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The Methodology: Nuts and Bolts of the BT 500

The Methodology: Nuts and Bolts of the BT 500

Eighteen years ago, the year in which Business Today got started, the first BT 500 came into being. It has a been a long - and consistent - ride since then, with value being added to the listings year after year.

Eighteen years ago, the year in which Business Today got started, the first BT 500 came into being. It has a been a long - and consistent - ride since then, with value being added to the listings year after year. This time around we have incorporated two specific changes with the idea of making the output more relevant to you. First, the earnings per share, or EPS, for the BT 500 companies are calculated for the six months ended September 30, 2010. Earlier, this figure was arrived at by looking at the figure for the year-ended March 31. Thus, with a more updated EPS, which is an indicator of a company's profitability, we are able to present a picture that is more with it.


Sales: Operating income and other income

Net Profit: Profit after tax

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

ROCE: Profit before interest and tax as a percentage of the capital employed. Capital employed = fixed assets + circulating capital - current liabilities

RONW: Net profit divided by net worth. Net worth = total assets - total liabilities

Earnings Per Share: Net profit divided by number of outstanding shares
The second departure from previous rankings: While allocating ranks to companies on performance parameters like sales and net profits, we peeped into a much larger universe of companies instead of just 1,000 companies. The advantage of this shift is evident in this example: Cairn India, with a market capitalisation of Rs 59,735 crore, is ranked No. 12 on the BT 500 list. However, with sales and net loss of Rs 172 crore and Rs 69 crore, respectively, its rank is 1,172 and 2,910, respectively.

The rest is as before: We considered the first six months between April and September 2010 to calculate the average market capitalisation, and the ranking was arrived at by looking at the growth over the previous year's corresponding period.

The Process: To arrive at the list of India's most valuable companies, BT relied on Prowess, the database of the Centre for Monitoring Indian Economy, or CMIE. Initially, 4,990 companies listed on the Bombay Stock Exchange were considered. Public sector undertakings were taken out of this list, as there is a separate ranking for state-run companies and banks.

That brought the sample size down to 4,878. We then excluded those companies that traded for under 20 per cent, or 26 days, of the total number of trading days (128) between April 1 and September 30, 2010. That left us with 2,948 companies, of which the top 1,000 were ranked on the basis of growth in average market cap in the first half of financial year 2011 over a year ago.

Financial Parameters: While the rankings are based on market value, the BT 500 also gives financial data for FY 2010. This includes sales, net profit, and total assets (along with rankings), net profit as a percentage of sales (or net profit margins), return on net worth, or RONW, return on capital employed, or ROCE, and EPS. For most companies, the financial year ended March 2010 has been considered. To know which other periods were considered, refer to Key to Tables.

Do not be alarmed if you notice some unevenness in the numbers for net profits, RONW and ROCE for a few companies. For instance, there are a few companies that are in the red but still have a positive ROCE, and vice versa. That is not a mistake. CMIE uses net profit after adjusting for the year's extraordinary income and expenses when calculating the RONW and ROCE ratios. For example: Tata Communications (No. 97) reported a profit of Rs 483 crore in FY 2010. However, both RONW and ROCE are negative, at 1.68 per cent and 1.29 per cent, respectively.

Reason: Tata Communications had extraordinary income of Rs 617.66 crore as well as an extraordinary expense of Rs 16.52 crore that were both carried forward from FY 2009 into the following year. So, on deducting the net extraordinary income of Rs 601.14 from Rs 483 crore, the adjusted net profit is a negative Rs 117.96. Hence a negative RONW and ROCE are justified as a conservative approach to present a more realistic picture.

We have used standalone numbers - as against consolidated results - for all companies. As a result, there may be a few companies whose sales and profits ranking would have got distorted as a consolidated picture is more representative of their operations.