Cash flow & Earning measures' impact on EVA & Market share prices

Abstract

The primary objective of a firm is to maximize the shareholders’ wealth. The shareholder value is measured by the market value of a company. This study focuses on finding the relationship between the market value of a company depicted by the share price and the performance measures based on accounting. The significant relationships between external and internal performance measures are highlighted through literature review. The purpose of the study is to determine which internal performance measures of a company correlate the best with its external performance measures as represented by the Market Value Added (MVA). In order to achieve the goal of the study, data of eight cement companies is collected from annual reports. By finding the various accounting-based ratios and applying statistical technique of correlation, results are obtained. These results are then analyzed and compared with the theoretical principles and previous findings. The highest correlation coefficient obtained was between MVA and DPS. ROCE and Net profit Margin also depicts significant relationship with MVA. Slightly lower positive coefficients were found between MVA and ROA, ROE, EPS, current ratio, fixed asset turnover and total asset turnover.