-05,
followed by Rs.23.97, Rs.27.59, Rs.31.85, Rs.36.24, Rs.36.69, Rs.20.55,
Rs.23.97, Rs.28.14 and Rs.32.95 respectively in the following years. The
average book value of ITC Ltd. was Rs.57.76 during the study period, the
lowest being Rs.20.55 in the year 2010-11.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its Book
Value during the study period. It was Rs.488.20 in the year 2004-05 and
reduced up to Rs.249.89 in the year 2005-06. Further, it was Rs.195.14,
Rs.235.84, Rs.311.35, Rs.383.90, Rs.426.85, Rs.518.41, Rs.628.21 and
Rs.735.87 respectively in the following years of study period. However, the
average book value was about Rs.417.37 during the study period, the highest
being Rs.735.87 in the year 2013-14 and the lowest being Rs.195.14 in the year
2006-07.
Thus, it can be seen that that Reliance Ltd. has the Book Value of about Rs.
480.58 on an average during the study period, which is the highest among all
the selected companies. On the other hand, Colgate Ltd. has the lowest i.e.,
only Rs. 25.11 on an average during the study period.
5.4.7 PRICE TO BOOK VALUE RATIO
This ratio used to compare a stock's market value to its book value. It is
calculated by dividing the current closing price of the stock by the latest
quarter's book value per share.
A lower P/B ratio could mean that the stock is undervalued. However, it could
also mean that something is fundamentally wrong with the company. As with
most ratios, be aware that this varies by industry.
This ratio also gives some idea of whether an investor is paying too much for
what would be left if the company went bankrupt immediately. For companies
174
in distress, the book value is usually calculated without the intangible assets
that would have no resale value. In such cases, P/B should also be calculated
on a "diluted" basis, because stock options may well vest on sale of the
company or change of control or firing of management.
It is also known as the “Market-to-Book Ratio” and the “Price-to-Equity

Ratio” (which should not be confused with the price-to-earnings ratio), and its
inverse is called the “Book-to-Market Ratio”.
Price to Book Value Ratio = Stock Price_________

Total Assets- Intangible Assets and Liabilities
Table No.: 5.10

Price to Book Value Ratio of the Selected Companies (in times)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 3.12 9.88 1.23 3.87 2.82 2.02 7.92 3.14 4.26 10.12
2005-06 7.53 21.68 1.25 7.25 5.06 2.46 10.99 3.04 8.13 11.93
2006-07 6.30 16.11 0.87 7.99 5.25 3.11 8.33 1.87 5.45 10.31
2007-08 9.34 32.05 0.82 9.28 3.84 4.17 6.06 2.32 6.48 6.06
2008-09 5.69 29.61 0.85 3.17 1.99 2.09 4.47 0.61 5.10 4.25
2009-10 7.34 28.16 0.93 5.45 3.95 2.74 6.48 1.52 7.17 6.81
2010-11 5.01 28.85 0.96 4.61 3.98 2.35 6.85 1.27 8.83 7.58
2011-12 2.48 34.86 0.78 3.18 3.39 1.50 7.49 0.88 9.46 5.53
2012-13 1.42 34.62 0.70 2.88 3.47 1.40 10.88 0.55 10.98 4.60
2013-14 1.46 31.14 0.70 3.51 3.45 1.52 16.03 0.63 10.71 4.46
Avg. 4.97 26.70 0.91 5.12 3.72 2.34 8.55 1.58 7.66 7.17
175
Chart No. 5.28
Price to Book Value Ratio of the Selected Companies (Individual)
176
177
178
Chart No. 5.29
Combined Company-Wise Price to Book Value Ratio of the Selected Companies
179
Chart No. 5.30
Combined Year-Wise Price to Book Value Ratio of the Selected Companies
180
Interpretation
From the above Table No. 5.10 showing the Price to Book Value Ratios of the
case of BHEL Ltd. In the year 2004-05, it was 3.12 times which increased to
7.53 times in the year 2005-06. Further, they were 6.30 times, 9.34 times, 5.69
times, 7.34 times, 5.01 times, 2.48 times, 1.42 times and 1.46 times
respectively till the year 2013-14 showing a fluctuating trend. Thus, during the
study period the minimum price to book value ratio was observed in the year
2012-13 which was 1.42 times while, the highest being in the year 2007-08 of
about 9.34 times showing an average of about 4.97 times during the study
period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Price
to Book Value ratios during the study period. It was 9.88 times in the year
2004-05 which increased to 21.68 times during the year 2005-06, followed by
34.62 times and 31.14 times respectively during the years 2006-07 to 2013-
14, average being 26.70 times during the study period. Thus, during the study
period the lowest price to book ratio was 9.88 times in the year 2004-05.
However, it was highest i.e., 34.86 times in the years 2011-12 during the study
period.
HPCL also observed a fluctuating trend in its Price to Book Value ratios during
the study period. It was 1.23 times in the year 2004-05 and increased further up
to 1.25 times in the year 2005-06, followed by 0.87 times, 0.82 times, 0.85
respective years. The average was about 0.91 times during the study period,
lowest being 0.70 times in the year 2012-13 & 2013-14 respectively and the
181
In case of L & T also, a fluctuating trend regarding the Price to Book Value
ratio was observed during the period. In the year 2004-05 it was 3.87 times and
increased to 7.25 times in the year 2005-06. Further, it was 7.99 times, 9.28
in the respective years during the study period. However, the average was
about 5.12 times during the study period, lowest being 2.88 times in the year
2012-13 and the highest being 9.28 times in the year 2007-08.
Mahindra Ltd. also showed a fluctuating trend regarding its Price to Book
Value ratio during the study period. It was 2.82 times (lowest) in the year 2004-
05 which increased to 5.06 times in the year 2005-06, followed by the highest
5.25 times in the 2006-07. Further, they were 3.84 times, 1.99 times, 3.95
times, 3.98 times, 3.39 times, 3.47 times and 3.45 times in the respective years.
However, the average price to book value ratio during the study period was
3.72 times.
study period. It was 2.02 times in the year 2004-05, followed by 2.46 times,
times and 1.52 times in the respective years. However, the average price to
book value ratio during the study period was about 2.34 times, lowest being
1.40 times in the year 2012-13 and the highest being 4.17 times in the year
2007-08.
Sun Pharma Ltd. also observed a fluctuating trend in its Price to Book Value
ratio. During the year 2004-05 it was 7.92 times which increased to 10.99 times
in the year 2005-06, followed by 8.33 times, 6.06 times, 4.47 times, 6.48 times,
6.85 times, 7.49 times, 10.88 times and 16.03 times in the respective years.
However, the average price to book value ratio during the study period was
8.55 times, lowest being 4.47 times in the year 2008-09 and the highest being
182
Tata Steel Ltd. too observed a fluctuating trend regarding its Price to Book
Value ratio during the study period. It was 3.14 times (highest) in the 2004-05
and reduced to 3.04 times in the year 2005-06. Thereafter, they were 1.87
times, 2.32 times, 0.61 times, 1.52 times, 1.27 times, 0.88 times, 0.55 times and
0.63 times in the following years respectively. However, the average price to
book value ratio was 1.58 times during the study period, least being 0.55 times
In case of ITC Ltd. also, there was a fluctuating trend observed in its Price to
Book Value ratio during the study period. It was 4.26 times (lowest) in the year
2004-05, followed by 8.13 times, 5.45 times, 6.48 times, 5.10 times, 7.17
times, 8.83 times, 9.46 times, 10.98 times and 10.71 times respectively in the
following years. The average price to book value ratio of ITC Ltd. was 7.66
times during the study period, the highest being 10.98 times in the year 2012-
13.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its Price
to Book Value ratio during the study period. It was 10.12 times in the year
2004-05 and increased up to 11.93 times (highest) in the year 2005-06 during
the study period. Further, it was 10.31 times, 6.06 times, 4.25 times, 6.81 times,
7.58 times, 5.53 times, 4.60 times and 4.46 times respectively in the following
years of study period. However, the average price to book value ratio was
about 7.17 times during the study period, the lowest being 4.25 times in the
year 2008-09.
Thus, it can be seen that that Colgate Ltd. has a Price to Book Value ratio of
about 26.70 times on an average during the study period, which is the highest
among all the selected companies. On the other hand, HPCL has the lowest i.e.,
only 0.91times on an average during the study period.
183
5.4.8 PRICE TO CASH EPS RATIO
Price to Cash EPS indicates that the amount of dividend the company gives as
compared to its share prices. This ratio is used to compare the stock’s market
value to its Cash Earnings per Share. It is calculated as under:
Price to Cash EPS Ratio = Closing Stock Price

