A Study on Impact of EVA, Value of Firm and Cost of Capital as Per NI Approach on the Share Price of Pharmaceutical Industry

Abstract:- Indian Pharmaceutical industry is the most important industry of the Indian economy. In this paper, cost of capital has been found out using NI approach of capital structure and based on that Economic value added by the firm is found. Impact of EVA and overall cost of capital was found on the share prices of the sample and it was found that firm’s absorption capacity of cost of capital has significant impact on the share prices.

Key Words: – Net Income Approach(NI), EVA, Value as per NI approach, cost of capital as per NI approach.

INTODUCTION OF INDIAN PHARAMCEUTICAL INDUSTRY

The Indian Pharmaceutical Industry currently tops the chart amongst India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. The Indian Pharmaceutical industry has achieved an eminent global position in Pharma sector and has been witnessing phenomenal growth in recent years. It is well known that India is emerging as a world leader in generic pharmaceuticals production, supplying 20% of the global market for generic medicines. The industry accounts for 8% of global production, and is exporting to over 200 countries (1). India is a major vaccine producer and has 18 major vaccine manufacturing facilities. These vaccines are used for the national and international market (150 countries) which makes India a major vaccine supplier across the globe. II. INTRODUCTION OF TOPIC Overview of Capital Structure Capital structure is essentially concerned with how the firm decides to divide its cash flows into two broad components, a fixed component that is earmarked to meet the obligations toward debt capital and a residual component that belongs to equity shareholders”-P. Chandra. Some of the important definitions of capital structure are presented below: According to Gerestenberg, ‘capital structure of a company refers to the composition or make up of its capitalization and it includes all long term capital resources viz., loans, reserves, shares and bonds’. Keown et al. defined capital structure as, ‘balancing the array of funds sources in a proper manner, i.e. in relative magnitude or in proportions’.
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