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|January 23, 1999||
Indian companies to adopt PWC's formula for shareholder value enhancement
Over 50 Indian companies have evinced keen interest in a methodology developed by PricewaterhouseCoopers to assist them in understanding the measures that stock markets apply, to run business in tandem with them and communicate with investors in terms that demonstrate their commitment to shareholder value enhancement.
The model which has already been adopted by General Electric, Monsanto, Lloyds, Coca-Cola, Caterpillar and Johnson & Johnson, will be used by the Indian corporates within ten to 16 months, Dr Andrew Black, director, business analysis team of PWC, said early this week in New Delhi.
''Many CEOs and CFOs still manage their business in terms of earnings and limited accounting measures, which do not provide useful information on the matter that should be the foremost in the minds of all management teams -- maximising shareholder value,'' Dr Black said.
The impact of recent economic reforms in India has created the environment where companies will have to focus their attention on building shareholder value. Clear-cut evidence is now available that local stock markets have begun to reward those companies that have channelised their energies in this direction and are punishing those that have failed to recognise this change, Ashwini Puri of PWC said.
PWC, the world's largest professional services organisation which developed the model, has seven key factors that drive the creation of shareholder value through the influence on future cash flow expectations. They are sales growth rate, cash operating margin, cash tax rate, rate of reinvestment in working capital, rate of reinvestment in fixed assets, weighted average cost of capital and value growth duration period.
This approach first benchmarks the performance of the target company against world-class competitors on each of these key drivers of value. It uses automatic data feeds from public databases and produces cross-currency, cross-border comparisons with minimal need for manual data editing.
This model also helps reflect the markets' assessment of the company, using a combination of historical performance and the latest market data on prospects for growth margins.
''This helps a company understand that how it is valued by the market,'' Puri said.
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