Cash Earnings per share
Table No.: 5.11

Price to Cash EPS Ratio of the Selected Companies (in times)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 16.40 20.07 5.56 12.65 8.22 6.82 26.62 5.56 13.92 22.23
2005-06 29.33 37.97 10.12 31.04 14.31 9.04 33.00 7.10 30.15 30.98
2006-07 21.32 28.88 3.84 30.38 15.03 11.51 31.03 5.35 19.75 27.74
2007-08 33.23 25.91 4.40 38.56 12.76 13.70 24.69 9.56 23.32 17.43
2008-09 22.11 22.94 5.98 10.75 9.28 11.88 18.06 2.57 19.51 12.05
2009-10 25.51 22.13 4.50 21.07 12.94 13.32 40.25 9.42 24.90 23.56
2010-11 16.00 28.62 4.22 22.65 13.77 10.24 32.93 7.58 27.61 28.09
2011-12 8.29 35.25 3.99 15.83 12.24 7.89 34.66 5.96 28.20 18.63
2012-13 5.89 35.41 3.40 15.13 12.80 8.32 164.76 4.61 32.53 17.16
2013-14 11.13 35.36 2.73 19.00 12.81 9.92 -42.73 4.62 31.63 17.56
Avg. 18.92 29.25 4.87 21.71 12.42 10.26 36.33 6.23 25.15 21.54
184
Chart No. 5.31
Price to Cash EPS Ratio of the Selected Companies (Individual)
185
186
187
Chart No. 5.32
Combined Company-Wise Price to Cash Price Ratio of the Selected Companies
188
Chart No. 5.33
Combined Year-Wise Price to Cash Price Ratio of the Selected Companies
189
Interpretation
From the above Table No. 5.11 showing the Price to Cash EPS Ratios of the
case of BHEL Ltd. In the year 2004-05, it was 16.40 times, followed by 29.33
times, 21.32 times, 33.23 times, 22.11 times, 25.51 times, 16.00 times, 8.29
times, 5.89 times and 11.13 times respectively till the year 2013-14 showing a
fluctuating trend. Thus, during the study period the minimum Price to Cash
EPS ratio was observed in the year 2012-13 which was 5.89 times while, the
highest being in the year 2007-08 of about 33.23 times showing an average of
about 18.92 times during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Price
to Cash EPS ratios during the study period. It was 20.07 times (lowest) in the
year 2004-05 which increased and came to 37.97 times (highest) during the
year 2005-06, followed by 28.88 times, 25.91 times, 22.94 times, 22.13 times,
28.62 times, 35.25 times, 35.41 times and 35.36 times respectively during the
years 2006-07 to 2013-14, average being 29.25 times during the study period.
HPCL also observed a fluctuating trend in its Price to Cash EPS ratios during
the study period. It was 5.56 times in the year 2004-05 and increased further up
to 10.12 times (highest) in the year 2005-06, followed by 3.84 times, 4.40
in the respective years. The average was about 4.87 times during the study
period, lowest being 2.73 times in the year 2013-14.
In case of L & T Ltd. also, a fluctuating trend regarding the Price to Cash EPS
ratio was observed during the period. In the year 2004-05, it was 12.65 times
which increased and came to 31.04 times in the year 2005-06, followed by
15.13 times and 19.00 times in the respective years during the study period.
However, the average was about 21.71 times during the study period, lowest
190
being 10.75 times in the year 2008-09 and the highest being 38.56 times in the
year 2007-08.
Mahindra Ltd. also showed a fluctuating trend regarding its Price to Cash EPS
ratio during the study period. It was 8.22 times (lowest) in the year 2004-05
which increased to 14.31 times in the year 2005-06, followed by 15.03 times
(highest) in the year 2006-07. Further they were 12.76 times, 9.28 times, 12.94
times, 13.77 times, 12.24 times, 12.80 times and 12.81 times in the respective
years. However, the average Price to Cash EPS ratio during the study period
was 12.42 times.
In case of Reliance Ltd. also there was a fluctuating trend observed in Price to
Cash EPS ratios during the study period. It was 6.82 times (lowest) in the year
times, 10.24 times, 7.89 times, 8.32 times and 9.92 times in the respective
years. However, the average Price to Cash EPS ratio during the study period
was about 10.26 times, highest being 13.32 times in the year 2009-10.
Sun Pharma Ltd. also observed a fluctuating trend in its Price to Cash EPS
ratio. During the year 2004-05 it was 26.62 times which increased to 33.00
times in the year 2005-06. Further, they were 31.03 times, 24.69 times, 18.06
times, 40.25 times, 32.93 times, 34.66 times, 164.76 times and -42.73 times in
the respective years. However, the average Price to Cash EPS ratio during the
study period was 36.33 times, lowest being -42.73 times in the year 2013-14
and the highest being 164.76 times in the year 2012-13.
Tata Steel Ltd. too observed a fluctuating trend regarding its Price to Cash EPS
ratio during the study period. It was 5.56 times in the 2004-05 and increased to
7.10 times in the year 2005-06. Thereafter, they were 5.35 times, 9.56 times,
2.57 times, 9.42 times, 7.58 times, 5.96 times, 4.61 times and 4.62 times in the
following years respectively. However, the average Price to Cash EPS ratio
191
was 6.23 times during the study period, highest being 9.56 times during the
year 2007-08 and the least being 2.57 times in the year 2008-09.
In case of ITC Ltd. also, there was a fluctuating trend observed in its Price to
Cash EPS ratio during the study period. It was 13.92 times (lowest) in the year
times, 27.61 times, 28.20 times, 32.53 times and 31.63 times respectively in
the following years. The average Price to Cash EPS ratio of ITC Ltd. was 25.15
times during the study period, the highest being 32.53 times in the year 2012-
13.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its Price
to Cash EPS ratio during the study period. It was 22.23 times in the year 2004-
05 and increased up to 30.98 times (highest) in the year 2005-06. Further, it
was 27.74 times, 17.43 times, 12.05 times, 23.56 times, 28.09 times, 18.63
times, 17.16 times and 17.56 times respectively in the following years of
study period. However, the average Price to Cash EPS ratio was about 21.54
times during the study period, the lowest being 12.05 times in the year 2008-
09.
Thus, it can be seen that that Sun Pharma Ltd. has a Price to Cash EPS ratio of
among all the selected companies. On the other hand, HPCL has the lowest i.e.,
only 4.87 times on an average during the study period.
192
5.6 STOCK MARKET PERFORMANCE OF SELECTED
COMPANIES
Table No.: 5.12
