COST OF COMPONENT ANALYSIS -...

APJRBM Volume 2, Issue 1 (JANUARY 2011) ISSN 2229-4104

Sri Krishna International Research & Educational Consortium

http://www.skirec.com

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COST OF COMPONENT ANALYSIS – A STUDY IN INDIAN

SOFTWARE INDUSTRY

Dr (Mrs.) D.Kamalaveni M.Com., Ph.D., PGDCA

Reader in Commerce,

Vellalar College for Women,

Erode-12.

E-mail id:[email protected]

Dr.(Mrs.)S.KALAISELVI M.Com., M.Phil., PGDCA., Ph.D., M.B.A.

Asst. Professor & Head,

Department of Commerce with Computer Applications,

Vellalar College for Women,

Erode-12.

E-Mail id:[email protected]

Abstract The cost of a particular source of finance is the minimum return expected by its suppliers.

The expected return depends on the degree of risk assumed by the suppliers. A high degree of

risk is assumed by shareholders than debt holders. Debt is a cheaper source of fund than

equity capital and preference capital because the interest payment on debt is fixed. Thus, a

company borrows capital in order to maximize the profits for its shareholders and it would

continue to use this source of finance until the incremental return on it is higher than its

incremental cost. Measuring the cost of various sources of funds is a complex subject. In

deciding the capital structure of a company, it is very necessary to consider the cost of each

source of capital to calculate the overall weighted average cost of capital, which in turn can

be used to compare against earnings so as to maximize the wealth of shareholders.

In this decade, Information Technology has emerged as the leader for economic growth of

India because each development in computer technology has presented new opportunities for

business. This paper deals with the cost of component analysis in Indian software industry.




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INTRODUCTION The financial decisions affect the market value of a firm. Generally, the objective of financial

decisions is to maximize the market price of shares and to minimize the cost of capital which

leads to increase in earnings per share and return on capital employed.

The cost of a particular source of finance is the minimum return expected by its suppliers.

The expected return depends on the degree of risk assumed by the suppliers. A high degree of

risk is assumed by shareholders than debt holders. Debt is a cheaper source of fund than

equity capital and preference capital because the interest payment on debt is fixed. Thus, a

company borrows capital in order to maximize the profits for its shareholders and it would

continue to use this source of finance until the incremental return on it is higher than its

incremental cost.

Measuring the cost of various sources of funds is a complex subject. In deciding the capital

structure of a company, it is very necessary to consider the cost of each source of capital to

calculate the overall weighted average cost of capital, which in turn can be used to compare

against earnings so as to maximize the wealth of shareholders.

A firm’s cost of capital may be defined…. The rate that must be earned on net proceeds to

provide the cost elements of the burden at the time they are due.

Significance Of Cost Of Capital The cost of capital is used for evaluating the investment projects.

It helps to determine the financial structure of a firm

It can be used to evaluate the overall financial performance of a firm.

Indian Software Industry

The Indian IT industry has not only been among the fastest growing industries globally, it has

played a key role in transforming India from a largely inward looking economy to an

emerging knowledge power that is today perceived as being one of the most dynamic and

entrepreneurial in the world.

In this decade, Information Technology has emerged as the leader for economic growth of

India because each development in computer technology has presented new opportunities for

business. With many Indian businesses having their competitive edge in the global market by

using IT as a key enabler, a NASSCOM study has found that about 35 percent of the

organizations have moved to a level where almost all processes have been automated. The

NASSCOM IT User Survey, which covered 300 organizations has reported that 85 percent of

the organizations believe that they have been able to derive benefits out of the IT

implementation. Assessing the impact of IT implementation on the company productivity, the

survey said 80 percent of the respondents felt that they have been able to trace productivity

enhancements within their organizations.




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Research Objectives The study is focused on the following specific objectives.

To analyse the debt and equity component of capital structure

To study the significant variation in averages of cost of debt of different sub-

groups.

To discuss the perceptible and distinctive difference in cost of equity among

sub-groups of sampled companies.

To study the significant variation in WACC among the sub-groups of sampled

companies.

Sample Selection

The data used in this study relate to those software companies listed in the Bombay Stock

Exchange (BSE) for which the data are available in the Capitaline database. The analysis is

confined to the BSE listed Indian software companies only.

Capitaline database contained data relating to 465 BSE listed software companies. Stratified

sampling technique was used and hence the total population was sub-divided into three

standard sub-groups namely Large (Turnover greater than Rs.900 Crores), Small-Medium

(Turnover less than Rs.900 Crores) and Converts (diversified companies), in such a way that

each strata was more homogeneous than the total population. Accordingly, it was found that

there were 10 Large, 407 Small-Medium and 48 Converts. For selection of sample companies

in each stratum, companies for which data were available for minimum of eight years were

identified. The researcher selected all those companies from each stratum which fulfilled the

above condition. Thus the final sample consisted of 102 software companies.

