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A

Report on

"THE IMPACT OF DIVIDEND POLICIES ON THE RETURN ONEQUITY”

A Dissertation Submitted In Partial Fulfilment

Of

The Requirement For The Award Of MBA Degree Of

Bangalore University.

Submitted by

Mr. MANISH KUMAR

(REGD. NO: 06XQCM6039)

UNDER THE GUIDANCE & SUPERVISION OF

Dr. N.S. MALAVALLI

M.P.BIRLA INSTITUTE OF MANAGEMENT

ASSOCIATE BHARTIYA VIDYA BHAVAN

43, RACE COURSE ROAD,

BANGALORE-560001

2006-2008



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DECLARATION

I, hereby, declare that this project report entitled, “THE IMPACT OF DIVIDEND

POLICIES ON THE RETURN ON EQUITY” Submitted in partial fulfillment for

the award of Master of Business Administration of Bangalore University is a record

of independent work carried out by me under the guidance of Dr. N. S.

MALAVALLI, Principal, M. P. Birla Institute of Management, Bangalore.

I, also declare that this report is a result of my own effort and has not been submitted

earlier for the award of any degree or diploma of Bangalore University or any other

University.

Place: Bangalore MANISH KUMAR

Date: (REGD. NO: 06XQCM6039)



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ACKNOWLEDGEMENT

I am extremely grateful to all those who have shared their views, opinions, ideas and

experiences which have significantly improved my inputs for this Project.

I am indebted to my Internal guide Dr. Nagesh Malavalli for his encouragement andsupport for the completion of the study.

I extended my sincere gratitude to our faculty members who help me a lot in preparing

this report.

Finally I would like to extend my warm respects and regards to my family, friends and

well-wishers for their constant support and valuable suggestions.

Manish Kumar



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GUIDE’S CERTIFICATE

This is to certify that this report entitled, “THE IMPACT OF DIVIDEND

POLICIES ON THE RETURN ON EQUITY” is a compilation of the

project carried out by Mr. MANISH KUMAR (Reg. No. 06XQCM6039), a

Student Executive of M.P. Birla Institute of Management, Associate

Bharatiya Vidya Bhavan, Bangalore.

Mr. Manish Kumar worked under my guidance and supervision.

Bangalore

Date:-

( Dr. Nagesh Malavalli )



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PRINCIPAL’S CERTIFICATE

This is to certify that this report entitled “THE IMPACT OF DIVIDEND

POLICIES ON THE RETURN ON EQUITY” is the output of final report

carried out by Mr. Manish Kumar, a Student Executive of MP Birla

Institute of Management, Bangalore under the guidance and supervision of

Dr.N. S. Malavalli, MPBIM, Bangalore (Internal Guide)

Bangalore.

Date:- ( Dr.N. S. Malavalli)

PRINCIPAL



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TABLES OF CONTENTS

CHAPTER NO. TITLES PAGE NO.

CHAPTER -1 1

Research extract 2

CHAPTER -2 3

Introduction 4

Theoretical

background

4

Operation definition 6

Statement of problem 6

Objective of study 6 Scope of the study 7

CHAPTER-3 8

Review of literature 9

CHAPTER-4 13

Methodology 14

Sampling framework 14

Sampling technique 14

sample 15

Data collections 15

Statistical analysis 15

CHAPTER-5 17

Data interpretation &

analysis

18

Multiple regression

analysis

37

BIBLIOGRAPHY 47



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LIST OF TABLESTABLE-1 18

TABLE-2 19

TABLE-3 20

TABLE-4 21

TABLE-5 22

TABLE-6 23

TABLE-7 24

TABLE-8 25

TABLE-9 26

TABLE-10 27

TABLE-11 28

TABLE-12 29

TABLE-13 30

TABLE-14 31

TABLE-15 32

TABLE-16 33

TABLE-17 34

TABLE-18 35

TABLE-19 36

TABLE-20 37

TABLE-21 38

TABLE-22 41

TABLE-23 41



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LIST OF GRAPHS

GRAPH-1-2 18

GRAPH-3-4 19

GRAPH-5-6 20

GRAPH-7-8 21

GRAPH-9-10 22

GRAPH-11-12 23

GRAPH-13-14 24

GRAPH-15-16 25

GRAPH-17-18 26

GRAPH-19-20 27

GRAPH-21-22 28

GRAPH-23-24 29

GRAPH-25-26 30

GRAPH-27-28 31

GRAPH-29-30 32

GRAPH-31-32 33

GRAPH-33-34 34

GRAPH-35-36 35

GRAPH-37-38 36

GRAPH-39-40 37



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C -1



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RESEARCH EXTRACT

Corporate dividend policy has captured the interest of economists of this century. Once acompany makes a profit, they must decide on what to do with those profits. They could

continue to retain the profits within the company, or they could pay out the profits to theowners of the firm in the form of dividends. Once the company decides on whether to pay

dividends, they may establish a somewhat permanent dividend policy, which may in turnimpact on investors and perceptions of the company in the financial markets. What they

decide depends on the situation of the company now and in the future. It also depends on

the preferences of investors and potential investors.

Aim of the study was to understand the Impact of dividend policies on the

Return on Equity. For the dividend, the variables such as debt-equity ratio, dividend-payout ratio and EBIT of the Indian public limited companies are studied to understand

the relationship between the dividend and the ROE. The objectives of the study were todescribe the samples in terms of its pattern of debt-equity ratio, dividend-payout ratio &

EBIT and to find out the relationship between these variables on the return on the equity.

The findings of the study can be used to understand the influence of dividend decisionsand capital structure decisions on the Return on Equity

A descriptive research, which is quantitative in nature, was conducted.

Convenient sample of 20 companies, shares of which are traded in Bombay Stock

Exchange and National Stock Exchange was studied. The historical data were collectedfrom the various web sites. The relationship between the Dividend Policies of the firm

and the Return on Equity is studied using Multiple Regression model.

Results of the study show that there is an evidence of significant associationbetween D/E ratio, D/P ratio and EBIT on the Return on Equity (Significant at 5% level

using “t” test). The findings include both multiple regression analysis for each of the

sample companies for six years (2000/2001 to 2005/2006) and t-test for the entire samplecompanies



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CHAPTER-2



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INTRODUCTION

The Dividend decision of the firm is a crucial area of financial management. Theimportant aspect of dividend policy is to determine the amount of earnings to be retained

and the amount to be distributed to share holders. Retained earnings are the most

significant internal source of financing. On the other hand, dividends may be considereddesirable from shareholder’s point of view as they tend to increase their current return.

