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Presented by-
RANI PUJA
M.B.A. 2ND SEM
A Comparative Study
on Wealth
Maximization in
Selected Automobile
Industries
It is concentrating on what a firm should do to maximize
its contribution to the society such as
.In this company for measuring
the wealth of the companies for financial year from 2015 to 2020
based on the top companies in selling the heavy vehicles in
automobile industry.
Tata Motors and Ashok Leyland
A firm’s main objective should be maximizing the
wealth of the company.
• Since shareholders receive their wealth through
dividends and capital gains.
• Wealth maximization is based on the assumption that
management should strive to maximize the value of the
firm.
2. Statement of the Problem: The firm’s primary objective is maximizing the
wealth of the shareholder. Due to the fluctuations in the market price of the shares, it is
essential to know what are all the factors influencing the wealth and it is required to measure
the wealth of the organization.
The researcher has compared the firm Tata Motors and Ashok Leyland for the better
understanding of wealth maximization of two organisations.
3. Objectives of the Study: · To measure and compare the Wealth of the selected
automobile industries. · To provide the suitable suggestion for the selected industries and for the
investors
R.Azhagaiah and Sabari.N7 (2008)“The study proves that the wealth of the
shareholders is greatly influenced mainly by five variables viz.,
Growth in sales,
Improvement of profit margin,
Capital investment decision,
Capital structure decision and
Cost of capital”.
5. Research Methodology
5.1 Research Design: Analytical research design is used for this study and
researcher used the facts or information already available, and analyzed
these to make a critical evaluation of the Wealth of the firms.
5.2 Source of Data: Secondary data has been used for the analysis,
and for the analysis the financial statements are collected through
company annual reports, websites, journals, and books.
5.3 Period of the Study: years of data from 2015 to 2020 are being used
for the analysis.
5.4 Tools Used for the Study:
The following financial tool are being used -
1. Economic Value Addition.
2. Market Value Addition
3. Cash flow Return on Investment
6.0 Analysis and Interpretation 6.1 Economic Value Added (EVA): EVA is
an estimate of a company’s Economic profit or Residual income, which is
the amount by which the earnings exceed or fall short of the return that
could get by investing in other business of comparable risk. EVA is defined
in monetary terms and is a period – based measure.
Table of EVA of Ashok Leyland ( Rs. in Crores)
Year NOPAT WACC % Capital WACC*C EVA
2019-2020 821.23 0.0880 6607.30 581.44 239.78
2018-2019 820.22 0.1159 6621.15 767.39 52.82
2017-2018 525.52 0.0905 5936.75 537.27 -11.75
2016-2017 347.30 0.1409 5435.87 765.91 -
418.61
2015-2016 552.94 0.0903 3036.48 274.19 278.74
Table of EVA of TATA Motors ( Rs. in Crores)
Year NOPAT WACC% Capital WACC*C EVA
2019-2020 2460.85 0.1058 30379.29 3214.12 -753.27
2018-2019 3195.61 0.1249 35908.99 4485.03 -1289.42
2017-2018 3486.33 0.1453 31429.69 4566.73 -1080.40
2016-2017 1706.18 0.1499 25560.43 3831.50 -2125.33
2015-2016 2500.48 0.0894 14119.72 1262.30 1238.17
From the above table it is inferred that the Economic
Value of Ashok Leyland is fluctuating, 278.74 in 2015-
2016. After that it shows the negative EVA of -418.61
crores and -11.75 crores for the next two years from 2016-
2017 to 2017-2018. Again it increased from 52.82 crores
to 239.78 crores in the financial year 2018-2020.
From the above table it is inferred that Economic value of
Tata motors were 1238.17 in 2015-16 . After that It show
the negative EVA from the financial year 2016-2017 to
2019-2020.
6.2 Market Value Added: The Market Value Added approach measures the
change in the market value of the firm’s equity and equity investment. Though the
concept of market value added is normally used in the concept of equity investment
and, hence, is of greater relevance of equity shareholders. It can also be adapted to
measure value from the perspective of all invested funds including preference share
capital and dept. The market value added approach cannot be used for all type of
firms whose market prices are available.