Share Prices of the Selected Companies (in Rs.)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 138.63 269.35 328.75 307.37 256.03 361.65 68.22 336.11 71.00 749.19
2005-06 229.82 388.50 278.40 480.99 452.93 635.18 97.90 426.26 87.98 1,120.25
2006-07 516.85 407.45 369.20 1,390.62 430.40 1,440.53 122.21 934.80 105.15 884.20
2007-08 272.48 408.10 272.70 516.27 137.43 615.13 106.50 216.85 85.73 558.93
2008-09 481.22 659.00 390.70 1,119.61 540.40 1,089.40 150.71 617.60 125.43 1,302.63
2009-10 464.95 867.80 391.35 1,319.37 777.55 1,058.25 242.33 678.95 174.50 1,722.50
2010-11 239.00 991.80 251.70 663.40 683.05 692.90 248.43 335.25 201.30 1,382.53
2011-12 228.40 1,567.00 290.45 1,070.57 930.00 839.10 367.75 428.30 286.80 1,159.25
2012-13 176.45 1,352.85 237.20 1,069.90 943.50 894.80 567.75 423.45 321.60 1,742.75
2013-14 265.20 1,784.25 547.45 1,496.50 1,234.50 891.15 826.15 399.35 368.40 1,971.20
Avg. 301.30 869.61 335.79 943.46 638.58 851.81 279.80 479.69 182.79 1259.34
193
Chart No. 5.34
Share Prices of the Selected Companies (Individual)
194
195
196
Chart No. 5.35
Combined Company-Wise Share Prices of the Selected Companies
197
Chart No. 5.36
Combined Year-Wise Share Prices of the Selected Companies
198
Interpretation
From the above Table No. 5.12 showing the Share Prices of the selected
BHEL Ltd. In the year 2004-05, it was Rs. 138.63 (lowest), followed by Rs.
229.82, Rs. 516.85, Rs. 272.48, Rs. 481.22, Rs. 464.95, Rs. 239.00, Rs.
228.40, Rs. 176.45 and Rs. 265.20 respectively till the year 2013-14 showing a
fluctuating trend. Thus, during the study period the highest share price
observed was in the year 2006-07 which was Rs. 516.85 while, the average was
about Rs. 301.30 during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Share
Prices during the study period. It was Rs. 269.35 (lowest) in the year 2004-05
which increased to Rs. 388.50 during the year 2005-06, followed by Rs.
407.45, Rs. 408.10, Rs. 659.00, Rs. 867.80, Rs. 991.80, Rs. 1567.00, Rs.
1352.85 and Rs. 1784.25 respectively during the years 2006-07 to 2013-14,
average being Rs. 869.61 during the study period. Thus, during the study
period the highest share price was Rs. 1784.25 in the year 2013-14 during the
study period.
HPCL also observed a fluctuating trend in its Share Prices during the study
period. It was Rs. 328.75 in the year 2004-05 and reduced further up to Rs.
278.40 in the year 2005-06, followed by Rs. 369.20, Rs. 272.70, Rs. 390.70,
Rs. 391.35, Rs. 251.70, Rs. 290.45, Rs. 237.20 and Rs. 547.45 in the
respective years. The average was about Rs. 335.79 during the study period,
lowest being Rs. 237.20 in the year 2012-13 and the highest being Rs. 547.45
In case of L & T Ltd. also, a fluctuating trend regarding the Share Prices was
observed during the period. In the year 2004-05 it was Rs. 307.37 (lowest),
followed by Rs. 480.99, Rs. 1390.62, Rs. 516.27, Rs. 1119.61, Rs. 1319.37,
Rs. 663.40, Rs. 1070.57, Rs. 1069.90 and Rs. 1496.50 in the respective years
199
during the study period. However, the average was about Rs. 943.46 during the
study period, the highest being Rs. 1496.50 in the year 2013-14.
Mahindra Ltd. also showed a fluctuating trend regarding its Share Prices during
the study period. It was Rs. 256.03 in the year 2004-05, followed by Rs.
452.93, Rs. 430.40, Rs. 137.43, Rs. 540.40, Rs. 777.55, Rs. 683.05, Rs. 30.00,
Rs.943.50 and Rs. 1234.50 in the respective years. However, the average Share
Prices during the study period was Rs. 638.58, lowest being Rs. 137.43 in the
year 2007-08 and the highest being Rs. 1234.50 in the year 2013-14.
In case of Reliance Ltd. also there was a fluctuating trend observed in the Share
Prices during the study period. It was Rs. 361.65 (lowest) in the year 2004-05,
followed by Rs. 635.18, Rs. 1440.53, Rs. 615.13, Rs. 1089.40, Rs. 1058.25,
Rs. 692.90, Rs. 839.10, Rs. 894.80 and Rs. 891.15 in the respective years.
However, the average share price during the study period was about Rs.
851.81, while the highest was Rs. 1440.53 in the year 2006-07.
Sun Pharma Ltd. also observed a fluctuating trend in its Share Prices. During
the year 2004-05 it was Rs. 68.22 (lowest) which increased to Rs. 97.90 in the
year 2005-06. Further, they were Rs. 122.21, Rs. 106.50, Rs. 150.71, Rs.
242.33, Rs. 248.43, Rs. 367.75, Rs. 567.75 and Rs. 826.15 in the respective
years. However, the average share price during the study period was Rs. 279.80
and the highest being Rs. 826.15 in the year 2013-14.
Tata Steel Ltd. too observed a fluctuating trend regarding its Share Prices
during the study period. It was Rs. 336.11 in the 2004-05 and increased to Rs.
426.26 in the year 2005-06. Thereafter, they were Rs. 934.80, Rs. 216.85, Rs.
617.60, Rs. 678.95, Rs. 335.25, Rs. 428.30, Rs. 423.45 and Rs. 399.35 in the
following years respectively. However, the average share prices was Rs. 479.69
during the study period, highest being Rs. 934.80 during the year 2006-07 and
the least being Rs. 216.85 in the year 2007-08.
200
In case of ITC Ltd. also, there was a fluctuating trend observed in its Share
Prices during the study period. It was Rs. 71.00 (lowest) in the year 2004-05,
followed by Rs. 87.98, Rs. 105.15, Rs. 85.73, Rs. 125.43, Rs. 174.50, Rs.
201.30, Rs. 286.80, Rs. 321.60 and Rs. 368.40 respectively in the following
years. The average share price of ITC Ltd. was Rs. 182.79 during the study
period, the highest being Rs. 368.40 in the year 2013-14.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its Share
Prices during the study period. It was Rs. 749.19 (lowest) in the year 2004-05
and increased up to Rs. 1120.25 in the year 2005-06. Further, it was Rs.
884.20, Rs. 558.93, Rs. 1302.63, Rs. 1722.50, Rs. 1382.53, Rs. 1159.25, Rs.
1742.75 and Rs. 1971.20 respectively in the following years of study period.
However, the average share price was about Rs. 1259.34 during the study
period, the highest being Rs. 1971.20 in the year 2013-14.
Thus, it can be seen that that Infosys Ltd. has a Share Price of about
Rs.1259.34 on an average during the study period, which is the highest among
all the selected companies. On the other hand, ITC Ltd. has the lowest i.e., only
Rs. 182.79 on an average during the study period.
5.7 EXAMINATION OF MANAGEMENT EFFICIENCY