Further it could be observed that the total sample of 102 software companies fall into

following trading groups in BSE: 16 ‘A’ group companies, 5 ‘Z’ group companies, 8 ‘S’

group companies, 28 ‘T’ group companies, 17 ‘B1’ group companies, 22 ‘B2’ group

companies and 6 ‘TS’ group companies.

Period Of The Study

The data collected for the study pertains to a period of ten years from 1996-97 to 2005-06.

Sources Of Data

The study is based on the secondary data collected from the Capitaline and EBSCO

databases. The data for the sample companies as obtained from Capitaline are supplemented

with the information from various financial dailies, business magazines, reports, websites etc.

For the purpose of computing EVA, Beta value from Capitaline database has been

considered. Risk free rate of return can be taken either as Interest Rate of Government Bonds

or Average Cost of time deposits of Scheduled Commercial Banks in India. In this study,

average cost of time deposits of Scheduled Commercial Banks in India is taken as risk free

rate of return and it has been collected from ‘The Indian Banker’.




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Results And Discussion

The cost of capital constitutes an integral part of investment decisions. A company uses more

than one type of capital. The composite capital lies between the least and the most expensive

funds.

The formula used for analysis are:-

Cost of Debt, Kd = 100xDebtTotal

esargChFinancial&Interest

Cost of equity (ke) = Rf + bi (Rm-Rf)

Weighted Average Cost of Capital (WACC) =

100d

Kxemployed capital debt to of Proportion +

100

Employed Capital Total Equity to of Proportionx Ke

Table No.1 puts forward the synoptic description of Cost of Equity, Cost of Debt and WACC.

It is obvious from Table No.1 that, the cost of debt has declined over the years while the cost

of equity has exhibited wide variations. An attempt has been made to study the average cost

of debt for the different sub- groups of the companies by applying ANOVA.

The averages of cost of debt capital of the sample companies varied from year to year. In

order to verify whether there is any significant variation in the averages of cost of debt of

different sub –groups, the following hypothesis has been framed and tested.

H0: There is no significant variation in averages of cost of debt of different sub-groups.

According to Table No.2, the calculated ‘F’ value is 0.884 as against the table value of 3.07.

Since the calculated value being lesser than the table value, it can be concluded that there is

no significant difference in average cost of debt capital of different sub groups.

Estimation of cost of equity is the most complex task. Several approaches are available to

estimate the cost of equity. Capital Asset Pricing Model (CAPM) approach has been

attempted as it considers the risk factor. The parameters of CAPM are risk free rate of return

(rf), market rate of return (Km) and beta co-efficient (b).

Table No.1 reveals that the minimum average cost of equity is 10.13% and the maximum is

52.74%. Since the cost of equity of sampled companies showed wide variations, an attempt is

made to study the average cost of equity capital for different sub-groups.

The average cost of equity capital in Large, Small-Medium and Converts groups are found to

be 20.85%, 17.58% and 13.91% respectively (Table No.5). To check whether cost of equity

capital differs significantly in various groups of sampled companies, the ANOVA technique

is used.

H0: There is no perceptible and distinctive difference in cost of equity among sub-groups of

sampled companies.




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It is obvious from Table No.3 that ‘F’ ratio value is 0.488. The calculated value being less

than the table value of 3.07, at 5% level of significance, it can be concluded that among the

sampled companies distinctive cost of equity does not vary significantly from group to group.

The computation of overall cost of capital involves weights to specific costs and multiplying

these costs by their relative weights. The overall cost of capital of sampled companies

showed very wide variations and hence an attempt was made to study the average cost of

capital for the different sub groups of the sampled companies.

ANOVA has been performed to ensure whether there is any pertinent and significant

variation in WACC among sampled companies.

H0: There is no significant variation in WACC among the sub groups of sampled companies.

It is clear from the Table No.4 that the calculated F value is 0.631 as against the table value

of 3.07 at 5% level of significance. Since the calculated value of WACC is less than its table

value, it is concluded that the WACC among different sub groups does not show any

distinctive variation.

On the whole, it can be concluded that overall cost of capital does not differ significantly

from one sub-group to another sub-group of sampled companies.

The Cost of Debt, Cost of Equity and WACC for the whole sample and also for different sub-

groups are summarized in Table No.5:

Average cost of debt as well as the cost of equity were the highest for biggies followed by

Small-medium segment. Converts enjoyed low cost debt and equity and hence their WACC

was the lowest compared to other sub-groups.

Table No.6 evinces the trend of certain select capital structure oriented variables. Optimal

capital structure can be obtained with the proper mix of debt and equity. The Debt equity

ratio was 0.217 during 1996-97, which decreased to 0.131 during 2005-06. The ratio was

found to be below the standard norm of 2:1 during the entire study period. This indicates an

unfavourable position to the shareholders since a very low debt equity ratio was observed

deducing that firms have not been able to use low-cost outsiders funds to magnify their

earnings.

