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MVA 500 The Methodology The BT-Stern Stewart Economic Value Added (EVA) analysis began in January, 2000, with a universe of India's 500 largest companies, as identified by the Mumbai-based Centre for Monitoring Indian Economy (CMIE) by their average market capitalisation between April 1, 1999, and March 31, 2000 (excluding banks and financial institutions and companies for which complete financial data was not available).
All the financial information required for the study was sourced from the CMIE's Prowess database. Information on credit-rating spreads was obtained from CRISIL, and that on risk-free rates, from the RBI's annual reports. The following adjustments were made by Stern Stewart to convert book profits and book capital to operating profits and economic capital: NON-RECURRING INCOME AND EXPENDITURE. These were excluded from NOPAT, and capitalised after tax. Non-recurring losses or expenditure were taken as additions to capital; incomes or gains, as reductions. RESEARCH & DEVELOPMENT. R&D is a strategic investment. So, the after-tax R&D expenditure was included in the capital and added back to NOPAT. The amount included in the capital was amortised over five years. GOODWILL. Goodwill amortisation was excluded from the NOPAT, and gross goodwill was included in capital. INTEREST. Interest expenses were added back to profits. The tax benefits of interest were removed, and cash operating taxes adjusted accordingly. NON-INTEREST BEARING CURRENT LIABILITIES (NIBCLs). These were excluded from the calculation of capital. INVESTMENTS IN MARKETABLE SECURITIES. These were included in capital, and the income from them shown in the books of accounts was included in the NOPAT. INVESTMENTS IN SUBSIDIARY COMPANIES. Financial statements of subsidiaries have not been consolidated. CASH OPERATING TAXES. Provision for taxes was restated to reflect taxes paid on operations. The tax-effects of financing and non-recurring items were eliminated. Marginal tax rates for the respective years were used for the adjustments. REVALUATION RESERVE. This was excluded from capital. CONSTRUCTION IN PROGRESS. This was included in capital. ECONOMIC VALUE ADDED (EVAŽ). EVA = NOPAT - (Cost of Capital × Economic Capital).
The Calculations NOPAT = (Profits After Tax + Non-Recurring Expenses + Revenue Expenditure On R&D + Interest Expense + Goodwill Written Off + Provision For Taxes) - Non-Recurring Income - R&D Amortisation - Cash Operating Taxes. Cash Operating Taxes = (Provision For Taxes + Tax Benefit Of Non-Recurring Expenses + Tax Benefit Of Interest - Tax On Non-Recurring Income). Economic Capital = Net Fixed Assets + Investments + Current Assets - (NIBCLs + Miscellaneous Expenditure Not Written Off + Intangible Assets) - (Cumulative Non-Recurring Losses + Capitalised Expenditure On R&D + Gross Goodwill) - Revaluation Reserve - Cumulative Non-Recurring Gains. MARKET VALUE ADDED. MVA measures the value added by the management over and above the capital invested in the company by the investors. MVA = Market Value Of The Firm - Economic Capital. The market value of the firm is the sum of market values of equity, debt, and preference shares. The master-ranking of the companies was done on the basis of MVA, and not EVA. While the EVA of a company is a historical figure based on the efficiency with which it used the resources at its disposal in a particular year, its MVA is the market's assessment of its ability to create wealth in the future. All the wealth creation data you'd ever want to have on the Top 500 Rank
2000: 1-250
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