RATIOS OF SELECTED COMPANIES
5.4.9 TOTAL ASSETS TURNOVER RATIO
This ratio measures the overall performance and activity of the business
organization. It is computed by dividing sales by total assets. The following
formula is applied to compute this ratio:
Assets Turnover = Sales

Total Assets
201
Table No.: 5.13
Total Assets Turnover Ratio of the Selected Companies (in times)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 1.55 3.84 6.00 2.83 2.37 1.15 0.49 1.64 1.04 1.49
2005-06 1.86 4.34 5.49 2.61 2.37 1.24 0.42 1.37 1.13 1.46
2006-07 2.07 4.76 5.05 2.53 2.21 1.37 0.49 0.97 1.24 1.27
2007-08 1.98 6.73 4.40 2.38 1.87 1.28 0.61 0.57 1.22 1.29
2008-09 2.22 9.03 4.11 2.11 1.61 0.89 0.59 0.48 1.14 1.06
2009-10 2.28 7.30 3.23 1.67 1.85 0.96 0.34 0.00 1.32 1.09
2010-11 2.33 6.39 3.78 1.65 2.01 1.20 0.50 0.43 1.42 1.15
2011-12 2.10 6.56 4.56 1.72 2.28 1.50 0.55 0.45 1.44 1.12
2012-13 1.69 6.84 4.76 1.72 2.43 1.57 0.31 0.49 1.45 1.13
2013-14 1.16 6.57 4.79 1.38 2.11 1.51 0.32 0.50 1.37 1.05
Avg. 1.92 6.24 4.62 2.06 2.11 1.27 0.46 0.69 1.28 1.21
202
Chart No. 5.37
Total Assets Turnover Ratios of the Selected Companies (Individual)
203
204
205
Chart No. 5.38
Combined Company-Wise Total Assets Turnover Ratios of the Selected Companies
206
Chart No. 5.39
Combined Year-Wise Total Assets Turnover Ratios of the Selected Companies
207
Interpretation
From the above Table No. 5.13 showing the Total Assets Turnover Ratios of
the selected companies, it can be seen that there is a fluctuating trend observed
in case of BHEL Ltd. In the year 2004-05, it was 1.55 times followed by 1.86
times, 2.07 times, 1.98 times, 2.22 times, 2.28 times, 2.33 times, 2.10 times,
1.69 times and 1.16 times respectively till the year 2013-14 showing a
fluctuating trend. Thus, during the study period the minimum total assets
turnover ratio was observed in the year 2013-14 which was 1.16 times while,
the highest being in the year 2010-11 of about 2.33 times, showing an average
of about 1.92 times during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Total
Assets Turnover Ratios during the study period. It was 3.84 times (lowest) in
the year 2004-05 which further increased to 4.34 times during the year 2005-
06, followed by 4.76 times, 6.73 times, 9.03 times, 7.30 times, 6.39 times, 6.56
times, 6.84 times and 6.57 times respectively during the years 2006-07 to 2013-
period the highest total assets turnover ratio was 9.03 times in the year 2008-
09.
HPCL also observed a fluctuating trend in its Total Assets Turnover Ratios
during the study period. It was 6.00 (highest) in the year 2004-05 and reduced
further up to 5.49 times in the year 2005-06, followed by 5.05 times, 4.40
in the respective years. The average was about 4.62 times during the study
period, lowest being 3.23 times in the year 2009-10.
In case of L & T Ltd. also, a fluctuating trend regarding the Total Assets
Turnover Ratios was observed during the period. In the year 2004-05, it was
2.83 times (highest) followed by 2.61 times, 2.53 times, 2.38 times, 2.11 times,
208
years during the study period. However, the average was about 2.06 times
during the study period, lowest being 1.38 times in the year 2013-14.
Mahindra Ltd. also showed a fluctuating trend regarding its Total Assets
Turnover Ratios during the study period. It was 2.37 times in the year 2004-05
and 2005-06 respectively. Further, they were 2.21 times, 1.87 times, 1.61
respective years. However, the average total assets turnover ratio during the
study period was 2.11 times, lowest being 1.61 times in the year 2008-09,
while the highest being 2.43 times in the year 2012-13.
In case of Reliance Ltd. also there was a fluctuating trend observed in the Total
Assets Turnover Ratios during the study period. It was 1.15 times in the year
However, the average total assets turnover ratios during the study period was
about 1.27 times, the highest being 1.57 times in the year 2012-13 and the
lowest being 0.89 times in the year 2008-09.
Sun Pharma Ltd. also observed a fluctuating trend in its Total Assets Turnover
Ratios. During the year 2004-05, it was 0.49 times which reduced and came to
respective years. However, the average total assets turnover ratio during the
study period was 0.46 times, lowest being 0.31 times in the year 2012-13 and
the highest being 0.61 times in the year 2007-08.
Tata Steel Ltd. too observed a fluctuating trend regarding its Total Assets
Turnover Ratios during the study period. It was 1.64 times (highest) in the
2004-05 and reduced to 1.37 times in the year 2005-06. Thereafter, they were
times and 0.50 times in the following years respectively. However, the average
209
total assets turnover ratio was 0.69 times during the study period and the least
being 0.00 times in the year 2009-10.
In case of ITC Ltd. also, there was a fluctuating trend observed in its Total
the year 2004-05, followed by 1.46 times, 1.27 times, 1.29 times, 1.06 times,
1.09 times, 1.15 times, 1.12 times, 1.13 times and 1.05 times respectively in the
following years. The average total assets turnover ratio of ITC Ltd. was 1.28
times during the study period, the highest being 1.45 times in the year 2012-13.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its Total
Assets Turnover Ratios during the study period. It was 1.49 times (highest) in
the year 2004-05 and reduced up to 1.46 times in the year 2005-06. Further, it
was 1.27 times, 1.29 times, 1.06 times, 1.09 times, 1.15 times, 1.12 times, 1.13
However, the average total assets turnover ratio was about 1.21 times during
the study period, the lowest being 1.05 times in the year 2013-14.
Thus, it can be seen that that Colgate Ltd. has a Total Assets Turnover Ratio of
among all the selected companies. On the other hand, Sun Pharma Ltd. has the
lowest i.e., only 0.46 times on an average during the study period.
5.4.10 FIXED ASSETS TURNOVER RATIO

This ratio indicates the extent to which the investments in fixed assets
contribute towards sales. If it is compared with the previous period, it indicates
whether the investment in fixed asset has been judicious or not. The ratio is
calculated as follows:
Fixed Assets Turnover Ratio = Net Sales_________

Fixed Assets (Net)
When the ratio declines though the absolute figures of sales have gone up, it
means that the increase in the investment in fixed assets has not brought about
210
commensurate gain. However, the results for next two or three years must also
be seen before commenting on judiciousness or otherwise of increase in
investments in the fixed assets.
Table No.: 5.14

Fixed Assets Turnover Ratio of the Selected Companies (in times)
Mahindra
Tata Steel
Reliance
Pharma
Colgate
Infosys
BHEL
HPCL
L&T
Year
ITC
Sun
2004-05 2.98 3.32 5.52 6.54 2.95 1.42 1.24 2.23 3.00 2.01
2005-06 3.96 3.34 5.99 6.90 3.33 1.34 1.20 2.57 3.6 2.31
2006-07 4.78 3.40 6.71 7.01 3.67 1.34 1.26 2.91 3.91 2.42
2007-08 5.07 3.61 6.42 7.20 3.75 1.39 1.37 3.62 3.73 1.59
2008-09 5.89 4.02 6.66 7.04 3.40 1.21 1.47 3.93 3.86 1.44
2009-10 5.86 4.22 5.13 5.82 3.97 1.16 1.26 2.28 3.43 1.58
2010-11 6.02 4.28 5.27 5.47 4.55 1.22 1.41 2.60 3.82 1.72
2011-12 5.66 4.70 6.01 5.52 4.97 1.63 1.60 2.97 4.43 1.82
2012-13 4.97 5.17 6.16 4.64 5.15 1.79 1.36 1.57 4.83 1.80
2013-14 3.60 4.55 5.88 4.84 4.36 1.85 1.18 1.58 4.80 1.83
Avg. 4.88 4.06 5.98 6.10 4.01 1.44 1.34 2.67 3.94 1.85
211
Chart No. 5.40
Fixed Assets Turnover Ratios of the Selected Companies (Individual)
212
213
214
Chart No. 5.41
Combined Company-Wise Fixed Assets Turnover Ratios of the Selected Companies
215
Chart No. 5.42
Combined Year-Wise Fixed Assets Turnover Ratios of the Selected
Companies
216
Interpretation
From the above Table No. 5.14 showing the Fixed Assets Turnover Ratios of
the selected companies, it can be seen that there is a fluctuating trend observed
in case of BHEL Ltd. In the year 2004-05, it was 2.98 times (lowest), followed
by 3.96 times, 4.78 times, 5.07 times, 5.89 times, 5.86 times, 6.02 times, 5.66
times, 4.97 times and 3.60 times respectively till the year 2013-14 showing a
fluctuating trend. Thus, during the study period the highest fixed assets
turnover ratio was 6.02 times in the year 2010-11 , showing an average of
about 4.88 times during the study period.
In case of Colgate Ltd. also, a fluctuating trend has been observed in the Fixed
the year 2004-05 which further increased to 3.34 times during the year 2005-
06, followed by 3.40 times, 3.61 times, 4.02 times, 4.22 times, 4.28 times, 4.70
times, 5.17 times and 4.55 times respectively during the years 2006-07 to 2013-
period the highest fixed assets turnover ratio was 5.17 times in the year 2012-
13.
HPCL also observed a fluctuating trend in its Fixed Assets Turnover Ratios
during the study period. It was 5.52 in the year 2004-05 and increased further
up to 5.99 times in the year 2005-06, followed by 6.71 times, 6.42 times, 6.66
respective years. The average was about 5.98 times during the study period,
lowest being 5.13 times in the year 2009-10 and the highest being 6.71 times in
the year 2006-07.
In case of L & T Ltd. also, a fluctuating trend regarding the Fixed Assets
Turnover Ratios 6.90 times, 7.01 times, 7.20 times, 7.04 times, 5.82 times, 5.47
times, 5.52 times, 4.64 times and 4.84 times in the respective years during the
study period. However, the average was about 6.10 times during the study
217
period, lowest being 4.64 times in the year 2012-13 and the highest being 7.20
times in the year 2007-08.
Mahindra Ltd. also showed a fluctuating trend regarding its Fixed Assets
Turnover Ratios during the study period. It was 2.95 times (lowest) in the year
2004-05. Further, they were 3.33 times, 3.67 times, 3.75 times, 3.40 times, 3.97
However, the average fixed assets turnover ratio during the study period was
4.01 times, while the highest being 5.15 times in the year 2012-13.
In case of Reliance Ltd. also there was a fluctuating trend observed in the Fixed
However, the average fixed assets turnover ratios during the study period was
about 1.44 times, the highest being 1.85 times in the year 2013-14 and the
lowest being 1.16 times in the year 2009-10.
Sun Pharma Ltd. also observed a fluctuating trend in its Fixed Assets Turnover
Ratios. During the year 2004-05, it was 1.24 times which reduced and came to
respective years. However, the average fixed assets turnover ratio during the
study period was 1.34 times, lowest being 1.18 times in the year 2013-14 and
the highest being 1.60 times in the year 2011-12.
Tata Steel Ltd. too observed a fluctuating trend regarding its Fixed Assets
Turnover Ratios during the study period. It was 2.23 times in the 2004-05 and
increased to 2.57 times in the year 2005-06. Thereafter, they were 2.91 times,
3.62 times, 3.93 times, 2.28 times, 2.60 times, 2.97 times, 1.57 times and 1.58
times in the following years respectively. However, the average fixed assets
turnover ratio was 2.67 times during the study period and the least being 1.57
218
times in the year 2012-13, while the highest being 3.93 times in the year 2008-
09.
In case of ITC Ltd. also, there was a fluctuating trend observed in its Fixed
the year 2004-05, followed by 3.60 times, 3.91 times, 3.73 times, 3.86 times,
3.43 times, 3.82 times, 4.43 times, 4.83 times and 4.80 times respectively in the
following years. The average fixed assets turnover ratio of ITC Ltd. was 3.94
times during the study period, the highest being 4.83 times in the year 2012-13.
Lastly, in case of Infosys Ltd. also a fluctuating trend was observed in its Fixed
2004-05 and increased up to 2.31 times in the year 2005-06. Further, it was
However, the average fixed assets turnover ratio was about 1.85 times during
the study period, the lowest being 1.44 times in the year 2008-09 and the
Thus, it can be seen that that L & T Ltd. has a Fixed Assets Turnover Ratio of
among all the selected companies. On the other hand, Sun Pharma Ltd. has the
lowest i.e., only 1.34 times on an average during the study period.
219
5.8 HYPOTHESIS AND ITS TESTING
This section discuss various hypothesis and its testing.