Return On Capital Employed was found to have decreased from 11.308 during 1996-97 to

8.857 during 2005-06. Decreasing trend in the debt-equity ratios exhibits less financial risk.

Turnover which has the direct impact on profitability was found to be high during 2005-06

when compared to 1996-97. An increasing trend is noticed with respect to EBIT also.

Fluctuating trend is identified with respect to total debt. It ranges from Rs.6.431 Crores to

Rs.18.131 Crores. EBIT to Capital Employed showed a decrease from 0.130 during 1996-97

to 0.106 during 2005-06.

Correlation matrix has been constructed and analysed with regard to Debt-Equity and

Turnover, Total Debt and EBIT, Debt-Equity and ROCE and finally EBIT to Capital

Employed and Debt-Equity (whole sample analysis).




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Appendix-I, Table No.1.2 exhibits an inverse relationship between Debt-Equity and

Turnover. There exists positive relationship between Total Debt and EBIT in all the 10 years

of the study (Appendix-I, Table No.1.3) and a high positive association is noticed during the

first five years of the study period. The association between Debt-Equity and ROCE was

found to be low positive during seven out of ten years of the study period as per Appendix-I,

Table No.1.4 and the first two years exhibited a negative relationship. A high positive

correlation was found during the year 2005-06 with a coefficient of 0.778.

Inverse relationship was observed in seven years of the study with regard to EBIT to capital

employed and Debt-Equity ratio presented in Appendix-I, Table No.1.5. During the

remaining years of the study, a very low positive association was found.

Recommendations

Barring multinational companies, most companies in India till recently paid lip service to the

goal of shareholder wealth maximization. They showed sporadic concern for the

shareholders, mainly when they approached the capital market for raising capital. The higher

corporate needs for funds and the greater dependence on the capital market have induced

firms to become more friendly with shareholders. Institutional investors tend to be more

discerning and have the muscle and motivation to nudge companies to pursue shareholder

friendly policies. With the abolition of wealth tax on equity shares and other financial assets,

there is now an incentive to enhance share prices. An attempt is made here to sketch a few

recommendations emanating from the findings of the study to the software companies for

effectively competing in the global arena.

Cost Of Capital

Cost of capital of a company is the minimum expected rate that a company requires to meet

its obligations and sustain itself in the market. In designing the financial policy i.e., the

proportion of debt and equity in the capital structure, the firm aims at minimizing the overall

cost of capital. The empirical analysis revealed that the cost of debt stood at 0.44% and

0.35% among the large and small-medium group of companies. The overall cost of capital

also remained high in these two groups viz, 19.77% and 17.14% respectively. It is suggested

that the companies belonging to large and small-medium groups should redesign their capital

structure in order to reduce the cost of debt as well as WACC. The companies can have a

large portion of debt in its structure, as debt is much cheaper than equity. While augmenting

the debt capital, the companies have to keep in mind the standard norm of debt equity ratio.

Debt-Equity ratio is the simple measure of the balance between the finance provided by

equity share holders and that desired from external borrowings. It provides the best start for

the assessment of capital structure. Debt-Equity ratio (Average) in the study showed

fluctuation ranging between 0.083 during 1999-2000 and 0.217 during (1996-97) and was

found to be below the standard norm of 2:1 in all the years under study. This shows that the

select software companies are low geared. The companies may try to have more low cost

borrowed capital which will enable to have wide operations.

When an investor is investing in shares, he is taking higher risk and expects a high return

because there is an uncertainty with regard to dividend which he may or may not receive.




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There is an uncertainty with regard to the movement in share price. If the company does not

perform, the investor may not even get his money back. The cost of capital plays a role in

deciding upon the dividend policy of the firm. In the present study, wide fluctuation is being

noticed regarding the behaviour of cost of capital and hence the software companies are

suggested to follow appropriate dividend policies with a view to maximize the wealth of the

shareholders as well as the company as a whole.

Conclusion

The analysis revealed that statistically there was no significant difference among various sub-

groups with regard to cost of debt capital. Distinctive patterns were found to exist with

respect to cost of equity and it varied from group to group. WACC among different sub-

groups did not show any distinctive variation. Debt-equity ratio was found to be far below the

standard norm in all the years under study. It establishes the fact that the share holders do not

enjoy the advantages of trading on equity.

Year wise averages of EBIT and Turnover showed an upward swing. Inverse relationship was

found between debt equity & turnover and between EBIT to capital employed & debt-equity

in majority of the years. Positive relationship was observed with respect to total debt & EBIT

and debt-equity & ROCE. Such a positive relationship favours the proposition that the use of

debt upto an optimal level could boost earnings related variables.

REFERENCES

The Hindu, Business Line, April 14, 2006, P.No:4

Bhalla. V.K., Financial Management and policy, Text and cases,

4th

Revised and Enlarged Edition, ANMOL Publications Pvt Ltd,

New Delhi-110002 (India).