The objective of any dividend policy should be to increase the share holder’sreturn so that the value of his investment is maximized. Share holder’s return has two

components; dividends and capital gains. There are many reasons for paying dividendsand there are many reasons for not paying any dividends. As a result, `dividend policy is

controversial. A higher payout of dividend means lower retained earnings which mayaffect the growth of the firm and perhaps a lower market price per share. The decision

becomes more critical when there exists an investment opportunity to the firm. If the

profits earned is distributed to investors then the retained earnings to that extent will bereduced which will result in increasing debt to finance the investment opportunity. On the

other hand the investor’s requirement also must be satisfied by providing the optimum

dividend. All these factors which go through the minds of the share holders will bereflected in the market price of the shares Thus the dividend decision is very vital to any

organization.

THEORETICAL BACKGROUND

Companies that earn a profit can do one of the three things; pay that profit out to

shareholders, reinvest it in the business through expansion, or both. When a portion of the

profit is paid out to shareholders, the payment is known as a dividend. The dividend is avariable income, the amount of which depends on the amount of annual profit made by

the company. The dividend corresponds to the share of income that the Annual General

Meeting opts to distribute to shareholders. The remainder is placed in reserve and used toincrease equity in order to finance the company’s development.

By definition dividend is the payment made by a firm to its owners, either in cash or in

stock. It is also referred to as the income component of the return on an investment in

stock. Dividend is a taxable payment declared by a company's board of directors and

given to its shareholders out of the company's current oretained earnings. Dividends areusually given as cash (cash dividend), but they can also take the form of stock (stock

dividend) or other property. Dividends provide an incentive to own stock in stable



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companies even if they are not experiencing much growth. Companies are not required to

pay dividends. The companies that offer dividends are most often companies that haveprogressed beyond the growth phase, and no longer benefit sufficiently by reinvesting

their profits, so they usually choose to pay them out to their shareholders.

Capital Structure (Debt-Equity)

Another important variable, which affect the value of the firm, is the capital structure of

the firm. The capital structure of a company is the particular combination of debt, equityand other sources of finance that it uses to fund its long term financing. The key division

in capital structure is between debt and equity. This simple division is somewhat

complicated by the existence of other types of capital that blur the lines between debt andequity, as they are hybrids of the two. Preference shares are legally shares, but have a

fixed return that makes them closer to debt than equity in their economic effect.

How Shareholders' Wealth Grows

Shareholders benefit financially from their investment in successful companies in three

main ways:

Dividends, which are a distribution of part of a company's net profit to shareholders, aspart owners of the company. Most large industrial companies pay dividends twice yearly,

and often these dividends have tax advantages as well.

Capital growth, which is the increase in the market value of a company's shares over

the total cost of those shares. It usually reflects the growth in the company's profits and

assets, but it can also be affected by a change in the sentiment of the whole share marketas it goes through its cycles. Prices of shares are determined by many factors which are

interrelated to each other.

New Issues of shares, which may be made by a company when it requires further

funds. Such new shares are usually offered at a discount to existing shareholders, based

on a predetermined ratio, without having to pay brokerage. The entitlements to the newshares offered are known as Rights, as shareholders have the right to acquire the shares or

to sell the rights to these new shares on the stock market. A company may also make a

Bonus Issue to shareholders at no cost.



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OPERATIONAL DEFINITIONS

1. DIVIDEND PAYOUT A ratio showing the percentage of net profits paid out in dividends on common stock,

after reducing net profits by the amount of dividends paid on preferred stock. It calculatedas the percentage of dividend paid on profit after tax. In this study dividend payout ratio

is expressed as the ratio of dividend paid to the net profit after tax.

D/P Ratio = Dividend Paid / Net profit after tax

2. DEBT EQUITY RATIOS Debt Equity ratio shows capital structure of the firm. This represents the capital Structure

of the company. It is defined as the ratio of debt to equity of the firm.

D/E Ratio = Debt / Equity

3. EARNIG BEFORE INTEREST AND TAX

EBIT is used by investors because the tax structure and financing structure of the

companies being compared may be very different. These accounting techniques could

possibly affect the final profit amount and mask the actual operating efficiency of thefirm. EBIT is used to find the most profitable company in terms of the efficiency of its

operations.

STATEMENT OF THE PROBLEM

There exist conflicting views with regard to the impact of dividend decisions on the

Return on Equity. Some are of the opinion that dividends do affect the Return on Equitywhile others argue it does not. Thus there exists a knowledge gap. The research problem

under consideration is as follows.

“To what extent does the dividend decision affect the Return on Equity of the widely held

public limited companies in India?’’

OBJECTIVES OF THE STUDY

1. To describe the samples selected in terms of the financial ratios.

2. To explain the dividend payout and the debt equity patterns of the samples.

3. To understand the relationship between the dividend policy of the company and the

Return on Equity.4. To study the effect of capital structure decision on the Return on Equity of the firm.



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HYPOTHESIS

H0: Debt-equity ratio, Dividend-payout ratio and EBIT do not affect the Return On

Equity.

H1: Debt-equity ratio, Dividend-payout ratio and EBIT affect the Return On Equity.

SCOPE OF THE STUDY

Here an attempt is made to understand increase or decrease in the Return on Equity due

to the different dividend payout ratios. Here the ratios such as dividend payout, debtequity ratios and EBIT are studied. The findings of the study can be used to understand

the influence of dividend decisions and capital structure on the Return On Equity

LIMITATIONS

It is needless to say that the factors, which affect the Return On Equity, are anendless list. Factors other than dividend payout, debt equity ratios and EBIT are

not studied. The study has taken only six years data of 20 companies to explain the

phenomenon.



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CHAPTER -3



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REVIEW OF LITERATURE

RELEVANCY OF DIVIDEND This approach purports that the value of the firm is affected by the dividend policy and

the optimal dividend policy is the one, which maximizes the firm’s value. These variablesconsider dividend decisions to be an active variable in determining the value of a firm.

Two famous models in support of this are explained below.

Walter Model (James & Walter, 1963) Walter model supports that the dividend policy of the firm is relevant. The investmentpolicy of the management cannot be separated from its dividend policy and both are

interrelated. Thus the choice of dividend policy does affect the value of the firm. Walter

model is built around certain assumptions such as constant return, constant cost of capital,constant earnings and dividend. He also made an assumption that financing of new

investment is done through retained earnings and debt and no new equity shares are beingissued.