H01: There is no linear relationship between share prices and Earning Per share
of selected companies.
H11= There is significant linear correlation between EPS and Share Price of
selected companies
To test the above mentioned hypothesis, Pearson correlation applied. Following are
the results of correlation.
Correlations
Correlations
Earning Per Share Share Price
Pearson Correlation 1 .455**
Earning Per Share Sig. (2-tailed) .000
N 100 100
Pearson Correlation .455** 1
Share Price Sig. (2-tailed) .000
N 100 100
**. Correlation is significant at the 0.01 level (2-tailed).
We can observe that Pearson Correlation value is 0.445 which is moderately

correlated. As p value is 0.00 indicate that the relationship is significant.
H02: There is no linear relationship between the financial performance

indicators on the stock prices.
To test the above mentioned hypothesis Nonparametric Correlations applied.

Spearman's rho Correlations
Share Price
Correlation Coefficient .106
Return on Capital Earned Sig. (2-tailed) .293
N 100
Correlation Coefficient -.124
NP Ratio Sig. (2-tailed) .218
N 100
RONW Sig. (2-tailed) .625
N 100
Correlation Coefficient .460**
Earning Per Share
Sig. (2-tailed) .000
220
N 100
Return on Assets Sig. (2-tailed) .062
N 100
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
H03= There is no significant difference in the mean value of various ratios of

selected companies.
To test the above mentioned hypothesis oneway ANOVA applied using SPSS.
Following are the results of Oneway ANOVA

ANOVA
Sum of Squares df Mean Square F
Between Groups 19.737 9 2.193 24.554
Debt- Equity Ratio Within Groups 8.038 90 .089
Total 27.776 99
Between Groups 110.500 9 12.278 43.286
Current Ratio Within Groups 25.528 90 .284
Total 136.027 99
Between Groups 98732.897 9 10970.322 52.350
Return on Capital Earned Within Groups 18860.266 90 209.559
Total 117593.163 99
Between Groups 13205.541 9 1467.282 4.603
P/E Ratio Within Groups 28688.348 90 318.759
Total 41893.889 99
Between Groups 5348.479 9 594.275 3.207
NP Ratio Within Groups 16678.466 90 185.316
Total 22026.945 99
Between Groups 58150.003 9 6461.111 33.110
RONW Within Groups 17562.533 90 195.139
Total 75712.536 99
Between Groups 83407.300 9 9267.478 18.491
Earning Per Share Within Groups 45108.003 90 501.200
Total 128515.303 99
Between Groups 2180357.922 9 242261.991 20.131
Book Value Within Groups 1083102.658 90 12034.474
Total 3263460.580 99
Between Groups 4972.444 9 552.494 51.319
Price to Book Value ( P/BV) Within Groups 968.933 90 10.766
Total 5941.377 99
221
Between Groups 9381.234 9 1042.359 3.603
Price/Cash EPS (P/CEPS) Within Groups 26040.461 90 289.338
Total 35421.695 99
Between Groups 278.305 9 30.923 70.481
Fixed Assets Turnover Ratio
Within Groups 39.486 90 .439
ANOVA
Sig.
Between Groups .000
Debt- Equity Ratio Within Groups
Total
Between Groups .000
Current Ratio Within Groups
Total
Between Groups .000
Return on Capital Earned Within Groups
Total
Between Groups .000
P/E Ratio Within Groups
Total
Between Groups .002
NP Ratio Within Groups
Total
Between Groups .000
RONW Within Groups
Total
Between Groups .000
Earning Per Share Within Groups
Total
Between Groups .000
Book Value Within Groups
Total
Between Groups .000
Price to Book Value ( P/BV) Within Groups
Total
Between Groups .001
Price/Cash EPS (P/CEPS) Within Groups
Total
Between Groups .000
Fixed Assets Turnover Ratio
Within Groups
222
Above Table shows p value of one way ANOVA. As p value is less than 0.05 so we
reject the null hypothesis. It means there is significant difference in the mean value of
various ratios of profitability.
REGRESSION ANALYSIS USING VARIOUS FORMULAS

Charts of Normality
Before running regression test, normality has been checked using normality
charts.
223
224
Above all charts show the data of share price is normal and independent.
225
1. Share Price = β1 + β2 EPS + β3 Return on Asset+ ε
H0: The slope of the regression line is equal to zero.

Ha: The slope of the regression line is not equal to zero.
To test the above mentioned hypothesis, Simple Linear Regression applied.

Following are the results of Linear Regression. Stepwise method was used to
enter the Predictors.
Regression
Variables Entered/Removeda
Model Variables Entered Variables Method
Removed
Stepwise (Criteria: Probability-of-F-to-enter <= .050,
1 Earning Per Share .
Probability-of-F-to-remove >= .100).
a. Dependent Variable: Share Price

Model Summary
Model R R Square Adjusted R Std. Error of the
Square Estimate
1 .455a .207 .199 328.40521
a. Predictors: (Constant), Earning Per Share

ANOVAa
Model Sum of Squares df Mean Square F Sig.
Regression 2757715.726 1 2757715.726 25.570 .000b
1 Residual 10569298.296 98 107849.983
Total 13327014.022 99

b. Predictors: (Constant), Earning Per Share
Coefficientsa
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
(Constant) 309.604 57.471 5.387 .000
1
Earning Per Share 4.632 .916 .455 5.057 .000
226
Excluded Variablesa
Model Beta In t Sig. Partial Correlation Collinearity
Statistics
Tolerance
1 Return on Assets -.117b -1.151 .252 -.116 .776

b. Predictors in the Model: (Constant), Earning Per Share
Table of Model Summary shows the R (.455a ) and R2 (0.207). its indicate the
relationship between predictor and is reasonable it can be confirmed from
ANOVA table. ANOVA tables shows the p value, which is 0.00, Since the P-
value is less than the significance level (0.05), we cannot accept the null
hypothesis can conclude that there is significant relation between Predictor and
. We can notice that variable called Return on Assets is Excluded from model.
So the Regression line is
Share Price = 309.604 + 4.632 EPS + ε
Similar results found using backward input method of Regression. It can be

seen from the following results generated by SPSS output.
Model Variables Entered Variables Removed Method
Earning Per Share, Return on
1 . Enter
Assetsb
Backward (criterion: Probability of F-to-remove >=
2 . Return on Assets
.100).

b. All requested variables entered.
Model Summary
Model R R Square Adjusted R Std. Error of the
Square Estimate
1 .466a .218 .201 327.86064
2 .455b .207 .199 328.40521
a. Predictors: (Constant), Earning Per Share, Return on Assets