Falguni C. Shastri, Capital Structure of Indian Corporate sector, Book Enclave, Jaipur, India,

2005.

Bacidore J. Boquist J. Milbourn T and Thakor A, The Search for the Best Financial

Performance Measure, Financial Analysts Journal, May / June 1997.

Clinton, B.D. and S.Chen, Do New performance measures measure up?, Management

Accounting, Oct 1998, pp. 38-43.

Edger, Norton, Factors Affecting Capital Structure Decisions, The Financial Review, 26(3)

1991, pp. 431-446.

Edwards. B, Survey: The Place To Be, The Economist, November 13, 2004, Vol. 373, No.

8401, p.8.

Gupta, O.P. and Sehgal Sanjay, An Empirical Testing of Capital Asset

Pricing Model in India, Finance India, December, 1993, vol. VII No.4, pp.863-874.




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John C. Groth, Ronald C. Anderson, The cost of capital: Perspectives for Managers,

Management Decision 35/6, 1997, pp.474-482.

Jordan, J., Lowe, J. and Taylor, P. Strategy and financial policy in UK

small firms, Journal of Business Finance and Accounting 25(1), 1998, pp.1-27.

Matthew, Billet T., and Ryngaert, Mike, Capital Structure, Asset Structure and Equity

Takeover Premiums in Cash Tender Offers, Journal of Corporation Finance, Volume 3, No.2,

April 1997, pp.145-165.

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Structure in Indian Industries, Finance India, Vol. XLV No.2, June 2000, pp.546-551.

www.eva.com

www.indiainfoline.com

www.capitaline.com

www.bseindia.com

www.investopedia.com

www.iba.org.in.

www.valuebased management.net

www.icraindia.com




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Table No. 1

Yearly Average Of Cost Of Equity, Cost Of Debt And Wacc

(in percentage)

Years 2005-

06

2004-

05

2003-

04

2002-

03

2001-

02

2000-

01

1999-

00

1998-

99

1997-

98

1996-

97

Cost of

Debt 0.18 0.09 0.11 0.23 0.21 0.23 0.33 0.74 0.34 0.83

Cost of

Equity 37.82 32.83 11.06 52.74 4.99

-

10.13 -9.42 46.64 -8.61 15.89

WACC 34.87 27.95 10.75 50.25 5.44 -8.68 -7.31 42.78 -3.75 16.33

Table No. 2

Cost Of Debt Of Sub-Groups – Anova

Source of variance d.f SS MS ‘F’ ratio Sig. level

at 5%

Between Groups 2 1.085 0.542557 0.884 NS

within groups 99 60.790 0.614042

Total 101 61.875

Table No. 3

Cost of Equity of sub-groups – ANOVA

Source of

variance d.f SS MS ‘F’ ratio

Sig. level

at 5%


within groups 99 28630.629 289.1983

Total 101 28912.890

Table No. 4

Wacc Among Sub-Groups – Anova

Source of

variance d.f SS MS ‘F’ ratio

Sig. level

at 5%


within groups 99 26573.754 268.422

Total 101 26912.511




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Table No. 5

Group-Wise Average Cost Of Debt (Kd), Cost Of Equity (Ke) & Wacc (Ko)

(in percentage)

Group Cost of Debt Cost of Equity WACC

Large 0.44 20.85 19.77

Small Medium 0.35 17.58 17.14

Converts 0.09 13.91 12.69

Table No. 6

Year Wise Average Of Select Variables For The Whole Sample

Years

Debt

Equity

(Ratio)

ROCE

(%)

Turnover

(Rs. in

Cr.)

EBIT

(Rs. in

Cr.)

Total

Debt (Rs.

in Cr.)

EBIT to

CE (Ratio)

2005-06 0.131 8.857 399.74 104.013 18.131 0.106

2004-05 0.156 -15.136 255.44 64.714 12.765 -0.112

2003-04 0.123 -2.107 188.16 45.652 11.319 0.027

2002-03 0.110 -16.826 156.83 37.841 9.977 0.039

2001-02 0.095 -8.607 131.22 35.382 6.431 -0.019

2000-01 0.084 3.690 118.54 37.573 7.675 0.087

1999-

2000 0.083 12.713 83.88 21.295 8.777 0.149

1998-99 0.171 0.788 58.47 11.694 11.329 -0.024

1997-98 0.216 4.128 46.95 6.908 13.025 0.099

1996-97 0.217 11.308 40.79 6.659 12.145 0.130

Appendix – I

Table No. 1.1

10 Year Average Of Cost Of Debt, Cost Of Equity And WACC Of Sampled

Companies Under Various Sub Groups

Name of the

Company

Cost of Debt Cost of Equity WACC

Average ACGR Average ACGR Average ACGR

DIGITALEQP 1.44 -37.01 18.99 -4.85 19.99 -6.02

HP 1.23 -17.9 16.79 9.08 19.38 -4.36

I-FLEX 0 0 19.38 -4.36 24.32 10.34

INFOSYS 0 0 24.32 10.34 22.02 12.11

SATYAM 0.28 4.48 21.73 11.15 12.69 10.93

TECHM 0 0 22.49 11.39 22.49 11.39

WIPRO 0.15 -12.55 22.24 11.31 17.48 7.46

ABACUS 0.17 -6.73 10.36 -5.03 11.8 -2.71

ABMANO 0.11 0 15.06 -220.61 14.82 -220.43

ACESOFT 0.01 0 16.41 8.87 16.2 8.87




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ADVENT 0.1 -246.2 172.93 191.21 164.24 19.27