Walter in his argument explains three situations If the return on investment exceeds the cost of capital then the firm has to retain

the earnings and should not be distributed as dividends.

If the cost of capital exceeds the return on investment then the firm has to pay theentire earnings as dividend

If the return on investment and the cost of capital is same then rate of dividend

payout can be 0 to 100.According to this model if the firm retains the earnings it gives a signal that the

investment opportunities are more and it increases the share prices. Similarly when thefirm distributes the entire earnings as dividend, share prices will automatically increase,

as the income on the shares are more. The Walter model is criticized on the unrealistic

assumptions on which it is made such as no debt financing, constant return, cost of capitaland earnings etc… are not practically possible.

Gordon Model (Gordon Myron J, 1962) Myron Gordon (1962) came up with a dividend relevance model which is popularly

known as the “bird in the hand argument”. The crux of the argument is that theInvestors are risk averse and

They put a premium on the “certain” returns and discount or penalize the “uncertain”

returnsGordon says that the current dividends are certain and the reinvestment of current

dividend for future returns is uncertain. Thus the investors would be inclined to pay

higher prices for shares on which current dividends are paid and discounts the value of

the shares on which dividends are postponed.This model is based on the belief that a bird in the hand worth two in the bush. Thus

incorporating the uncertainty into the model, Gordon concludes that the dividend policy



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affects the value of the firm. His model justifies the behavior of investors who value a

rupee of dividend income more than a rupee of capital gains income, because dividendsare less uncertain when compared to capital gains. However this model is also not free of

criticism because of the assumptions on which it is based.

IRRELEVANCE OF DIVIDEND Dividend irrelevance approach implies that the value of the firm is unaffected by the

distribution of dividends and is determined by the earning power and risk of its assets. Itis based on the assumption that the investors are indifferent between dividends and

capital gains. So long as the firm is able to earn more than the equity capitalization rate,

the investors would be content with the firm retaining the earnings.

MM Hypothesis (Modigliani and Miller, 1961)

Modigliani and Miller argued that the dividend decisions have no effect on the share

prices of the firm and therefore no consequence. According to them it is the investmentspolicy through which a firm can increase its earnings and there by the value. Under the

conditions of perfect capital market, rational investors, absence of tax discriminationbetween the dividend income and capital appreciation, given the firm’s investment

policy, its dividend policy may have no influence on the market price of the shares.

The crux of the argument is the arbitrage process. When the earnings are paid out as

dividend, the funds required for additional investment has to be raised from either sale of

new shares or additional loans, thus the two acts offset or balance each other. Rationalinvestors prefer more wealth to less wealth and they know that the present value of

prospective dividends is the terminal value of the shares. MM argue that when dividendsare paid out, the market prices of the shares will decrease. What is gained by the investors

as a result of dividends will be neutralized completely by the decrease in the terminal

value of the shares. The market price before and after the payment of dividend is sameand the investors are indifferent between dividend and the retained earnings. As the

investors are indifferent, the wealth would not be affected by the current and future

dividend policies. It would entirely depend up on the expected future earnings. Thus MM

says that the difference in current and the future dividend policies can not affect themarket price of the shares as the present value of the prospective dividends is nothing but

the terminal value of the shares. The assumption under which the MM hypothesis lies is

highly unrealistic and untenable in practice. As a result the conclusion that the dividendpayment and the other methods of finance will exactly offset and hence the dividend is

irrelevant is not a practical proposition. The validity of MM hypothesis is criticized on

imperfections of market also.

OTHERS

Gragg & Malkeil in their paper on “Expectations and Structure of Share Prices” presentthe results of an empirical study of year-end common stock prices from 1961 to 1965.

The ratios of market prices earnings are related to such factors as earnings growth,



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dividend pay out, and various proxy variables designed to measure the quality of the

return. They demonstrate in the study that it is possible to explain, for several successiveyears the percentage of variability in market price earnings ratios with the variables

included in the study.

David & Julio (2004) University of Illinois and Urbana Champaign in their paper on

“Reappearing Dividends” studied the reappearing phenomenon on United States of America. They observed that the cash dividend paid by the US companies during 1984

to1999 has fallen down from 32% to 16.%. But after reaching a low percentage of 15% in

2001 now the dividend payout ratios have increased to 20% in first quarter of 2004. Intheir study they found out that the downward trend in dividends experienced a sharp

reversal with the new millennium. They have also identified certain reasons such as tax

cut in dividends, investment opportunities, corporate governance etc… responsible for the reappearing of dividend.

RETAINED EARNINGS

S M Gupta (1989) studied the behavior of retained earnings in private sector and publiclimited companies in India, for a period from 1975-76 to 1984-85. The results showed

that the retention ratio (retained earnings / Net profit after tax) moved from 62.22 to31.87 percentage with an average of 53.27. The overall study concluded that the

corporations’ tries to stabilize the dividends over a period and any increase in profits go

to the retained earning for reinvestment in the business. It is also observed that theconstant profit earning industries maintained a retention ratio; but low profit earning

industries or loss incurring industries neither maintained any retention ratio nor

maintained dividend payout ratios.

CAPITAL STRUCTURE vs. FIRM’S VALUE The two principal sources of finance for a company are equity and debt. What should be

the proportion of equity and debt in the capital structure of the firm? One of the keyissues in the capital structure decision is the relationship between the capital structure and

the value of the firm. There are several views on how this decision affects the value of the

firm.

Optimal Capital Structure Theory: Optimal capital structure theory of Modigliani-

Miller (1958) suggest there exist an optimal leverage at which the firm obtains a

maximum value by minimizing its weighted average costs of capital, given the marketimperfections and tax deductibility of interest costs from pre-tax income of firms. The

proposition asserts that the value of a firm with tax-deductible interest is equal to the

value of an all-equity firm as enhanced by the tax savings. According to this approach,the capital structure decision of a firm is irrelevant. This approach supports the NOI

approach and provides a behavioral justification for it. This approach indicates that the

capital structure is irrelevant because of the arbitrage process which will correct any

imbalance i.e. expectations will change and a stage will be reached where further arbitrage is not possible.



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Durand D (1959) identified two views; Net income approach and Net operating

approach. Under the Net income approach the cost of debt and the cost equity areassumed to be independent to the to the capital structure. This approach says that the

weighted average cost of capital of the firm declines and the total value of the firm rise

with increased use of leverage. Under the Net operating income approach, the cost of the

equity is assumed to increase linearly with leverage. As a result, the weighted averagecost of capital remains constant and the total value of the firm also remains constant as

the leverage is changed.