227
ANOVAa
Regression 2900231.662 2 1450115.831 13.490 .000b
1 Residual 10426782.360 97 107492.602
Total 13327014.022 99
Regression 2757715.726 1 2757715.726 25.570 .000c
2 Residual 10569298.296 98 107849.983
Total 13327014.022 99

b. Predictors: (Constant), Earning Per Share, Return on Assets
c. Predictors: (Constant), Earning Per Share
Coefficientsa
Coefficients
B Std. Error Beta
(Constant) 340.375 63.294 5.378 .000
1 Return on Assets -.237 .206 -.117 -1.151 .252
Earning Per Share 5.199 1.039 .511 5.006 .000
(Constant) 309.604 57.471 5.387 .000
2
Excluded Variablesa
Statistics
Tolerance
b
2 Return on Assets -.117 -1.151 .252 -.116 .776

2. Share Price = β1 + β2 EPS + β3 ROCE+ β4 RONW + β4 Price/Cash EPS

+ β5 Return on Assets+ ε
H0: The slope of the regression line is equal to zero.
Ha: The slope of the regression line is not equal to zero.
To test the above mentioned hypothesis, Simple Linear Regression applied.
Following are the results of Linear Regression. Stepwise method was used to
enter the Predictors.
228
Regression
Removed
Stepwise (Criteria: Probability-of-F-to-enter <= .050, Probability-of-F-to-
remove >= .100).
Return on Capital Stepwise (Criteria: Probability-of-F-to-enter <= .050, Probability-of-F-to-
2 .
Earned remove >= .100).
Model Summaryc
Model R R Square Adjusted R Std. Error of the Change Statistics
Square Estimate R Square Change F Change df1
1 .455a .207 .199 328.40521 .207 25.570 1
2 .557b .310 .296 307.92383 .103 14.470 1
Model Summaryc
Model Change Statistics Durbin-Watson
df2 Sig. F Change
1 98a .000
b
2 97 .000 1.114

b. Predictors: (Constant), Earning Per Share, Return on Capital Earned
c. Dependent Variable: Share Price
ANOVAa
Regression 2757715.726 1 2757715.726 25.570 .000b
1 Residual 10569298.296 98 107849.983
Total 13327014.022 99
Regression 4129756.996 2 2064878.498 21.777 .000c
2 Residual 9197257.026 97 94817.083
Total 13327014.022 99
c. Predictors: (Constant), Earning Per Share, Return on Capital Earned
Coefficientsa
Coefficients
B Std. Error Beta
(Constant) 309.604 57.471 5.387 .000
1
(Constant) 162.438 66.336 2.449 .016
2 Earning Per Share 5.084 .867 .499 5.863 .000
Return on Capital Earned 3.448 .906 .324 3.804 .000
229
Excluded Variablesa
Model Beta In t Sig. Partial Collinearity
Correlation Statistics
Tolerance
b
Return on Assets -.117 -1.151 .252 -.116 .776
Return on Capital Earned .324b 3.804 .000 .360 .981
1 b
RONW .305 3.547 .001 .339 .981
Price/Cash EPS (P/CEPS) .081b .887 .377 .090 .981
Return on Assets .013c .126 .900 .013 .679
2 RONW -.330c -.764 .447 -.078 .038
Price/Cash EPS (P/CEPS) .014c .162 .871 .017 .939

c. Predictors in the Model: (Constant), Earning Per Share, Return on Capital Earned
Casewise Diagnosticsa
Case Number Std. Residual Share Price Predicted Value Residual
7 -2.097 239.00 884.6859 -645.68588
19 2.438 1537.00 786.2064 750.79359
56 2.094 1095.25 450.4618 644.78815
70 2.154 826.15 162.8865 663.26349
81 -2.125 71.00 725.3426 -654.34261
91 -2.331 563.00 1280.9095 -717.90953
97 2.613 1618.00 813.4239 804.57611
Residuals Statisticsa
Minimum Maximum Mean Std. Deviation N
Predicted Value 162.8865 1280.9095 548.0955 204.24181 100
Residual -717.90955 804.57611 .00000 304.79762 100
Std. Predicted Value -1.886 3.588 .000 1.000 100
Std. Residual -2.331 2.613 .000 .990 100
The Durbin–Watson statistic is a test statistic used to detect the presence of

autocorrelation (a relationship between values separated from each other by a
given time lag) in the residuals (prediction errors) from a regression analysis. It
is named after James Durbin and Geoffrey Watson. Value of Durbin–Watson
is 1.114 , so we can safely assume that there is no problem of Autocorrelation.
Table of Model Summary shows the R (.557 ) and R2 (0.310). its indicate the
relationship between predictor and is reasonable it can be confirmed from
230
ANOVA table. ANOVA tables shows the p value, which is 0.00, Since the P-
value is less than the significance level (0.05), we cannot accept the null
hypothesis can conclude that there is significant relation between Predictor and
. So the Regression line is
Share Price = 162.438+ 5.084EPS + 3.448ROCE + ε

+ β6 Return on Assets+ β7 Fixed Assets Turnover Ratio+ ε
Regression
Removed
remove >= .100).
Return on Capital Stepwise (Criteria: Probability-of-F-to-enter <= .050, Probability-of-F-to-
2 .
Earned remove >= .100).
Model Summaryc
a
1 .455 .207 .199 328.40521 .207 25.570 1
2 .557b .310 .296 307.92383 .103 14.470 1
Model Summaryc
df2 Sig. F Change
1 98a .000
2 97b .000 1.114

b. Predictors: (Constant), Earning Per Share, Return on Capital Earned
231
ANOVAa
Regression 2757715.726 1 2757715.726 25.570 .000b
1 Residual 10569298.296 98 107849.983
Total 13327014.022 99
Regression 4129756.996 2 2064878.498 21.777 .000c
2 Residual 9197257.026 97 94817.083
Total 13327014.022 99

c. Predictors: (Constant), Earning Per Share, Return on Capital Earned
Coefficientsa
Coefficients
B Std. Error Beta
(Constant) 309.604 57.471 5.387 .000
1
(Constant) 162.438 66.336 2.449 .016
Return on Capital Earned 3.448 .906 .324 3.804 .000
Excluded Variablesa
Statistics
Tolerance
b
Return on Assets -.117 -1.151 .252 -.116 .776
b
RONW .305 3.547 .001 .339 .981
1
Price/Cash EPS (P/CEPS) .081b .887 .377 .090 .981
b
Assets Turnover .273 3.037 .003 .295 .923
Fixed Assets Turnover Ratio .087b .960 .339 .097 .992
Return on Assets .013c .126 .900 .013 .679
RONW -.330c -.764 .447 -.078 .038
c
2 Price/Cash EPS (P/CEPS) .014 .162 .871 .017 .939
Assets Turnover .093c .793 .430 .081 .520
c
Fixed Assets Turnover Ratio .060 .706 .482 .072 .985

c. Predictors in the Model: (Constant), Earning Per Share, Return on Capital Earned
232
Casewise Diagnosticsa
Case Number Std. Residual Share Price Predicted Value Residual
7 -2.097 239.00 884.6859 -645.68588
19 2.438 1537.00 786.2064 750.79359
56 2.094 1095.25 450.4618 644.78815
70 2.154 826.15 162.8865 663.26349
81 -2.125 71.00 725.3426 -654.34261
91 -2.331 563.00 1280.9095 -717.90953
97 2.613 1618.00 813.4239 804.57611

Predicted Value 162.8865 1280.9095 548.0955 204.24181 100
Residual -717.90955 804.57611 .00000 304.79762 100
Std. Residual -2.331 2.613 .000 .990 100
4. Share Price = β1 + β2 Debt-Equity Ratio + β3 Current Ratio+ β4 P/E