AFTEK LTD 0.4 -27.85 24.65 11.96 23.54 10.76

ASIANCE 0.31 -23.48 25.22 12.34 25.73 9.56

AVANTELQ 0.47 40.61 21.37 -4.37 21.19 -1.04

AZTECH 0.31 24.78 17.94 -214.8 19.07 -225.55

B2BSOFT 0.07 -100 9.81 1.69 10.22 2.08

BLUESTINFO 0 0 23.52 -4.37 23.51 -4.38

BRELS 0.04 -24.19 15.77 9.7 12.96 6.57

CALIFSOF 0.15 -3.86 18.44 9.91 18.27 9.63

CGVAK 0.14 2.34 24.41 -4.36 22.63 -5.28

CONTECH 0.17 13.27 7.15 -8.22 8.33 -8.09

CRANES 0.11 -21.37 12.98 6.25 11.47 -2.24

CRESSAN 0.03 0 -1.68 -4.35 0.54 -17.17

CSSOFT 0.21 10.64 17.16 -214.09 16.71 -215.44

CYBERTE 0 0 14 7.18 14.03 7.17

DATASOFT 0 0 17.42 9.42 16.64 9.42

DYNACON 0.17 4.95 10.45 2.9 10.95 2.15

ESERVE 0.3 -13.32 9.53 -5.05 11.59 -6.43

EUROSOFT 0.04 -100 26.84 13.7 25.34 13.64

EZCOM 0.43 -19.44 7.87 -4.18 8.01 -4.89

FINTECH 0.08 -100 18.44 9.91 18.19 8.93

FRONTINF 0.15 -23.86 8.4 -0.6 9.97 -6.46

GENESYS 0.27 -30.53 11.59 4.64 14.17 -8.26

GEOMETRIC 0.11 -100 21.48 11.07 21.32 11.67

GOLDTECH 0.18 -2.18 11.59 4.64 12.19 2.57

GTL 0.18 4.29 -1.46 -3.79 2.75 -174.82

HEXAWERE 0.34 23.15 12.78 7.09 12.68 36.27

HINDTMT 0.71 -20.12 24.65 11.96 23.44 9.58

INFDS 0.12 -100 10.39 13.99 8.89 -17.95

INFOTECENT 5.01 19.99 19.58 10.39 20.91 9.69

INSOE 0.07 0 16.41 8.87 16.29 8.91

INTELVIS 0.26 0 21.5 11.08 21.65 11.12

INTRAINF 0 0 17.79 10.88 17.78 10.91

ITMICRO 0.05 0 10.61 -5.01 10.27 -7.8

JETKINGQ 0.11 -100 10.2 2.44 11.16 4.38

JINDONL 0.01 0 9.85 -5.03 9.59 -5.03

KASHYAP 0.01 0 10.88 24.88 10.65 26.2

KEDIN 0 0 11.82 5.85 11.81 5.99

KLG 0.32 -13.79 22.32 10.59 23.78 10.25

KPITCUMM 0.16 -12.18 14.13 7.29 14.08 3.06

LEENEE 0 0 11.58 3.45 11.58 3.45

MARRSOF 0.09 -100 25.38 12.34 13.36 7.2

MAGNUM 0.22 4.78 12.78 7.09 7.35 -209

MANGASOF 3.79 -100 2.08 -209.8 20.09 10.18

MASTEK 0.3 6.4 19.96 10.54 17.78 10.14

MELSTAR 0.22 -15.26 14.25 7.39 14.82 1.64

MICROTECH 0.13 -1.63 27.32 12.54 28.69 17.22

MIDPOINT 0.16 -100 26.81 12.44 22.09 6.79




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MINDTEK 1.21 -1.1 18.22 8.94 19.14 11.97