Davidson N W, et.al., (1994) in their report on “The effect of firm and industrydebt ratios on market value” analyzed 183 firms and studied the effect of debt ratios to

the market value of the firm. Overall conclusion of the study is that the relationship of the

firm’s debt level and that of its industry does not appear to be of concern to the market.Arsiraphoongphisit O & Ariff M (2003) in their report on “Optimal capital structure and

firm value- an Australian evidence, 1991-2003” (Corporate Finance) analyzed 654

observations for a period of 1991 to 2003 in Australian market on the effect of capitalstructure change and firm’s value. The findings indicate that the market reacts

positively to announcements of financing that lead to capital structure moving closer totheir relative industrial Debt-Equity ratio. Thus market perceives and reacts positively to

the optimal debt-equity ratio. Thus debt-equity ratio has an impact on market value of thefirm.

From an overall review of the literature it is clear that there exist certainly a

contradicting view on the impact of the dividend policy of a firm on the value of the firm.The studies on the effect of debt equity combination on share prices show that the

relationship is almost zero. But theoretically as the debt increases because of the tax

shield available the earnings must also increase and increase in earnings always increasesthe market price of the shares. Thus we can see that there exists a knowledge gap in the

subject.



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CHAPTER -4



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METHODOLOGY

The methodology is the major phase of research in which the investigator makes anumber of decisions about the methods and materials to be used to study the research

problem, basically through collection of data. The methodological decision generally has

control implications for the validity of the study findings

TYPE OF RESEARCH

Type of research is Descriptive research, which is Quantitative in nature.

STUDY SETTING

Indian Public Limited CompaniesThe Equity Shares of Companies are traded in Indian Stock Exchanges. (BSE & NSE)

POPULATION

A population is a group whose members possess specific characteristics that a researcher is interested in studying. In this study the population includes all widely held public

companies whose shares are publically traded through a stock exchange.

SAMPLING FRAMEWORK

This study includes analysis of public limited companies, which are listed in Bombaystock exchange and National Stock Exchange of India.

SAMPLING TECHNIQUE

A sample is a portion of the population that has been selected to represent the populationof interest. Here in this study 20 companies are selected which are listed in Bombay stock

exchange and National stock Exchange, India. Sampling technique used here isconvenient sampling.



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SAMPLE

The sample size is 20. The companies studied are the followings.

Associated Cement Company Ltd. Bharat Heavy Electricals Ltd. Cipla Ltd.

Grasim Industries Ltd. Hero Honda Ltd.

Hindalco Industries. Hindustan Unilever Ltd. Hindustan Petroleum Corporation Ltd. Larsen & Toubro Ltd. Ranbaxy Laboratories Ltd. Reliance Energy Ltd. Reliance Industries Ltd. Tata Motors Ltd

Wipro Ltd. ABB Ltd. Bharat Petroleum Corporation Ltd. Britannia Industries Ltd. Colgate Palmolive Ltd.

Ashok Leyland Ltd.

The shares of the above companies are commonly traded in the stock exchange for theperiod under study ie; from 2000/2001 to 2005/2006

DATA COLLECTION

Secondary Data

Income statements of companies under studyBalance sheets

Method of Data collection and steps

The data required for the study has been collected from the Data Base maintained in the

Bangalore Stock Exchange, Bangalore and from the Data Base of the Bombay Stock

Exchange and National Stock exchange through their web sites. The raw data collected

were converted in to the ratios and classified according to the requirement of the study.

STATISTICAL ANALYSIS

Descriptive Statistics is used to describe the pattern of dividend payout, Debt equity andthe return on shares.

Statistical model used: The model used here is multiple - regression model.

The regression equation for the study is as under.Y = a + b1 X1 + b2 X2+b3X3

Y = Expected Return on Equity (For the year 2006/2007)

X1 = Expected Debt-Equity Ratio

X2 = Expected Dividend PayoutX3= Expected EBIT



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Regression is the process of predicting one variable from another by statistical means

using previous data.As there exist high correlation between the dividend payout and retention ratio there will

be Multi Co-linearity effect on the regression analysis. To avoid this retention ratio is not

included in the regression model.

At

-test is any statistical hypothesis test in which the test statistic has a Student's t distribution if the null hypothesis is true. It is applied when sample sizes are small enough

that using an assumption of normality and the associated z-test leads to incorrect

inference.“t” test significance at 5% level is used to accept or reject the hypothesis.



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CHAPTER-5



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DATA INTERPRETATION & ANALYSIS

TABLE-1

ABB

YEARS ROE EBIT YEARS D/ERATIO D/PRATIO

2000-01 16.09 7.877 2000-01 0.3 0.337847

2001-02 21.04 9.731 2001-02 0.15 0.262273

2002-03 19.86 14.469 2002-03 0.15000 0.236053

2003-04 23.78 18.146 2003-04 0.016718 0.124706

2004-05 27.36 247.31 2004-05 0.0020560 0.155031

2005-06 32.88 352.88 2005-06 0.003019 0.193466

2006-07 29.71631 481.64 2006-07 0.054644 0.132467

GRAPH-1

Charts Showing ROE & EBIT

0

100

200

300

400

500

600

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is showing an increasing trend for nearly all the years under

study but it is estimated that it will deceased to 29.72% in 2006-2007. EBIT is alsoshowing the increasing trend.

GRAPH-2

Charts Showing Debt-Equity Ratio & Dividend Payout Ratio

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing an increasing trend for nearly all the yearsunder study and it is estimated that it will be 0.546 in 2006-2007. D/P ratio is decreasing

till 2003-2004 but it will be .1325 in 2006-2007.



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TABLE-2ACC

YEARS ROE EBIT

D/E

RATIO

D/P

RATIO

2000-01 7.26 22.131 0.99 0.4116232001-02 13.77 31.104 1 0.34272

2002-03 6.67 25.247 1.15 0.61069

2003-04 16.48 39.036 1.07 0.347383

2004-05 25.65 52.885 0.94 0.351089

2005-06 22.08 72.141 0.291468 0.256048

2006-07 31.69796 90.87715 0.252645 0.26765

GRAPH-3


0

10

20

30

40

50

60

70

80

90

100

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is fluctuating throughout the years under study but it is

estimated that it will be 31.70% in 2006-2007. EBIT is also showing the same trend.