Ratio + β5 NP Ratio+ β6 Asset Turnover Ratio+ ε
Regression
Descriptive Statistics
Mean Std. Deviation N
Share Price 548.0955 366.90094 100
Debt- Equity Ratio .3847 .52968 100
Current Ratio 1.6419 1.17218 100
P/E Ratio 23.0518 20.57111 100
NP Ratio 14.5942 14.91625 100
Assets Turnover 2.1895 1.84004 100
Removed
1 Current Ratio .
remove >= .100).
2 Assets Turnover .
remove >= .100).
Model Summaryc
1 .199a .040 .030 361.38964 .040 4.043 1
2 .294b .086 .068 354.27925 .047 4.973 1
233
Model Summaryc
df2 Sig. F Change
a
1 98 .047
2 97b .028 .714
a. Predictors: (Constant), Current Ratio

b. Predictors: (Constant), Current Ratio, Assets Turnover
ANOVAa
Model Sum of Squares Df Mean Square F Sig.
Regression 527971.863 1 527971.863 4.043 .047b
1 Residual 12799042.159 98 130602.471
Total 13327014.022 99
Regression 1152176.916 2 576088.458 4.590 .012c
2 Residual 12174837.106 97 125513.785
Total 13327014.022 99

b. Predictors: (Constant), Current Ratio
c. Predictors: (Constant), Current Ratio, Assets Turnover
Coefficientsa
Coefficients
B Std. Error Beta
(Constant) 445.804 62.405 7.144 .000
1
Current Ratio 62.301 30.986 .199 2.011 .047
(Constant) 298.895 89.902 3.325 .001
2 Current Ratio 89.701 32.767 .287 2.738 .007
Assets Turnover 46.550 20.874 .233 2.230 .028
Coefficientsa
Model Collinearity
Statistics
Tolerance VIF
(Constant)
1
Current Ratio 1.000 1.000
(Constant)
2 Current Ratio .859 1.164
Assets Turnover .859 1.164
234
Excluded Variablesa
Model Beta In T Sig. Partial Correlation Collinearity Statistics
Tolerance VIF
Debt- Equity Ratio -.165b -1.646 .103 -.165 .961 1.041
b
P/E Ratio -.002 -.018 .986 -.002 .961 1.040
1
NP Ratio -.194b -1.817 .072 -.181 .843 1.186
b
Assets Turnover .233 2.230 .028 .221 .859 1.164
Debt- Equity Ratio -.183c -1.868 .065 -.187 .955 1.047
2 P/E Ratio -.013c -.128 .898 -.013 .959 1.043
c
NP Ratio -.182 -1.738 .085 -.175 .841 1.189
Excluded Variablesa
Model Collinearity Statistics
Minimum Tolerance
Debt- Equity Ratio .961b
P/E Ratio .961b
1
NP Ratio .843b
Assets Turnover .859b
Debt- Equity Ratio .838c
2 P/E Ratio .825c
NP Ratio .751c

b. Predictors in the Model: (Constant), Current Ratio
c. Predictors in the Model: (Constant), Current Ratio, Assets Turnover
Collinearity Diagnosticsa
Model Dimension Eigenvalue Condition Index Variance Proportions
(Constant) Current Ratio Assets Turnover
1 1.815 1.000 .09 .09
1
2 .185 3.135 .91 .91
1 2.388 1.000 .03 .04 .04
2 2 .515 2.153 .00 .25 .38
3 .096 4.978 .97 .71 .58
Predicted Value 371.5049 828.6355 548.0955 107.88026 100
Residual -710.31097 934.94873 .00000 350.68241 100
Std. Residual -2.005 2.639 .000 .990 100

As R square value is very less the model in not fit.
235
5. Share Price = β1 + β2 EPS + β3 Price to book value+ β4 Book Value +
β5 Current Ratio + β6 ROCE+ β7 P/E Ratio + β7 NP Ratio + β9 RONW +ε
Regression
Removed
2 Price to Book Value ( P/BV) .
3 Book Value .
Model Summaryd
1 .455a .207 .199 328.40521 .207 25.570 1
2 .596b .355 .342 297.57499 .149 22.358 1
3 .637c .405 .387 287.33649 .050 8.036 1
Model Summaryd
df2 Sig. F Change
1 98a .000
b
2 97 .000
c
3 96 .006 1.077

b. Predictors: (Constant), Earning Per Share, Price to Book Value ( P/BV)
c. Predictors: (Constant), Earning Per Share, Price to Book Value ( P/BV), Book Value
d. Dependent Variable: Share Price
ANOVAa
Regression 2757715.726 1 2757715.726 25.570 .000b
1 Residual 10569298.296 98 107849.983
Total 13327014.022 99
Regression 4737579.152 2 2368789.576 26.751 .000c
2 Residual 8589434.870 97 88550.875
Total 13327014.022 99
Regression 5401036.958 3 1800345.653 21.806 .000d
3 Residual 7925977.064 96 82562.261
Total 13327014.022 99
236
c. Predictors: (Constant), Earning Per Share, Price to Book Value ( P/BV)
d. Predictors: (Constant), Earning Per Share, Price to Book Value ( P/BV), Book Value
Coefficientsa
Model Unstandardized Coefficients Standardized T Sig.
Coefficients
B Std. Error Beta
(Constant) 309.604 57.471 5.387 .000
1
(Constant) 127.544 64.764 1.969 .052
Price to Book Value ( P/BV) 18.860 3.989 .398 4.728 .000
(Constant) 6.380 75.747 .084 .933
3
Book Value .824 .291 .408 2.835 .006
Coefficientsa
Tolerance VIF
(Constant)
1
Earning Per Share 1.000 1.000
(Constant)
2 Earning Per Share .937 1.067
Price to Book Value ( P/BV) .937 1.067
(Constant)
Earning Per Share .396 2.524
3
Price to Book Value ( P/BV) .652 1.533
Book Value .300 3.336
Excluded Variablesa
Model Beta In t Sig. Partial Collinearity
Correlation Statistics
Tolerance
Debt- Equity Ratio -.147b -1.639 .104 -.164 .987
b
Current Ratio .053 .551 .583 .056 .888
P/E Ratio .148b 1.615 .110 .162 .949
b
NP Ratio -.165 -1.826 .071 -.182 .972
1
RONW .305b 3.547 .001 .339 .981
b
Book Value -.040 -.291 .772 -.030 .431
Price to Book Value ( P/BV) .398b 4.728 .000 .433 .937
b
Price/Cash EPS (P/CEPS) .081 .887 .377 .090 .981
Fixed Assets Turnover Ratio .087b .960 .339 .097 .992
237
Total Assets Turnover .040b .436 .664 .044 .951
b
Assets Turnover .273 3.037 .003 .295 .923
Quick Ratio .091b .940 .350 .095 .865
Debt- Equity Ratio .024c .262 .794 .027 .805
Current Ratio .009c .098 .922 .010 .878
Return on Capital Earned -.119c -.647 .519 -.066 .197
P/E Ratio .015c .170 .865 .017 .839
NP Ratio -.204c -2.519 .013 -.249 .964
RONW -.154c -.903 .369 -.092 .229
2
Book Value .408c 2.835 .006 .278 .300
Price/Cash EPS (P/CEPS) -.055c -.629 .531 -.064 .872
Fixed Assets Turnover Ratio .053c .644 .521 .066 .984
Total Assets Turnover -.075c -.859 .393 -.087 .878
Assets Turnover .064c .611 .543 .062 .618
Quick Ratio .044c .495 .622 .050 .853
Debt- Equity Ratio -.103d -1.058 .293 -.108 .654
3 Current Ratio .091d 1.028 .307 .105 .794
Return on Capital Earned -.021d -.116 .908 -.012 .189
Excluded Variablesa
VIF Minimum
Tolerance
Debt- Equity Ratio 1.014b .987
b
Current Ratio 1.126 .888
Return on Capital Earned 1.019b .981
b
P/E Ratio 1.054 .949
NP Ratio 1.028b .972
b
RONW 1.019 .981
1 Book Value 2.323b .431
b
Price to Book Value ( P/BV) 1.067 .937
Price/Cash EPS (P/CEPS) 1.020b .981
b
Fixed Assets Turnover Ratio 1.008 .992
Total Assets Turnover 1.052b .951
b
Assets Turnover 1.083 .923
Quick Ratio 1.156b .865
Debt- Equity Ratio 1.243c .764
Current Ratio 1.139c .822
Return on Capital Earned 5.076c .188
P/E Ratio 1.192c .829
NP Ratio 1.038c .905
RONW 4.358c .219
2
Book Value 3.336c .300
Price/Cash EPS (P/CEPS) 1.147c .833
Fixed Assets Turnover Ratio 1.016c .926
Total Assets Turnover 1.139c .865
Assets Turnover 1.618c .618
Quick Ratio 1.172c .800
Debt- Equity Ratio 1.529d .244
3 Current Ratio 1.259d .271
Return on Capital Earned 5.280d .185
238
Excluded Variablesa
Statistics
Tolerance
b
3 P/E Ratio .033 .387 .700 .040 .834
NP Ratio -.151b -1.822 .072 -.184 .884
b
RONW -.061 -.365 .716 -.037 .220
Price/Cash EPS (P/CEPS) -.024b -.280 .780 -.029 .857
b
Fixed Assets Turnover Ratio .059 .740 .461 .076 .984
Total Assets Turnover -.087b -1.036 .303 -.106 .875
b
Assets Turnover -.014 -.130 .897 -.013 .574
Quick Ratio .109b 1.248 .215 .127 .803
Excluded Variablesa
VIF Minimum Tolerance
3 P/E Ratio 1.198b .298
b
NP Ratio 1.131 .275
RONW 4.546b .215
b
Price/Cash EPS (P/CEPS) 1.167 .295
Fixed Assets Turnover Ratio 1.017b .300
b
Total Assets Turnover 1.142 .299
Assets Turnover 1.743b .278
b
Quick Ratio 1.246 .282