Market Value Added for Ashok Leyland ( Rs. in Crores)
Year Market Value Book Value MVA
2019-2020 15830.00 9238.95 6591.05
2018-2019 15029.89 9145.08 5884.81
2017-2018 14839.23 8126.73 6712.50
2016-2017 11856.84 7411.68 4445.16
2015-2016 10245.37 5030.92 5214.45
Market Value Added for TATA Motors ( Rs. in Crores)
Year Market Value Book Value MVA
2019-2020 381890.20 68482.42 313407.80
2018-2019 694558.00 235132.10 459425.90
2017-2018 321325.50 178651.20 142674.30
2016-2017 196905.00 148737.10 48167.90
2015-2016 291957.50 91875.33 200082.20
The Market Value is being fluctuated which is 6591.05,
5884.81, 6712.50, 6712.50, 4445.16, 5214.45 from year
2015 to 2020.
The Market Value is being fluctuated which is 313407.80,
459425.90, 142674.30,48167.90, 200082.20 from year
2015 to 2020.
6.3 Cash Flow Return on Investment: Cash Flow return on
investment is the equivalent of ROI computed based on cash flows,
instead of profits. CFROI compares the sustainable cash flow generated
by a firm with the total cash invested (towards both fixed and working
capital) to generate this flows. A valuation model that assumes the stock
market sets prices based on the cash flow, not on the corporate
performance and earnings.
Cash Flow Return of Ashok Leyland
Year Cash Flow
Rs. in Cr.
MVC
Rs. In Cr.
CFROI CRROI
(%)
2019-2020 821.23 15830.00 0.0964 9.64
2018-2018 820.22 15029.89 0.0723 7.23
2017-2018 525.52 14839.23 0.0491 4.91
2016-2017 347.30 11856.84 0.0443 4.43
2015-2016 552.94 10245.37 0.0721 7.21
Cash Flow Return of TATA Motors
Year Cash Flow
Rs. in Cr.
MVC
Rs. In Cr.
CFROI CRROI
(%)
2019-2020 4067.59 381890.20 0.010 1.06
2018-2019 4556.38 694558.00 0.006 0.65
2017-2018 4520.20 321325.50 0.014 1.40
2016-2017 2580.72 196905.00 0.013 1.31
2015-2016 3152.81 291957.00 0.010 1.07
The Cash Flow Return on Investment of Ashok Leyland is
7.21. Then it is increasing from 4.91% to 9.64% for the
year from 2016-2017 to 2019-2020.
From the above table it is inferred that the Cash Flow
Return on Investment of Tata Motors is increasing from
1.07% to 1.40% from the year 2015-2016 to 2017-2018.
Again it is decreasing from 1.40% to 0.65% from the year
2017 to 2019. And it is increasing 0.65% to 1.06% from
the year 2019-2020.
For Ashok Leyland: ·
• The company may maintain the stable dividend policy and other
policies connected to improvement in the financial performance to
maintain the good shareholder’s return every year. ·
• The company may increase its free cash flows by improving its sales,
so that the company can keep the stable and positive business return.
So it may help to maximize the wealth of the shareholders.
• The company may reduce its cost of capital further by altering its
capital structure to get better the economic value of the shareholders.
·
• The company may reduce the operating expenses for the higher
improvement in operating income in the future years
For Tata Motors: ·
• The company may maintain the stable dividend policy and bold decisions which
affecting market price of the share to maintain the better shareholder’s return in
the future. ·
• The company may improve the cash flows by improving its sales performance,
so that the company may obtain the constant and positive return in the future. ·
• The company may reduce its cost of capital further by altering its capital
structure to improve the economic value of the shareholders.
• For Investors: Based on the analysis it is clear that the EVA, MVA, CFROI, and
Market value to Book Value Ratio is healthier in Ashoke Leyland than the Tata
Motors,
• so the investors may be consider the their investment in Ashoke Leyland for their
Maximum Wealth in the future
As a whole the stock market is sometimes highly volatile. The share
price of automobile sector is highly fluctuating; it depends upon
the investors how they can make use of this in order to get money
which he has invested in shares.
 Investors should be in a position to analyze the companies for
investment in a particular sector to minimize the risk and
maximize the return.
 The investors should analyze the various aspects of a company
such as economic value, market value, cash returns to get a
good return for the investor’s money. The study’s interpretations
will help the investors to take right investment decision in
automobile industry.