GRAPH-4


0

0.2

0.4

0.6

0.8

1

1.2

1.4

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing an increasing trend till 2003-2003 and after

that it is decreasing and it is estimated that it will be 0.2526 in 2006-2007. D/P ratio is

fluctuating.



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TABLE-3

BHEL

YEARS ROE EBIT D/ERATIO D/PRATIO

2000-01 12.58 33.786 0.17 0.15717

2001-02 14.28 75.981 0.2 0.165188

2002-03 11.45 85.716 0.13 0.184478

2003-04 15.58 67.059 0.101971 0.186614

2004-05 16.84 134.448 0.089097 0.203274

2005-06 25.2 231.967 0.076457 0.211606

2006-07 32.02629 370.0361 0.065893 0.239792

GRAPH-5


0

50

100

150

200

250

300

350

400

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is fluctuating but it is estimated that it will be to 32.02% in

2006-2007. EBIT is also showing the same trend.

GRAPH-6


0

0.05

0.1

0.15

0.2

0.25

0.3

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing decreasing trend and it is estimated that itwill be 0.0659 in 2006-2007. D/P ratio is showing an increasing trend for nearly all the

years under study.



Page - 29 -

TABLE-4

BPCL

YEARS ROE EBIT

D/E

RATIO

D/P

RATIO2000-01 21.99 136.959 0.17 0.2698

2001-02 21.04 163.393 0.2 0.386847

2002-03 28.59 224.041 0.13 0.360852

2003-04 31.98 275.622 0.46 0.311573

2004-05 15.78 13.98 0.61 0.379558

2005-06 3.77 63.78 0.92 0.31198

2006-07 6.139731 107.6939 1.375786 0.329923

GRAPH-7


0

50

100

150

200

250

300

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is showing an increasing trend till 2003-2004 and decreasingafterwards and it is estimated that it will deceased to 6.14% in 2006-2007. EBIT is also

showing the increasing trend till 2003-2004.

GRAPH-8


0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage

D/E RATIO

D/P RATIO



Page - 30 -

INTERPRETATION:- D/E ratio is fluctuating throughout the years under study and it is

estimated that it will be 0.138 in 2006-2007. D/P ratio is also showing the increasingtrend.

TABLE-5

CIPLA

YEARS ROE EBIT

D/E

RATIO

D/P

RATIO

2000-01 28.01 24.022 0.03 0.154724

2001-02 29.51 31.331 0.04 0.183303

2002-03 25.55 31.698 0.07 0.250407

2003-04 26.51 40.802 0.166592 0.289745

2004-05 25.7 52.627 0.123067 0.291941

2005-06 34.55 72.591 0.236433 0.252481

2006-07 38.46826 90.0633 0.376669 0.284422

GRAPH-9


0

10

20

30

40

50

60

70

80

90

100

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is fluctuating throughout the years under study and it is

estimated that it will be 38.47% in 2006-2007. EBIT is also showing the increasing trend.

GRAPH-10


0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing an increasing trend till 2003-2004 and it is

estimated that it will be 0.38 in 2006-2007. D/P ratio is showing the same trend.



Page - 31 -

TABLE-6

BRITANIA

YEARS ROE EBIT D/ERATIO D/PRATIO

2000-01 26.91 12.404 0.67 0.266899

2001-02 26.53 27.154 0.59 0.248888

2002-03 21.14 15.846 0.45 0.312236

2003-04 24.85 16.315 0.090924 0.266569

2004-05 22.32 19.377 0.013844 0.342796

2005-06 29.5 21.89 0.017046 0.262068

2006-07 27.07587 26.30369 0.011486 0.272102

GRAPH-11


0

5

10

15

20

25

30

35

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is showing decreasing trend for nearly all the years under study but it is estimated that it will be 27.08% in 2006-2007. EBIT is also showing the

increasing trend.

GRAPH-12


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage

D/E RATIO

D/P RATIO



Page - 32 -

INTERPRETATION:- D/E ratio is showing decreasing trend till 200-2004 and it is

estimated that it will decreased to 0.0115 in 2006-2007. D/P ratio is also showing thesame trend.

TABLE-7

COLGATE

YEARS ROE EBIT

D/ E

RATIO

D/ P

RATIO

2000-

01 23.18 10.608 0.01 1.854687

2001-

02 28.68 11.526 0.01 0.835019

2002-

03 33.93 14.673 0.01 1.80625

2003-04 41.59 14.435 0.008882 0.754857

2004-

05 45.86 15.203 0.015935 0.816397

2005-

06 52.84 18.016 0.016084 0.770218

2006-

07 61.41749 20.37213 0.018399 0.846088

GRAPH-13


0

10

20

30

40

50

60

70

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT


study and it is estimated that it will increased to61.42% in 2006-2007. EBIT is also

showing the increasing trend.

GRAPH-14



Page - 33 -


00.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- After being constant for 3 years D/E ratio started fluctuating in the

year 2003-2004. D/P ratio is fluctuating throughout all the years under study.

TABLE-8

GRASIM

YEARS ROE EBIT

D/ E

RATIO

D/ P

RATIO

2000-

01 12.92 66.668 0.71 0.19297

2001-

02 13.95 53.31 0.69 0.204552

2002-

03 17.57 67.299 0.73 0.183792

2003-04 23.7 65.479 0.57 0.169825

2004-

05 22.34 121.649 0.46 0.162355

2005-

06 18.56 142.998 0.4 0.225055

2006-

07 15.98641 175.6213 0.36452 0.234884

GRAPH-15Charts Showing ROE & EBIT

0

20

40

60

80

100

120

140

160

180

200

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT



Page - 34 -

INTERPRETATION:- ROE is showing an increasing trend till 2003-2004 and it is

estimated that it will be to 15.98% in 2006-2007. EBIT is fluctuating throughout all theyears under study.

GRAPH-16Charts Showing Debt-Equity Ratio & Dividend Payout Ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is fluctuating throughout all the years under study and itis estimated that it will be 0.3645 in 2006-2007. D/P ratio is showing the same trend.

TABLE-9

HERO HONDA

YEARS ROE EBIT

D/ E

RATIO

D/ P

RATIO

2000-

01 45.82 37.948 0.11 0.240572

2001-

02 70.41 69.589 0.14 0.764514

2002-

03 75.09 88.629 0.16 0.671374

2003-

04 65.11 92.432 0.153406 0.613478

2004-

05 61.58 109.582 0.135103 0.535534

2005-

06 55.46 123.501 0.092459 0.445463

2006-

07 61.61098 161.0589 0.09219 0.593864

GRAPH-17



Page - 35 -


0

20

40

60

80

100

120

140

160

180

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is showing an increasing trend till 2002-2003 but it started

decreasing after that. EBIT is showing the increasing trend.