MPHASIS 4.76 -31.05 23.51 11.67 27.19 7.17

NCCFIN 0.19 -100 14.76 7.78 21.24 9.22

NUCLEUSSOFT 0.81 -100 17.68 9.55 17.92 9.29

ODYSSEY 0.07 0 15.9 8.56 15.45 8.9

ONWARD 0.13 -7.77 21.73 11.15 18.51 9.34

ORIENTINFO 0.79 12.33 21.73 11.15 21.72 13.15

OTCO 0 0 7.2 -11.31 7.2 -11.31

PALSOFT 0.4 -100 -10.22 28.9 -10.56 42.46

PENTASOFTTE 0.19 -41.12 17.42 9.42 15.95 6.21

PIOTECH 0 0 10.45 2.9 10.45 2.9

PSI 0.12 -18.77 16.55 8.47 11.26 -8.56

RAMINFO 0.28 7.05 13.85 5.08 14.56 3.15

RAMCOSYS 0.16 0 17.81 -3.41 14.01 -9.85

ROLTA 0.11 -100 23.81 12.63 21.52 13.78

SANRASOF 0.18 -100 13.32 8.58 13.63 8.66

SILVERLINE 0.17 -31.84 16.15 8.72 12.83 4.12

SINDUVA 0 0 27.13 13.75 26.13 12.64

SOFTSOL 0 0 9.98 6.25 12.72 6.25

SONATA 0.07 -100 21.23 10.99 22.09 11.82

SVAMSOFT 0.35 -100 16.34 10.08 16.44 9.74

TELEDATA 0.1 -24.21 14.1 11.65 12.74 10.04

TERASOFT 0.1 0 21.23 10.99 19.52 11.45

TWINSOFT 0.14 -100 10.7 3.33 10.55 -5.24

VIRTUALS 0.06 -31.13 7.49 -8.5 -15.49 -240.52

VISUALSOFT 0.02 -100 20.85 10.86 20.91 11.39

VJIL 0.16 -1.74 18.31 9.85 17.13 8.79

ZENSAR 0.19 -16.97 21.1 10.95 24.51 1.69

CHOKSHIN 0 0 9.81 1.69 9.79 1.69

CORCOMP 0 0 7.42 -7.92 0.3 -204.12

DANLAW 0.06 0 18.69 -4.37 18.67 -4.41

ENCORE 0.37 0 17.81 9.77 11.39 -168.33

ICSAIND 0.08 8.13 19.07 10.18 18.49 10.25

IECSOF 0.12 -2.4 9.3 0.53 9.48 0.82

INFOTREK 0.21 -11.49 16.92 9.15 17.05 8.6

LCCINFO 0.06 0 14.04 -4.37 14.1 -4.37

MASCONGLO 0.11 0 22.06 -219 19.42 -218.04

MILLENCY 0 0 11.25 -4.99 12.53 -4.99

NETVISTA 0 0 12.14 4.92 9.55 8.15

OMEGAIN 0.05 0 8.45 -2.57 8.45 -2.57

SRGINFO 0.04 -100 13.83 7.03 13.76 7.75

SYNLOG 0.12 -28.47 14.88 7.93 14.83 3.84

TRILLENT 0.13 -100 6.48 -5.3 8.08 -11.55

VAKRANG 0.04 -10.29 20.47 10.72 17.19 25.73




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Table 1.2

Correlation Matrix – Debt Equity and Turnover(Whole Sample)

X06 X05 X04 X03 X02 X01 X00 X99 X98 X97 Y06 Y05 Y04 Y03 Y02 Y01 Y00 Y99 Y98 Y97

X06 1

X05 .934(**) 1

X04 .703(**) .995(**) 1

X03 0.213 .948(**) .971(**) 1

X02 .277(*) .962(**) .927(**) .944(**) 1

X01 .333(**) .978(**) .952(**) .965(**) .995(**) 1

X00 .541(**) .647(**) .592(**) .509(**) .769(**) .876(**) 1

X99 .231(*) 0.041 0.07 0.079 .217(*) 0.202 .760(**) 1

X98 0.199 0.03 0.059 0.065 0.191 0.168 .719(**) .985(**) 1

X97 .495(**) 0.027 0.059 0.047 0.141 0.122 .660(**) .905(**) .917(**) 1

Y06 -0.048 -0.057 -0.059 -0.036 -0.048 -0.062 -0.061 -0.046 -0.05

-

0.053 1

Y05 -0.048 -0.033 -0.035 -0.033 -0.037 -0.038 -0.049 -0.046 -0.05

-

0.052 .999(**) 1

Y04 -0.049 -0.035 -0.037 -0.037 -0.046 -0.045 -0.056 -0.051 -0.053

-

0.054 .994(**) .995(**) 1

Y03 -0.05 -0.036 -0.036 -0.031 -0.043 -0.048 -0.053 -0.054 -0.056

-

0.057 .993(**) .993(**) .998(**) 1

Y02 -0.048 -0.035 -0.032 -0.02 -0.036 -0.048 -0.043 -0.056 -0.057

-

0.058 .985(**) .984(**) .988(**) .994(**) 1

Y01 -0.054 -0.04 -0.042 -0.041 -0.05 -0.051 -0.066 -0.053 -0.054

-

0.055 .967(**) .962(**) .958(**) .968(**) .985(**) 1

Y00 -0.041 -0.018 0.006 0.059 -0.002 -0.061 -0.032 -0.06 -0.059

-

0.057 .907(**) .888(**) .881(**) .896(**) .929(**) .969(**) 1

Y99 -0.048 -0.039 -0.041 -0.039 -0.049 -0.05 -0.063 -0.058 -0.06 -0.06 .886(**) .860(**) .850(**) .859(**) .887(**) .929(**) .970(**) 1