c. Predictors in the Model: (Constant), Earning Per Share, Price to Book Value ( P/BV)
d. Predictors in the Model: (Constant), Earning Per Share, Price to Book Value ( P/BV), Book Value
Model Dimension Eigenvalue Condition Index Variance Proportions
(Constant) Earning Per Share Price to Book
Value ( P/BV)
1 1.821 1.000 .09 .09
1
2 .179 3.186 .91 .91
1 2.296 1.000 .04 .04 .06
2 2 .575 1.998 .01 .18 .58
3 .129 4.217 .96 .77 .36
1 3.037 1.000 .01 .01 .02
2 .779 1.975 .00 .01 .34
3
3 .130 4.842 .60 .38 .21
4 .055 7.446 .38 .59 .44
239
Model Dimension Variance Proportions
Book Value
1
1
2
1
2 2
3
1 .01
2 .02
3
3 .00
4 .96
Predicted Value 192.0902 1217.5366 548.0955 233.57211 100
Residual -654.53662 764.63550 .00000 282.94942 100
Std. Residual -2.278 2.661 .000 .985 100

+ β6 Return on Assets+ ε
Regression
Descriptive Statistics
Mean Std. Deviation N
Share Price 548.0955 366.90094 100
Earning Per Share 51.4844 36.02963 100
Current Ratio 1.6419 1.17218 100
Assets Turnover 2.1895 1.84004 100
Book Value 258.3630 181.56059 100
Price to Book Value ( P/BV) 6.8704 7.74686 100
240
Removed
Price to Book Stepwise (Criteria: Probability-of-F-to-enter <= .050,
2 .
Value ( P/BV) Probability-of-F-to-remove >= .100).
3 Book Value .
Model Summaryd
Model R R Square Adjusted R Square Std. Error of the Estimate Change Statistics
R Square Change F Change df1
1 .455a .207 .199 328.40521 .207 25.570 1
2 .596b .355 .342 297.57499 .149 22.358 1
3 .637c .405 .387 287.33649 .050 8.036 1
Model Summaryd
df2 Sig. F Change
a
1 98 .000
b
2 97 .000
3 96c .006 1.077

b. Predictors: (Constant), Earning Per Share, Price to Book Value ( P/BV)
c. Predictors: (Constant), Earning Per Share, Price to Book Value ( P/BV), Book Value
d. Dependent Variable: Share Price
ANOVAa
Model Sum of Squares Df Mean Square F Sig.
Regression 2757715.726 1 2757715.726 25.570 .000b
1 Residual 10569298.296 98 107849.983
Total 13327014.022 99
Regression 4737579.152 2 2368789.576 26.751 .000c
2 Residual 8589434.870 97 88550.875
Total 13327014.022 99
Regression 5401036.958 3 1800345.653 21.806 .000d
3 Residual 7925977.064 96 82562.261
Total 13327014.022 99
c. Predictors: (Constant), Earning Per Share, Price to Book Value ( P/BV)
241
d. Predictors: (Constant), Earning Per Share, Price to Book Value ( P/BV), Book Value
Coefficientsa
Coefficients
B Std. Error Beta
(Constant) 309.604 57.471 5.387 .000
1
(Constant) 127.544 64.764 1.969 .052
(Constant) 6.380 75.747 .084 .933
3
Book Value .824 .291 .408 2.835 .006
Excluded Variablesa
Statistics
Tolerance
b
Current Ratio .053 .551 .583 .056 .888
Assets Turnover .273b 3.037 .003 .295 .923
1 b
Book Value -.040 -.291 .772 -.030 .431
Price to Book Value ( P/BV) .398b 4.728 .000 .433 .937
Current Ratio .009c .098 .922 .010 .878
2 Assets Turnover .064c .611 .543 .062 .618
Book Value .408c 2.835 .006 .278 .300
Current Ratio .091d 1.028 .307 .105 .794
3
Assets Turnover -.014d -.130 .897 -.013 .574

c. Predictors in the Model: (Constant), Earning Per Share, Price to Book Value ( P/BV)
d. Predictors in the Model: (Constant), Earning Per Share, Price to Book Value ( P/BV), Book Value
Predicted Value 192.0902 1217.5366 548.0955 233.57211 100
Standard Error of Predicted
30.660 132.424 53.671 20.644 100
Value
Adjusted Predicted Value 192.9953 1394.0502 549.5701 237.58026 100
Residual -654.53662 764.63550 .00000 282.94942 100
Std. Residual -2.278 2.661 .000 .985 100
Stud. Residual -2.567 2.705 -.002 1.012 100
Deleted Residual -831.05011 790.16656 -1.47458 299.53409 100
Stud. Deleted Residual -2.646 2.800 -.001 1.023 100
Mahal. Distance .137 20.037 2.970 3.499 100
Cook's Distance .000 .444 .015 .049 100
Centered Leverage Value .001 .202 .030 .035 100
We can observe that EPS, ROCE and Price to book value plays a very important role
deciding share market price apart from external factors.
242

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5.

The financial management constitutes one of the major functions in the

5.2 FACTORS AFFECTING INVESTMENT DECISION BY

5.3 LIQUIDITY POSITION OF SELECTED COMPANIES

Current Ratio = Current Assets___

(Sources: Annual report of Selected Companies)

Combined Year-Wise Current Ratios of the Selected Companie

5.3.2 QUICK RATIO

Quick ratio is an indicator of a company’s short-term liquidity. It measures a

The quick ratio is calculated as:

Quick Ratio = Current Assets - Inventories

Table No.: 5.2

(Sources: Annual report of Selected Companies)

Combined Company-Wise Quick Ratio of the Selected Companies

Combined Year-Wise Quick Ratios of the Selected Companies

5.3.3 DEBT EQUITY RATIO

Debt-Equity Ratio = Total Debt_________

Table No.: 5.3

Debt Equity Ratio of the Selected Companies (in times)

(Sources: Annual report of Selected Companies)

Combined Year-Wise Debt Equity Ratios of the Selected Companies

5.4 MEASURE FINANCIAL PERFORMANCE OF

Table No.: 5.4

(Sources: Annual report of Selected Companies)

Combined Company-Wise Net Profit Ratio of the Selected Companies

5.4.2 RETURN ON NET WORTH/EQUITY RATIO

The amount of net income returned as a percentage of shareholders

RONW/E is expressed as a percentage and calculated as:

(Sources: Annual report of Selected Companies)

5.4.3 RETURN ON CAPITAL EMPLOYED/ ASSETS RATIO

Table No.: 5.6

(Sources: Annual report of Selected Companies)

HPCL also observed a fluctuating trend in its Return on Capital

5.4.4 EARNINGS PER SHARE (EPS)

EPS = Net Profit after Tax – Preference Dividend

(Sources: Annual report of Selected Companies)

5.5 VALUATION RATIOS OF SELECTED COMPANIES

P/E Ratio = Market Value Price per share

(Sources: Annual report of Selected Companies)

5.4.6 BOOK VALUE

Book Value of the company is to be calculated as follows:

Book Value = Equity Paid up + Reserves_

(Sources: Annual report of Selected Companies)

Combined Year-Wise Book Value of the Selected Companies

5.4.7 PRICE TO BOOK VALUE RATIO

It is also known as the “Market-to-Book Ratio” and the “Price-to-Equity

Price to Book Value Ratio = Stock Price_________

Table No.: 5.10

(Sources: Annual report of Selected Companies)

Price to Cash EPS Ratio = Closing Stock Price

Table No.: 5.11

(Sources: Annual report of Selected Companies)

(Sources: Annual report of Selected Companies)

5.7 EXAMINATION OF MANAGEMENT EFFICIENCY

Assets Turnover = Sales

(Sources: Annual report of Selected Companies)

5.4.10 FIXED ASSETS TURNOVER RATIO

Fixed Assets Turnover Ratio = Net Sales_________

Table No.: 5.14

(Sources: Annual report of Selected Companies)

This section discuss various hypothesis and its testing.

We can observe that Pearson Correlation value is 0.445 which is moderately