A Study on Exploring the Nexus between Economic Value Added (EVA) and Equity Capital

Abstract

This paper investigates the intricate relationship between Economic Value Added and equity capital, aimed to determine their synergies in evaluating a company's financial performance. It is a metric designed to measure the company’s economic profit by considering the cost of capital, serves as a pivotal indicator of its wealth creation capabilities. Conversely, equity capital constitutes the primary funding source from shareholders, representing a fundamental aspect of a firm's financial structure and ownership. The primary objective of this study is to analyse the relationship between Economic Value Added and equity capital in select companies listed in BSE Sensex, observing the underlying dynamics that govern a company's efficacy in utilizing shareholder funds to generate sustainable profits. The present study also focused on the impact of equity capital on Economic Value Added and to forecast the Economic Value-Added trajectory for these entities in forthcoming years. The findings of the study reveals that there is relation between equity capital and economic value added for various companies in both positive and negative ways, as well as the significance of autocorrelation in decision-making. Additionally, the impact of equity capital on economic value added was established in Reliance, ICICI, ITC, HCL, Dr Reddy's, and Axis Bank. Lastly, the ARIMA model provided insights into the significant growth in from 2023 to 2031 in ITC, L&T, SBI, Mauritius, Nestle, and Wipro including a notable turnaround for HDFC Bank in the later years.