It is essential for companies to ensure shareholders value. Why?
Why shareholders buy stocks of companies?
The idea behind buying a stock is to make money over a period of time.
Indian companies providing highest shareholders value are best for investors.
Money making from stocks can be done in two simple steps:
- Buy QUALITY STOCKS at right price &
- Hold it for LONG TERM.
Quality stocks has strong business fundamentals working behind the scene. This fuels its future growth.
It is always essential to buy stocks of ONLY fundamentally strong companies.
Fundamentally strong companies are most likely to to take maximum care of their shareholders.
As a shareholder, one does not have any control on fundamentals of the business.
It is the Top Managers of the company who takes business decisions and maintains or improves the business fundamentals.
The strongest is the business fundamentals it will attract more new investors.
More new investors means stocks will in more demand.
This will automatically improve shareholders value (in terms of its market price appreciation)
Unlike business fundamentals which are not in control of minority shareholders, holding period is in complete control of shareholders.
The higher will be the holding period more will be the potential return on investment.
This rule becomes even more solid when the person is holding ‘quality stocks’.
Just as a rule of thumb, a quality stock held for 3 years can give return between 8% per annum.
But this is just a hypotheses.
We can remember this statement to realise that how long (3 year) one should hold stocks.
It will also remind us, what potential return (8%) can be expected at the end of this holding time.
The parameters that can be used to identify companies with potential to provide highest shareholders value are:
- Return on Equity (ROE) and
- Return on Capital Employed (RoCE).
But ROE & RoCE alone cannot be used in isolation to evaluate companies with highest shareholders value.
We can use more parameters to make the analysis more specific.
Two more parameter that we will add here are:
- EPS Growth Rate and
- Market Capitalisation.
Companies which has high ROE, high RoCE, High EPS growth rate and high Market Cap is most likely to maximise shareholders value.
How a shareholder makes money from stocks?
They either make money from market price appreciation of stocks or from dividend earning.
So while evaluating shareholders value we cannot afford to miss the dividend component.
Companies which pay dividend are loved by shareholders. Companies which is yielding high dividends automatically becomes favourite of shareholders.
So I will add a fifth parameter to our shareholders value analysis of companies. The fifth parameter will be dividend yield.
So now we have nearly all parameters based on which we will see which Indian companies has highest shareholders value to offer in 2016.
You might have also noted that in para one, I have used the term “buy quality stocks at right price”.
But how shareholders will know that which price is a right price?
There are many easy and complicated ways to evaluate the ‘right price’ theory.
Here we will use the PEG ratio parameter to see which companies has highest shareholders value to offer for investors.
Stocks with Highest Shareholders Value 2018
(Updated on April’2018)
- Tata Consultancy Services Ltd. – 33.64% ROE
- Motherson Sumi Systems Ltd. – 31.4% ROE
- Adani Ports & SEZ – 25.09% ROE
- Indiabulls Housing Finance Ltd. – 25.5% ROE
- ITC Ltd. – 24.27% ROE
- Aurobindo Pharma Ltd. – 27.57% ROE
- Bajaj Auto Ltd – 24% ROE
- HDFC Bank Ltd. – 18.41% ROE
- Sun Pharmaceutical Inds. Ltd. – 22.51% ROE
- Bharat Petroleum Corpn. Ltd. – 29.22% ROE
Check this link to get a list of Top 50 stocks with their shareholders value indicators in a tabulated form…