How we arrived at the BT 500

This is the 15th edition of BT 500, which means we’ve been publishing this listing pretty much ever since Business Today was launched. Needless to say, our methodology has evolved over the years. But for the last three years now, it has remained unchanged.

The deciding metric in the ranking of the top 500 companies is their average market capitalisation on the Bombay Stock Exchange (BSE) for the first half of the current financial year—that is, the period between April 1 and September 30, 2007. Therefore, companies are ranked in order of their average market cap during that period. Private companies are listed separately from public sector units (PSUs), including public sector banks and financial institutions, although the parameters and the method used to rank them are the same. There’s a third category of companies: The Next 500, which includes companies with ranks between 501 and 1,000 in terms of their market capitalisation.

How we did it

ITo arrive at our listing, we began with a master sample of 4,916, being the number of all listed companies on BSE. Government-owned companies and banks were excluded and ranked separately.

After this exclusion, we were left with 4,808 companies. Companies that were not traded on a minimum of 20 per cent of the 126 days in the first half of the fiscal were excluded (that would explain why a company like Puravankara Projects is missing on our BT 500 list). This reduced the number of companies to 2,785.The companies’ market cap were calculated on each trading day between April 1, 2007, to September 30, 2007. The average market cap for these companies between April 1, 2006, and September 30, 2006, were then calculated and these companies ranked on that basis.

These values were then aggregated and divided by the number of days on which each scrip actually traded. Having thus arrived at the average market cap, the 500 most valuable companies were then identified and ranked.

The other parameters

The arithmetic

Started with around 4,916 companies listed on BSE. Separated state-owned public sector companies, banks and FIs. Of a master sample of 4,808 companies, only 2,785 traded on a minimum 20 per cent of the 126 trading days on BSE in the first half. Aggregated the daily market capitalisation of each company on all traded days and divided the resultant figure by the number of days on which trading took place. Ranked the 500 most valuable companies on the basis of average market capitalisation. Companies were also ranked on sales and net profit for the sake of comparison.

Variables such as total assets, return on total assets (ROTA), sales, net profits and return on capital employed (ROCE) have been taken into account along with the average market cap. For most companies, the financial year ending is on March 31. Where there are exceptions, we have mentioned so.

The reason we have chosen average market cap over others as the deciding metric is simple: A company’s market value is universally recognised as a variable that factors in not just present performance, but also future prospects.

Assets or sales or net profits, on the other hand, don’t provide an idea of the company’s future performance. Names of the companies in the BT 1000 (BT 500 plus the Next 500) have been indexed alphabetically in a separate section for quick look up.

Also, this year we have published an expanded BT 500 By the Numbers to give you further interesting insights into the market cap gains and losses. Data was sourced from CMIE’s Prowess database.

The definitions

Sales: Operating sales, excluding other income.

Net profits: Profits after tax, interest and depreciation.

Market capitalisation: Stock price multiplied by the number of shares outstanding.

Total assets: Fixed assets plus current assets.

Rota: Net profit by total assets.

Roce: Profit (usually profit before interest and tax) as a percentage of the capital employed (fixed assets + circulating capital - current liabilities).