Y98 -0.052 -0.041 -0.047 -0.05 -0.058 -0.053 -0.077 -0.062 -0.06

-

0.063 .822(**) .796(**) .773(**) .779(**) .810(**) .861(**) .912(**) .979(**) 1

Y97 -0.055 -0.036 -0.041 -0.043 -0.052 -0.053 -0.06 -0.058 -0.058

-

0.055 .772(**) .747(**) .730(**) .737(**) .774(**) .829(**) .897(**) .964(**) .993(**) 1

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

X – Debt Equity; Y - Turnover




-104-

Table 1.3

Correlation Matrix – Total Debt and EBIT (Whole Sample)


X06 1

X05 .537(**) 1

X04 .386(**) .868(**) 1

X03 .255(*) .831(**) .951(**) 1

X02 .371(**) .711(**) .799(**) .938(**) 1

X01 0.111 .505(**) .636(**) .702(**) .378(**) 1

X00 0 .240(*) .480(**) .440(**) .227(*) .832(**) 1

X99 0.037 .234(*) .535(**) .425(**) .255(*) .651(**) .854(**) 1

X98 0.089 .293(**) .605(**) .453(**) .315(**) .491(**) .687(**) .953(**) 1

X97 0.195 .257(*) .593(**) .433(**) .334(**) .368(**) .534(**) .872(**) .970(**) 1

Y06 0.028 0.077 0.172 0.129 0.039 .340(**) .426(**) .660(**) .656(**) .585(**) 1

Y05 0.033 0.089 0.177 0.132 0.046 .286(**) .353(**) .601(**) .618(**) .570(**) .994(**) 1

Y04 0.029 0.085 0.172 0.138 0.054 .319(**) .353(**) .495(**) .460(**) .440(**) .993(**) .994(**) 1

Y03 0.025 0.105 .201(*) 0.168 0.052 .284(**) .290(**) .477(**) .475(**) .473(**) .973(**) .978(**) .983(**) 1

Y02 0.042 0.128 .274(**) .248(*) 0.123 .427(**) .398(**) .577(**) .548(**) .530(**) .990(**) .982(**) .985(**) .979(**) 1

Y01 0.052 0.18 .388(**) .326(**) .263(*) .492(**) .611(**) .774(**) .739(**) .689(**) .976(**) .957(**) .917(**) .908(**) .946(**) 1

Y00 0.059 .247(*) .478(**) .414(**) .333(**) .488(**) .577(**) .752(**) .764(**) .730(**) .947(**) .930(**) .850(**) .845(**) .883(**) .961(**) 1

Y99 0.006 .216(*) .426(**) .377(**) .232(*) .506(**) .559(**) .691(**) .695(**) .641(**) .903(**) .869(**) .842(**) .850(**) .874(**) .905(**) .930(**) 1

Y98 0.07 .258(*) .480(**) .424(**) .247(*) .463(**) .451(**) .708(**) .760(**) .760(**) .827(**) .791(**) .764(**) .801(**) .837(**) .843(**) .876(**) .925(**) 1

Y97 0.058 .235(*) .492(**) .409(**) .278(**) .412(**) .467(**) .760(**) .833(**) .840(**) .775(**) .754(**) .701(**) .736(**) .774(**) .815(**) .842(**) .888(**) .961(**) 1



X – Total Debt; Y - EBIT




-105-

Table 1.4

Correlation Matrix –Debt Equity and ROCE (Whole Sample)


