Assessing the Role of Financial Indicators in Shaping the Value of Real Estate Companies: Insights from India

Abstract

This study sought to look at the link between enterprise value (EV) and financial leverage (FL), interest coverage ratio (ICR), and total assets (TA) by analyzing data from a certain group of companies that are featured in the Nifty Realty Index. The study makes use of a panel data analysis to analyze the financial information extracted from the CMIE database for the period 2015–2022. In order to conduct the research, ten different companies were selected utilizing the convenience sample approach. The phrase ratio of debt to equity was used to define the level of the company's debt, and the EBIT to interest expenditure ratio was used to characterize the interest cost ratio (ICR). The company size was represented by size as a proxy of (TA). As the control variable, we made use of return on equity (ROE), which is yet another statistic that has been demonstrated to be significant in the research literature for determining the worth of a corporation. In order to conduct an analysis of the data that was gathered, the SPSS software suite was utilized. We estimated the correlation coefficients by making use of the pairwise correlation matrix in order to determine the degree to which FL, ICR, TA, and ROE are able to accurately forecast firm value. According to the results of the step-wise regression test, the influence of both (FL) and (ICR) on the value of the company is, if any, negligible. In spite of this, there is a correlation between TA and the value of the company when ROE is employed as a control variable. In spite of the fact that FL, ICR, TA, and firm value were all taken into consideration, the findings of the pairwise correlation demonstrated that the variables do not follow a straight line. In order to reach the desired capital structure, the management of these companies was suggested that they cut down on the long-term debt they took on and instead think about issuing more stock. The level of financial leverage would be reduced as a result of this. Due to the fact that this indicator has a history of being unreliable, management should avoid using the current levels of financial leverage as a proxy for understanding the future worth of the organization. To figure out what the average best capital structure is, for each of the three categories of companies—mid-capitalization, low-capitalization, and high-capitalization—there is a possibility that future study will consider employing a larger sample size and a random sampling selection approach. When preparing for future study, it is possible to utilize a more extended time frame.