Ppt on wealth maximization

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Ppt on wealth maximization

  • 1. Presented by- RANI PUJA M.B.A. 2ND SEM A Comparative Study on Wealth Maximization in Selected Automobile Industries
  • 2. It is concentrating on what a firm should do to maximize its contribution to the society such as .In this company for measuring the wealth of the companies for financial year from 2015 to 2020 based on the top companies in selling the heavy vehicles in automobile industry. Tata Motors and Ashok Leyland
  • 3. A firm’s main objective should be maximizing the wealth of the company. • Since shareholders receive their wealth through dividends and capital gains. • Wealth maximization is based on the assumption that management should strive to maximize the value of the firm.
  • 4. 2. Statement of the Problem: The firm’s primary objective is maximizing the wealth of the shareholder. Due to the fluctuations in the market price of the shares, it is essential to know what are all the factors influencing the wealth and it is required to measure the wealth of the organization. The researcher has compared the firm Tata Motors and Ashok Leyland for the better understanding of wealth maximization of two organisations. 3. Objectives of the Study: · To measure and compare the Wealth of the selected automobile industries. · To provide the suitable suggestion for the selected industries and for the investors
  • 5. R.Azhagaiah and Sabari.N7 (2008)“The study proves that the wealth of the shareholders is greatly influenced mainly by five variables viz., Growth in sales, Improvement of profit margin, Capital investment decision, Capital structure decision and Cost of capital”.
  • 6. 5. Research Methodology 5.1 Research Design: Analytical research design is used for this study and researcher used the facts or information already available, and analyzed these to make a critical evaluation of the Wealth of the firms. 5.2 Source of Data: Secondary data has been used for the analysis, and for the analysis the financial statements are collected through company annual reports, websites, journals, and books. 5.3 Period of the Study: years of data from 2015 to 2020 are being used for the analysis. 5.4 Tools Used for the Study: The following financial tool are being used - 1. Economic Value Addition. 2. Market Value Addition 3. Cash flow Return on Investment
  • 7. 6.0 Analysis and Interpretation 6.1 Economic Value Added (EVA): EVA is an estimate of a company’s Economic profit or Residual income, which is the amount by which the earnings exceed or fall short of the return that could get by investing in other business of comparable risk. EVA is defined in monetary terms and is a period – based measure. Table of EVA of Ashok Leyland ( Rs. in Crores) Year NOPAT WACC % Capital WACC*C EVA 2019-2020 821.23 0.0880 6607.30 581.44 239.78 2018-2019 820.22 0.1159 6621.15 767.39 52.82 2017-2018 525.52 0.0905 5936.75 537.27 -11.75 2016-2017 347.30 0.1409 5435.87 765.91 - 418.61 2015-2016 552.94 0.0903 3036.48 274.19 278.74 Table of EVA of TATA Motors ( Rs. in Crores) Year NOPAT WACC% Capital WACC*C EVA 2019-2020 2460.85 0.1058 30379.29 3214.12 -753.27 2018-2019 3195.61 0.1249 35908.99 4485.03 -1289.42 2017-2018 3486.33 0.1453 31429.69 4566.73 -1080.40 2016-2017 1706.18 0.1499 25560.43 3831.50 -2125.33 2015-2016 2500.48 0.0894 14119.72 1262.30 1238.17
  • 8. From the above table it is inferred that the Economic Value of Ashok Leyland is fluctuating, 278.74 in 2015- 2016. After that it shows the negative EVA of -418.61 crores and -11.75 crores for the next two years from 2016- 2017 to 2017-2018. Again it increased from 52.82 crores to 239.78 crores in the financial year 2018-2020. From the above table it is inferred that Economic value of Tata motors were 1238.17 in 2015-16 . After that It show the negative EVA from the financial year 2016-2017 to 2019-2020.
