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BW Businessworld

Because Size Matters

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When we started on our annual exercise to identify India's biggest companies this year, we decided to take a comprehensive re-look at the philosophy behind the BW Real 500. The first edition of the Real 500 was in 2002, and we had developed a methodology to compare how the biggest firms stacked up. We had looked at various options. We evaluated the merits of ranking companies according to their average market capitalisation, on turnover, or on assets base. Each had its strengths and weaknesses. Market capitalisation favoured hot sectors, and punished companies in unfashionable businesses even if they had more turnover or assets. It also excluded prominent unlisted companies.

Turnover was, in some senses, a better indicator, but it tended to be biased against companies involved in long-gestation projects where assets may have been built, but operations were still to start. Choosing assets solved this problem, but tended to skew the list against service sector companies that had relatively low asset bases.

The final methodology we chose was to look at the size after combining assets and turnover. This allowed us to take in companies that were unlisted. And it allowed us to compare the manufacturing companies, projects just about to go on-stream, as well as service companies in one listing. We received a lot of praise for our methodology and also some flak from those who insisted that we were mixing up balance sheet parameters (assets) with P&L parameters (turnover).

This year, after a thorough re-examination, we decided that while the original methodology remains sound, we need to give our readers other methods to evaluate companies as well. After all, you never get a proper picture by just looking at one or two or even three parameters. That is why, in addition to the main BW Real 500 tables, we have decided to include a number of other listings — based on profits, on return on capital as well as assets, on debt burden and debt-to- equity ratio and many others.

Because of the limitations of space, we have carried short listings in the magazine, and put up bigger lists on our website, I hope you will find this BW Real 500 special issue meets most of your data needs on corporate India's financials.

(This story was published in Businessworld Issue Dated 01-11-2010)