GRAPH-18


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing an increasing trend till 2002-2003 but it

started decreasing after that. D/E ratio is showing the decreasing trend after 2001-2002.

TABLE-10

HINDALCO

YEARS ROE EBIT

D/ E

RATIO

D/ P

RATIO

2000-

01 16.58 104.348 0.11 0.1337242001-

02 15.31 105.06 0.14 0.155493

2002-

03 12.08 103.665 0.16 0.191838

2003-

04 12.86 103.458 0.37 0.194293

2004- 18.31 140.403 0.5 0.143372



Page - 36 -

05

2005-

06 19.17 207.025 0.51 0.135

2006-

07 19.82296 240.991 0.662336 0.13889

GRAPH-19Charts Showing ROE & EBIT

0

50

100

150

200

250

300

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is showing the decreasing trend till 2002-2003 but it started

increasing after that. EBIT is showing the increasing trend overall.

GRAPH-20


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing an increasing trend for nearly all the years

under study and it is estimated that it will be 0.6623 in 2006-2007. D/P ratio is increasing

till 2003-2004 but it will be 13.255 in 2006-2007.

TABLE-11

HINDUSTAN UNILEVER



Page - 37 -

GRAPH-21


0

50

100

150

200

250

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is fluctuating throughout all the years under study but it is

estimated that it will be 29.72% in 2006-2007. EBIT is showing an increasing trendtill2003-2004.

GRAPH-22


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing an increasing trend till and decreasing

afterwards and it is estimated that it will be 0.1351 in 2006-2007. D/P ratio is fluctuating.

TABLE-12

YEARS ROE EBIT

D/E

RATIO

D/P

RATIO

2000-01 59.35 197.413 0.16 0.690806

2001-02 52.82 220.037 0.19 0.689644

2002-03 61.14 223.474 0.31 0.894833

2003-04 56.61 227.918 0.7 0.91

2004-05 64.05 159.176 0.02 0.81

2005-06 61.48 167.727 0.03 0.86

2006-07 64.64935 164.4112 0.135171 0.917582



Page - 38 -

HPCL

YEARS ROE EBITD/E

RATIOD/P

RATIO

2000-01 17.75 170.753 0.430403 0.311795

2001-02 12.73 151.722 0 0.430403

2002-03 24.45 256.481 0 0.440628

2003-04 26.4 256.652 0.22 0.39186

2004-05 15.79 299.968 0.26 0.390766

2005-06 4.72 173.164 0.76 0.249773

2006-07 -21.9968 190.4173 0.975145 0.247949

GRAPH-23


-50

0

50

100

150

200

250

300

350

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is fluctuating throughout all the years under study but it isestimated that it will deceased to -21.99% in 2006-2007. EBIT is also showing the same

trend.

GRAPH-24


0

0.2

0.4

0.6

0.8

1

1.2

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is zero for two years but it is estimated that it will be0.97 in 2006-2007. D/P ratio is increasing till 2005-2006

TABLE-13



Page - 39 -

L&T

YEARS ROE EBIT

D/E

RATIO

D/P

RATIO

2000-01 6.88 83.174 1.06 0.604143

2001-02 9.54 80.266 1.06 0.5126442002-03 12.67 76.774 0.97 0.448392

2003-04 16.99 87.091 0.48 0.381098

2004-05 22.7 104.518 0.55 0.517681

2005-06 21.27 156.528 0.31 0.357468

2006-07 23.63806 178.7287 0.196666 0.330889

GRAPH-25


0

20

40

60

80

100

120

140

160

180

200

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT


study but it is estimated that it will be 23.63% in 2006-2007. EBIT is fluctuating

throughout all the years under study.

GRAPH-26


0

0.2

0.4

0.6

0.8

1

1.2

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- Overall D/E ratio has decreased and it is estimated that it will be.1966 in 2006-2007. D/P ratio is decreasing till 2003-2004 but it will be .33 in 2006-

2007.

TABLE-14



Page - 40 -

PUNJAB TRACTOR

YEARS ROE EBIT

D/E

RATIO

D/P

RATIO

2000-01 27.91 1.7333 0.03 0.404995

2001-02 22.52 15.936 0.23 0.4252152002-03 9.27 7.878 0.34 0.425239

2003-04 8.15 7.646 0.122903 0.697271

2004-05 12.58 6.936 0.076812 0.531827

2005-06 15.5 11.014 0.180978 0.761308

2006-07 8.224725 10.48609 0.462098 0.871546

GRAPH-27


0

5

10

15

20

25

30

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is showing the decreasing trend till 2003-2004 but it is

estimated that it will deceased to 8.22% in 2006-2007. EBIT has increased over the years.

GRAPH-28


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing an increasing trend for till 2003-2004 and it

is estimated that it will be 0.46 in 2006-2007. D/P ratio is increasing in nearly all theyears under study.

TABLE-15



Page - 41 -

RANBAXY

YEARS ROE EBITD/E

RATIOD/P

RATIO

2000-01 13.73 29.171 0.19 0.474376

2001-02 35.88 25.801 0.12 0.530265

2002-03 37.91 32.524 0.04 0.432873

2003-04 21.9 75.325 0.014769 0.408773

2004-05 7.07 96.227 0.054199 0.597359

2005-06 16.1 61.558 0.433232 1.834492

2006-07 -85.912 75.27783 1.12539 2.707279

GRAPH-29


-100

-50

0

50

100

150

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is showing the increasing trend till 2003-2004 but it is

estimated that it will deceased to -85.91% in 2006-2007. EBIT is also showing the

increasing trend.

GRAPH-30


0

0.5

1

1.5

2

2.5

3

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing the decreasing trend for nearly all the years

under study and it is estimated that it will be 1.13 in 2006-2007. D/P ratio is fluctuating

but in 2006-2007 it will increased.

