EVA BASED PERFORMANCE MEASUREMENT: A CASE STUDY OF SBI AND HDFC BANK

Abstract

The goal of Financial Management is to maximize the shareholder's value. The
shareholder's wealth is measured by the returns they receive on their investment.
Returns are in two parts, first is in the form of dividends and the second in the
form of capital appreciation reflected in market value of shares of which market
value is thee dominant part. The market value of share is influenced by number
of factors, many, of which, may not be fully influenced by the management of firm.
However, one factor, which has a significant influence on the market value, is the
expectation of the shareholders regarding the return on their investment. There
exist very measures like return on Capital Employed, Return on Equity, earnings
per share, Net Profit margin, and Operating profit margin to evaluate the
performance of the business. The problem with theses measures is that they lack
a proper benchmark for comparison. The shareholders require at least a minimum
rate of return on their vestment depending on the risk in the investment. To
overcome these problems the concept of EVA vas developed.
The report studies Indian bank’s profile to demonstrate a direct correlation
between the investment in stakeholder relationships and corporate performance.
Many Indian banking seems to have destroyed shareholder’s wealth over a
period of time and only a few have positively contributed to their wealth. With the
help of EVA (Economic Value Added) which tell what the institution is doing with
investor’s hard earned money, the report examines an appropriate way of
evaluating bank’s performance and also finds out which Indian banks have been
able to create (or destroy) shareholders wealth since 2005-2006 to 2007-2008.