  • 9. 6.2 Market Value Added: The Market Value Added approach measures the change in the market value of the firm’s equity and equity investment. Though the concept of market value added is normally used in the concept of equity investment and, hence, is of greater relevance of equity shareholders. It can also be adapted to measure value from the perspective of all invested funds including preference share capital and dept. The market value added approach cannot be used for all type of firms whose market prices are available. Market Value Added for Ashok Leyland ( Rs. in Crores) Year Market Value Book Value MVA 2019-2020 15830.00 9238.95 6591.05 2018-2019 15029.89 9145.08 5884.81 2017-2018 14839.23 8126.73 6712.50 2016-2017 11856.84 7411.68 4445.16 2015-2016 10245.37 5030.92 5214.45 Market Value Added for TATA Motors ( Rs. in Crores) Year Market Value Book Value MVA 2019-2020 381890.20 68482.42 313407.80 2018-2019 694558.00 235132.10 459425.90 2017-2018 321325.50 178651.20 142674.30 2016-2017 196905.00 148737.10 48167.90 2015-2016 291957.50 91875.33 200082.20
  • 10. The Market Value is being fluctuated which is 6591.05, 5884.81, 6712.50, 6712.50, 4445.16, 5214.45 from year 2015 to 2020. The Market Value is being fluctuated which is 313407.80, 459425.90, 142674.30,48167.90, 200082.20 from year 2015 to 2020.
  • 11. 6.3 Cash Flow Return on Investment: Cash Flow return on investment is the equivalent of ROI computed based on cash flows, instead of profits. CFROI compares the sustainable cash flow generated by a firm with the total cash invested (towards both fixed and working capital) to generate this flows. A valuation model that assumes the stock market sets prices based on the cash flow, not on the corporate performance and earnings. Cash Flow Return of Ashok Leyland Year Cash Flow Rs. in Cr. MVC Rs. In Cr. CFROI CRROI (%) 2019-2020 821.23 15830.00 0.0964 9.64 2018-2018 820.22 15029.89 0.0723 7.23 2017-2018 525.52 14839.23 0.0491 4.91 2016-2017 347.30 11856.84 0.0443 4.43 2015-2016 552.94 10245.37 0.0721 7.21 Cash Flow Return of TATA Motors Year Cash Flow Rs. in Cr. MVC Rs. In Cr. CFROI CRROI (%) 2019-2020 4067.59 381890.20 0.010 1.06 2018-2019 4556.38 694558.00 0.006 0.65 2017-2018 4520.20 321325.50 0.014 1.40 2016-2017 2580.72 196905.00 0.013 1.31 2015-2016 3152.81 291957.00 0.010 1.07
  • 12. The Cash Flow Return on Investment of Ashok Leyland is 7.21. Then it is increasing from 4.91% to 9.64% for the year from 2016-2017 to 2019-2020. From the above table it is inferred that the Cash Flow Return on Investment of Tata Motors is increasing from 1.07% to 1.40% from the year 2015-2016 to 2017-2018. Again it is decreasing from 1.40% to 0.65% from the year 2017 to 2019. And it is increasing 0.65% to 1.06% from the year 2019-2020.
  • 13. For Ashok Leyland: · • The company may maintain the stable dividend policy and other policies connected to improvement in the financial performance to maintain the good shareholder’s return every year. · • The company may increase its free cash flows by improving its sales, so that the company can keep the stable and positive business return. So it may help to maximize the wealth of the shareholders. • The company may reduce its cost of capital further by altering its capital structure to get better the economic value of the shareholders. · • The company may reduce the operating expenses for the higher improvement in operating income in the future years
  • 14. For Tata Motors: · • The company may maintain the stable dividend policy and bold decisions which affecting market price of the share to maintain the better shareholder’s return in the future. · • The company may improve the cash flows by improving its sales performance, so that the company may obtain the constant and positive return in the future. · • The company may reduce its cost of capital further by altering its capital structure to improve the economic value of the shareholders. • For Investors: Based on the analysis it is clear that the EVA, MVA, CFROI, and Market value to Book Value Ratio is healthier in Ashoke Leyland than the Tata Motors, • so the investors may be consider the their investment in Ashoke Leyland for their Maximum Wealth in the future
  • 15. As a whole the stock market is sometimes highly volatile. The share price of automobile sector is highly fluctuating; it depends upon the investors how they can make use of this in order to get money which he has invested in shares.  Investors should be in a position to analyze the companies for investment in a particular sector to minimize the risk and maximize the return.  The investors should analyze the various aspects of a company such as economic value, market value, cash returns to get a good return for the investor’s money. The study’s interpretations will help the investors to take right investment decision in automobile industry.