TABLE-16

RELIANCE ENERGY



Page - 42 -

YEARS ROE EBIT

D/E

RATIO

D/P

RATIO

2000-01 13.14 40.571 0.31 0.171422

2001-02 10.75 36.752 0.26 0.216123

2002-03 6.19 22.896 0.25 0.381997

2003-04 10.61 22.287 0.4 0.197689

2004-05 9.98 34.928 0.65 0.24458

2005-06 10.79 56.618 0.55 0.162927

2006-07 10.59939 63.44428 0.628297 0.187745

GRAPH-31


0

10

20

30

40

50

60

70

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

P

ercentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE has been nearly same throughout all the years under studyand it is estimated that it will deceased to 10.60% in 2006-2007. EBIT has been

fluctuated a little bit in all six years.

GRAPH-32


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio is showing an increasing trend for nearly all the years

under study and it is estimated that it will be 0.6282 in 2006-2007. D/P ratio has beenfluctuated and it is estimated that it will be 0.1877 in 2006-2007.

TABLE-17

RELIANCE INDUSTRIES



Page - 43 -

YEARS ROE EBIT

D/E

RATIO

D/P

RATIO

2000-01 23.05 399.661 0.93 0.16997

2001-02 17.63 625.38 0.78 0.226693

2002-03 15.58 652.937 0.73 0.170288

2003-04 17.39 595.362 0.61 0.140608

2004-05 21.82 766.717 0.46 0.138616

2005-06 21.9 1049.929 0.44 0.15493

2006-07 22.49211 1304.205 0.38244 0.154791

GRAPH-33


0

200

400

600

800

1000

1200

1400

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE has been decreased a little bit in these six years and it is

estimated that it will be 22.49% in 2006-2007. On the other hand, EBIT has been

increased significantly.

GRAPH-34


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio has been decreased from 0.93 to 0.44 and it is estimatedthat it will be 0.38 in 2006-2007. D/P ratio has been nearly same in these six years.

TABLE-18



Page - 44 -

TATA MOTORS

YEARS ROE EBITD/E

RATIOD/P

RATIO

2000-01 -14.28 -0.885 0.92166 0

2001-02 -0.29 30.634 0.935052 0

2002-03 11.86 81.966 0.561502 0.433343

2003-04 26.2 84.602 0.35 0.335729

2004-05 32.12 157.351 0.61 0.373039

2005-06 31.36 195.387 0.53 0.359924

2006-07 44.52896 234.687 0.513503 0.353232

GRAPH-35


-50

0

50

100

150

200

250

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE is showing an increasing trend for all the years under studybut it is estimated that it will increased to 44.52% in 2006-2007 from -14.28% in 2000-

2001. EBIT is also showing the same trend.

GRAPH-36


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO


under study and it is estimated that it will be 0.513 in 2006-2007. There is no dividendannounced in year 2000-01 and 20001-02. After that it has been nearly same.

TABLE-19



Page - 45 -

WIPRO

YEARS ROE EBITD/E

RATIOD/P

RATIO

2000-01 52.94 77.374 0.04 0.017555

2001-02 39.29 95.267 0.02 0.026918

2002-03 27.74 93.701 0.02 0.028987

2003-04 26.76 92.174 0.028706 0.744984

2004-05 35.59 108.276 0.012691 0.237287

2005-06 35.72 176.259 0.007813 0.35665

2006-07 13.00599 211.5476 0.006069 1.710258

GRAPH-37


0

50

100

150

200

250

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT

INTERPRETATION:- ROE has decreased during the years under study but it is

estimated that it will further deceased to 13.01% in 2006-2007. EBIT is showing theincreasing trend.

GRAPH-38Charts Showing Debt-Equity Ratio & Dividend Payout Ratio

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentag

D/E RATIO

D/P RATIO

INTERPRETATION:- D/E ratio has been decreased during the years under study and itis estimated that it will further decreased to0.01 in 2006-2007. D/P ratio has beenfluctuated a little bit in these six years.

TABLE-20



Page - 46 -

ASHOK LEYLAND

YEARS ROE EBITD/E

RATIOD/P

RATIO

2000-01 8.1 23.41 0.84 0.524187

2001-02 8.53 24.746 0.84 0.574249

2002-03 12.37 26.572 0.83 0.480368

2003-04 19.75 26.6 0.47433 0.45369

2004-05 25.02 34.619 0.75386 0.474922

2005-06 25.86 37.356 0.489879 0.528284

2006-07 31.23119 41.3204 0.47045 0.529198

GRAPH-39


0

5

10

15

20

25

30

35

40

45

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage/ Rs.

ROE

EBIT


study but it is estimated that it will increased to 31.23% in 2006-2007. EBIT is also

showing nearly the same trend.

GRAPH-40


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years

Percentage

D/E RATIO

D/P RATIO


under study and it is estimated that it will be 0.47 in 2006-2007. D/P ratio has been same

during the years under study.TABLE-21



Page - 47 -

MULTIPLE REGRESSIONS ANALYSIS

Intercept b1 b2 b3 Multiple R R Square

ABB 0.054644 0.132467 481.64 0.996603059 0.993217658

ACC 0.252645 0.26765 90.87715 0.98081369 0.961995495

BHEL 0.065893 0.239792 370.0361 0.948362567 0.899391558

BPCL 1.375786 0.329923 107.6939 0.909244283 0.826725167

BRITANIA 0.376669 0.284422 90.0633 0.973161768 0.947043827

CIPLA 0.011486 0.272102 26.30369 0.846349543 0.716307549

COLGATE 0.018399 0.846088 20.37213 0.990214708 0.980525167

GRASIM 0.36452 0.234884 175.6213 0.914200491 0.835762537

HERO HONDA 0.09219 0.593864 161.0589 0.973292863 0.947298997

HINDALCO 0.662336 0.13889 240.991 0.998468382 0.99693911

H. UNILEVER 0.135171 0.917582 164.4112 0.856851101 0.734193809

HPCL 0.975145 0.247949 190.4173 0.866593164 0.750983711L&T 0.196666 0.330889 178.7287 0.912883933 0.833357076

PUNJAB

TRACTOR 0.462098 0.871546 10.48609 0.984609156 0.96945519

RANBAXY 1.12539 2.707279 75.27783 0.984787183 0.969805797

REL. ENERGY 0.628297 0.187745 63.44428 0.942429564 0.888173484

RIL 0.38244 0.154791 1304.205 0.398978169 0.159183579

TATA MOTORS 0.513503 0.353232 234.687 0.969259687 0.939464341

WIPRO 0.006069 1.710258 211.5476 0.834436694 0.696284596

ASHOK LEYLAND 0.47045 0.529198 41.3204 0.988845106 0.977814644

INTERPRETATION

ABB:-

Since the Multiple R is more than 0.5, all the 3 variables are highly co-related and R

Square is showing that all the 3 variables are impacting the ROE of company to theextent of 99%.