X06 1

X05 .934(**) 1

X04 .703(**) .995(**) 1

X03 0.213 .948(**) .971(**) 1

X02 .277(*) .962(**) .927(**) .944(**) 1

X01 .333(**) .978(**) .952(**) .965(**) .995(**) 1

X00 .541(**) .647(**) .592(**) .509(**) .769(**) .876(**) 1

X99 .231(*) 0.041 0.07 0.079 .217(*) 0.202 .760(**) 1

X98 0.199 0.03 0.059 0.065 0.191 0.168 .719(**) .985(**) 1

X97 .495(**) 0.027 0.059 0.047 0.141 0.122 .660(**) .905(**) .917(**) 1

Y06 .778(**) .661(**) .380(**) -0.036 -0.046 -0.048 .246(*) -0.031 -0.021 0.031 1

Y05 -0.128 0.021 0.032 0.048 0.044 0.045 -0.143 -0.025 -0.026 -0.013 -0.092 1

Y04 -0.091 0.106 0.096 0.089 0.087 0.094 0.006 -0.002 0.014 0.019 0.126 0.115 1

Y03 0.013 0.05 0.038 0.008 0.027 0.053 0.001 0.035 0.034 0.033 0.014 0.062 .337(**) 1

Y02 -0.18 0.013 0.014 0.021 0.011 0.011 0.018 0.023 0.025 0.023 -.257(*) -0.003 0.128 -0.067 1

Y01 0.019 .232(*) .228(*) .226(*) 0.191 0.196 -0.047 -0.019 -0.015 -0.015 .452(**) 0.075 0.168 0.037 0.083 1

Y00 0.065 0.147 0.168 0.187 0.07 -0.041 0.106 0.022 0.006 0.085 .354(**) 0.099 .234(*) -0.038 0.054 .620(**) 1

Y99 -.457(**) -0.027 -0.017 0.016 0.013 0.004 -0.018 0.008 0.01 0.003 -.363(**) .208(*) 0.051 -0.032 0.046 0.066 .222(*) 1

Y98 -0.029 -0.013 -0.014 -0.008 -0.021 -0.024 -0.048 -0.094 -0.106 -0.086 0.031 0.05 -0.035 -0.062 0.168 0.115 .210(*) 0.067 1

Y97 -0.162 -0.06 -0.072 -0.055 -0.068 -0.072 -.228(*) -.307(**) -.285(**) -.469(**) 0.083 0.118 0.11 -0.036 0.107 0.068 0.049 0.159 .231(*) 1



X –Debt Equity; Y - ROCE




-106-

Table 1.5

Correlation Matrix – EBIT to Capital Employed and Debt Equity (Whole Sample)


X06 1

X05 0.076 1

X04 .331(**) .288(**) 1

X03 0.077 .354(**) .547(**) 1

X02 .687(**) 0.031 0.193 -.241(*) 1

X01 -0.153 0.18 .368(**) .248(*) .378(**) 1

X00 -0.027 .282(**) .379(**) .205(*) 0.125 .599(**) 1

X99 0.215 0.022 0.061 0.012 0.057 0.1 0.149 1

X98 0.184 0.162 0.197 0.102 0.183 .404(**) .494(**) 0.157 1

X97 0.15 0.202 .345(**) .264(*) 0.048 .257(*) .452(**) 0.159 .635(**) 1

Y06 -.281(*) -0.066 -0.127 -0.038 -0.196 0.001 0.054 -.587(**) -0.084 -0.12 1

Y05 -.282(*) -0.062 -.267(*) -0.124 0.001 -0.083 0.124 -0.022 -0.066 -0.085 .934(**) 1

Y04 -0.2 -0.052 -.266(**) -0.146 0.001 -0.085 0.15 -0.012 -0.065 -0.089 .703(**) .995(**) 1

Y03 -0.095 -0.038 -.257(**) -0.196 0.012 -0.086 0.172 0.025 -0.05 -0.083 0.213 .948(**) .971(**) 1

Y02 -0.121 -0.043 -.252(*) -0.171 0.005 -0.112 0.06 0.023 -0.074 -0.096 .277(*) .962(**) .927(**) .944(**) 1

Y01 -0.137 -0.047 -.269(**) -0.134 0.004 -0.112 -0.035 0.013 -0.078 -0.095 .333(**) .978(**) .952(**) .965(**) .995(**) 1

Y00 -0.125 -0.144 -0.038 -0.081 0.016 -0.109 0.07 -0.006 -0.115 -0.166 .541(**) .647(**) .592(**) .509(**) .769(**) .876(**) 1

Y99 -0.062 -0.03 -0.033 0.001 0.021 -0.043 0 0.024 -0.12 -0.172 .231(*) 0.041 0.07 0.079 .217(*) 0.202 .760(**) 1

Y98 -0.031 -0.03 -0.015 0.001 0.023 -0.036 -0.017 0.022 -0.129 -0.168 0.199 0.03 0.059 0.065 0.191 0.168 .719(**) .985(**) 1

Y97 -0.012 -0.016 -0.011 -0.011 0.016 -0.049 0.064 0.012 -0.127 -.234(*) .495(**) 0.027 0.059 0.047 0.141 0.122 .660(**) .905(**) .917(**) 1



X – EBIT to Capital Employed; Y – Debt Equity




-107-

TOTAL DEBT – WHOLE SAMPLE

18.131

12.765

11.319

9.977

6.431

7.675

8.777

11.329

13.02512.145

0

2

4

6

8

10

12

14

16

18

20

2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-2000 1998-99 1997-98 1996-97

YEARS

Rs

in

Cro

res




-108-

COST OF EQUITY - SEGMENT WISE

-40

-20

0

20

40

60

80

100

2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97

YEARS

AV

ER

AG

E

Large

Small-Medium

Converts




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WEIGHTED AVERAGE COST OF CAPITAL - SEGMENT WISE

-40

-20

0

20

40

60

80

100

2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97

YEARS

AV

ER

AG

E

Large

Small-Medium

Converts

COST OF COMPONENT ANALYSIS -...

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