BUSINESS STRATEGY PROJECT

On

CORPORATE REPUTATION & FIRM PERFORMANCE

(Interim Report)

Date: 23.08.2011

Submitted By:
Karan Tewari 10BSPHH010944

Nishant Shukla 10BSPHH010970 Piyush Sachdev 10BSPHH010937 Shweta Sarawagi 10BSPHH010943

DATA & METHODOLOGY DATA

The data collected for the project were for 2 Industries namely Healthcare and Fast Moving Consumer Goods (FMCG) Industry. 10 Companies from each of the two industries were taken for the purpose of analysis. In other words, the sample size was 10 companies for both the industries. The period 2007-2011 was selected to emphasize measurement accuracy over a fiveyear period within resource constraints. The data collected for the companies were Net Sales, Sales Growth, and Profit before Interest & Tax (PBIT) and Return on Assets (ROA). The data was collected from the website www.moneycontol.com and Prowess for all the years taken into consideration. These data are the Dependent or the performance variables. The Independent Variables calculated were Marketing Intensity and Reputation Index. DEPENDENT VARIABLES Net Sales: The amount a company receives from the sale of its products, after deducting discounts, returns of products by customers, and damaged, missing, or stolen products. Net sales provide the most accurate calculation of what a company has received or expect to receive in the form of revenue from sales. Financial Statements indicating Sales mean Net Sales.

Sales Growth: This shows the increase in sales over the previous year (in this case). Sales Growth does not necessarily mean an increase in Sales annually. It may be semi-annually or quarterly as well. Profit before Interest & Tax (PBIT): This has been arrived at by subtracting Depreciation from Profit before Interest, Tax & Depreciation (PBDIT) i.e. [PBDIT Depreciation]. It is a measure of companys earning power from ongoing operations. It is also known as the operating profit of the company and this is used by the company to pay off its creditors. Return on Assets (ROA): It measures how well a firm utilizes its assets and controls for differences in size and capital structure. It reflects the operational efficiency and performance of the firm. If the ROA is greater than the interest rate then it is said to be contributing to the Return on Equity (ROE) of the company. It is a measure of companys profitability. It is calculated by dividing Total Assets from EBIT i.e. EBIT/ Total Assets. INDEPENDENT VARIABLES Marketing Intensity: Marketing Intensity is calculated by dividing Marketing Expenses of the firm by Net Sales of the firm. It emphasizes on the companys expenditure to promote its product and services and the positive effect on the revenues of the company which can be interpreted from its sales growth. Reputation Index: It is measured by using the co-efficient of media favorableness. It is assumed that the firms with more favorable media reputations have higher performance. CONTROL VARIABLES Control variables were added to control for other effects on dependent/performance variables. Control variables taken were Firms Age, Firms Size (Total Assets of the firm) and its Capital Structure i.e. Debt-Equity Ratio. Firms Age: Firms age highlights the fact that how long the company has been into the industry. The age of the firm helps in determining the size of the same. If the firm has just started then it is usually assumed to be a small firm meaning that its capital invested is less and its operations are not completely efficient.

Firms Size (Total Assets): The size of the company shows its performance in the form of growth and expansion. Larger the size of the firm, greater its performance. The bigger the firm, the more productive it is. For the purpose of analysis, we have taken the total assets of the firm as the size of the firm. Debt-Equity Ratio: This Ratio measures how much money a company should safely be able to borrow over long periods of time. It does this by comparing the company's total debt (including short term and long term obligations) and dividing it by the amount of owner's equity.

METHODOLOGY
I.

Steps involved in collecting the Data The data collected is for the years 2007-2011 or 2010 in some cases.
a. Sales Growth It was calculated by getting the difference between the current

years sales and the previous years sales and then dividing it by the previous years sales. The data for Net Sales was taken from the website www.moneycontrol.com .
b. Profit before Interest & Tax It was calculating by subtracting depreciation from

Profit before Depreciation, Interest & Tax (PBDIT). PBDIT and Depreciation for the companies were taken from www.moneycontrol.com .
c. ROA It is calculated as EBIT divided by Net Sales. However, in this case it has

been taken from www.moneycontrol.com .

d. Reputation Index It is calculated by using co-efficient of media favorableness. Coefficient of media favorableness = (f ^2- fu)/ (total) ^2 if f > u; 0 if f =u; (Fu u^2)/ (total) ^2 if u > f;

Where f = number of favorable recording units for a bank in a given year; u 5number of unfavorable recording units for a bank in that year; and total = the total number of recording units for the bank in that year. The range of this variable is (-1, 1), where 1 indicates all positive coverage, -1 indicates all unfavorable coverage, and 0 indicates a balance between the two over the year.
e. Marketing Intensity It is calculated as Marketing Expenses divided by the Net

Sales of the firm. It is the independent variable for analyzing the linear regression on SPSS.
f. Firms Age The year in which it was founded till the years 2007-2011 have been

taken as the age of the firm. For E.g. If the co. was founded in 1988 then in 2007 its age has been 19 years. The data for the year in which the companies have been founded has been taken from www.wikipedia.com .
g. Firms Size - The firms total assets has been taken as the firm size. The total

assets of the firm for all the three years have been taken from www.moneycontrol.com .

h. Debt-Equity Ratio The Debt-Equity Ratio for all the firms for all the three

four years has been taken from www.moneycontrol.com .

i.

We have taken the logarithm of some data like PBIT, Firms Age, PBDIT, and Firms Size so as to reduce the variability in values of both in terms of years and across the companies in the industry.

II. Steps involved in analyzing the data collected to find out the linear regression on

SPSS.
a.

Import the data from excel sheet to SPSS. Using File, then go to Open Data and then under browse select the excel sheet in which the data is stored.

b. Once the data, has been imported select the analyze tab and under that go to regression and in the regression options select linear. This would give us the output for the data collected in the form of liner regression.
c. After selecting the linear regression, put lnpbit in the dependent variable section,

Reputation Index, Marketing Intensity, Firms Age, Firms Size, and Debt-Equity Ratio as the independent variable. d. The method that has been used is
e. Then click on statistics tab and check descriptive and collinearity diagnostics and

then click continue. f. Finally click ok and then it would give us the output sheet. Thus, the above steps if followed will give us the linear regression of the data collected.

OUTPUT
A. Health Care Industry Output using Stepwise Method

B. Fast Moving Consumer Goods (FMCG) Industry Output using Stepwise Method

CONCLUSION
The above explained Data & Methodology and the Output shown help in understanding the analyzing the linear regression of the firm in its corporate reputation and performance. In the final report the literary review of the corporate reputation and firm performance would be highlighted and 20 companies of another industry would be taken for further analysis.