ACC:-Since the Multiple R is more than 0.5, all the 3 variables are highly co-related and R

Square is showing that all the 3 variables are impacting the ROE of company to the

extent of 96%.

BHEL:-



Page - 48 -



CIPLA:-Since the Multiple R is more than 0.5, all the 3 variables are highly co-related and R


extent of 71%.

BREITANIA:-

Since the Multiple R is more than 0.5, all the 3 variables are highly co-related and R Square is showing that all the 3 variables are impacting the ROE of company to the

extent of 94%.

COLGATE:-


extent of 98%.

GRASIM:-


extent of 83%.

HERO HONDA:-


extent of 94%.

HINDALCO:-



extent of 99%.

HINDUSTAN UNILEVER:-Since the Multiple R is more than 0.5, all the 3 variables are highly co-related and R


extent of 73%.

HPCL:-





Page - 49 -

L&T:-


extent of 83%.

PUNJAB TRACTORS:-Since the Multiple R is more than 0.5, all the 3 variables are highly co-related and R


extent of 96%.

RANBAXY:-


extent of 96%.

RELIANCE ENERGY:-


extent of 88%.

RELIANCE INDUSTRIES:-Since the Multiple R is less than 0.5, all the 3 variables are not significantly co-related

and R Square is showing that all the 3 variables are impacting the ROE of company to

the extent of 15%.

TATA MOTORS:-Since the Multiple R is more than 0.5, all the 3 variables are highly co-related and R


extent of 93%.

WIPRO:-



ASHOK LEYLAND:-Since the Multiple R is more than 0.5, all the 3 variables are highly co-related and R


extent of 97%.



Page - 50 -

t-TEST ANALYSIS

TABLE-22

Companies ac tua l ROE Estima ted ROE

ABB 32.88 29.71631379

ACC 35.12 31.69796318

BHEL 30.02 32.02628696

BPCL 25.69 6.139730722

CIPLA 25.69 38.46825681

BRITANIA 18.5 27.07587458

COLGATE 71.23 61.41748521

GRASIM 27.42 15.98641256

HERO HONDA 38.3 61.6109756

HINDALCO 23.29 19.82295505

H. UNILEVER 82.89 64.64934772

HPCL 17.14 -21.99676617

L&T 27.11 23.63805761

PUNJAB

TRACTOR 11.55 8.224725291

RANBAXY 16.1 -85.91200213

REL. ENERGY 10.23 10.59938586

RIL 22.45 22.49210768

TATA MOTORS 30.98 44.52896031

WIPRO 36.12 13.00599109

ASHOK LEYLAND 27.07 31.23118512

TABLE-23

t-Test: Paired Two

Sam ple for Mea ns

ac tua l ROE Estimated ROE

Variable 1 Variable 2

Mean 30.489 21.72116234

Varianc e 316.7980937 1071.618471

Ob serva tions 20 20

Pea rson Correla tion 0.607967542

Hypothesized Mea n

Difference 0

Df 19

t Sta t 1.503731378

P(T<=t) one-ta il 0.074545778

t Critica l one -ta il 1.729132792

P(T<=t) two -ta il 0.149091557

t Critica l two- tail 2.09302405



Page - 51 -

H0: Debt-equity ratio, Dividend-payout ratio and EBIT do not affect the Return On

Equity.

H1: Debt-equity ratio, Dividend-payout ratio and EBIT affect the Return On Equity.

Null Hypothesis is accepted because p-value (0.149091557*100=14.91%) is greater

than 5%.

This means that Debt-equity ratio, Dividend-payout ratio and EBIT do not affect the

Return On Equity.



Page - 52 -

DISCUSSION

Through convenient sampling 20 Indian Public Limited company’s actual data wereanalyzed. Here under the study the effect on the return on equity is considered as an

indicator to the effect on the value of the firm. Using a multiple regression model anattempt is made to establish the relationship between the return on equity & debt and

dividend of the companies selected for the study. Here the expected values of the

dividend pay out and debt to equity is regressed with actual return to find out theassociation, if any.



Page - 53 -

CHAPTER-6



Page - 54 -

SUMMARY AND CONCLUSION The main objectives of the study wereTo describe the samples selected in terms of the financial ratios. To explain the dividend

payout and the debt equity patterns of the samples. To understand the relationship

between the dividend policy of the company and the Return on Equity. To study theeffect of capital structure decision on the Return on Equity of the firm.

The study was conducted in three stages

1. Collection of the required data namely the Income statement, Balance Sheet and theshare prices for six years (2000-2001 to 2005-2006) of the samples under study.

2. Calculation and tabulation of the variables under study namely Dividend payout Ratio,

Debt-Equity Ratio, EBIT and Return on Equity share prices.3. Analysis and interpretation

The study was focused on finding the relationship existing between the dependentvariable; return on equity and the independent variables, dividend and debt equity ratioand EBIT. The data were collected through verification of financial statements of the

company and the historical price data available in the NSE and BSE websites. The data

were interpreted using descriptive statistics and Multiple Regression Analysis.

The salient findings of the study are:

There is no significant effect of dividend, debt equity ratio and EBIT on share prices. Outof the variables under study it can be noticed that dividend and share prices does have a

notable relationship between each other.



Page - 55 -

RECOMMENDATIONS

The same study can be conducted including more samples and for a longer period.

The relationship existing between the Debt-Equity Ratio and Dividend Payout an

be studied in depth.



BIBLIOGRAPHY

BOOKS

Financial Management, Fourth Edition 2004, M Y Khan and P K Jain, TataMcGraw Hill

Publications.Financial Management Theory and Practice, Fifth Edition 2000, Prasanna

Chandra, Tata McGraw Hill Publications.

Financial Management, Eight Edition 2000, I M Pandey, Vikas Publications PvtLtd.

Business Research Methods, Sixth Edition 1999, Donald R Cooper & Pamela S

Schindler, Tata McGraw Hill Publications.Statistical Methods, 31

StEdition (2001), S.P Gupta, Sultan Chand & Sons.

WEBSITES

www.beginersinvest.about.com

www.finance24.com

www.investopedia.com

www.yahoofinance.com

www.investorwords.com

www.peacedividend.com

www.studyfinance.com

www.indiainfoline.com

impact of dividend policies on stocks returns

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