Are EVA, EPS And OCF Credible Valuation Metrics? - Evidence From Indian Stock Market

Abstract

Stock returns are an important indicator of the performance of companies in the stock market. Investors are constantly seeking ways to maximize their returns by identifying the factors that drive stock prices. In this research, we focus on three financial metrics, namely Economic Value Added (EVA), Earnings per Share (EPS), and Operating Cash Flow (OCF), to determine their impact on stock returns in the Indian stock market. There have been standalone studies which have analyzed the relationship of metrics like EPS and OCF with the stock market returns. We wish to take it one step further and included one important yardstick called Economic Value Added (EVA) along with the other two variables in order to understand their relationship with the market returns. Theoretically all the three metrics have a very sound claim to impact these stock market returns but it would be enlightening to note their impact on the stock returns as well as the status of their mutual relationship. Many studies found that EVA and EPS has a positive impact on stock returns, however there are conflicting results regarding the impact of OCF on stock returns. This paper aims to examine the impact of EVA, EPS and OCF on stock returns of companies indexed in Sensex. The data for this has been collected from the Bombay Stock Exchange (BSE) website and for the period of 2014 to 2022. The sample consists of 30 companies listed on the BSE. The study is done to find out whether EVA, EPS, and OCF have a significant impact on stock returns in the Indian stock market. The multiple regression analysis has been used to analyze the data. This study is useful for investors and policymakers to make informed decisions regarding investments in the Indian stock market.