Understanding the combined effect of financial ratios and economic indicators on enterprise value of cement sector in India

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Shreesh Shroff, Rahul Hiremath, Shubham Bhatt

Abstract

The aim of this study is to understand how enterprise value of Indian cement manufacturing companies is affected by the combined effects of its own performance measures and the indicators of national economy.  The uncertainties due to covid-19 pandemic and an impending recession has raised concerns about the level of economic activity in the near future. Hence, looking at the past financial performance alone will not be enough to ascertain future direction. For this study, financial data of the top four cement manufacturing companies / enterprises has been taken along with the Economic Indicators during the study period between 2005 to 2019. Three econometric models have been analyzed to see the impact of financial performance ratios and macro-economic indicators on Enterprise Value. High return on equity and lower interest rates have most helped companies see increase in Enterprise Value followed by dividend payments to the investors. While growth in GDP has had positive impact on the cement industry, same cannot be said about FDI. Investors and company management will get an empirical understanding of how enterprise value has been impacted by the combined effect of its own performance measures and economic indicators. Limited research is observed on cement industry in India, even though there has been sufficient research on enterprise value, effect of macroeconomic indicators and performance measures.

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