Comparison of traditional metrics versus value-based management (VBM) metrics

 What is a traditional metric and VBM metric ?

Traditional metrics are standard financial measurements used to evaluate a company's performance. They often include measures like revenue, profit, and earnings per share (EPS). These metrics focus primarily on short-term financial results and do not account for the cost of capital or the value created for shareholders.

VBM metrics are tools that assess a company's performance based on its ability to create value for shareholders over the long term. These metrics, such as Economic Value Added (EVA) and Cash Flow Return on Investment (CFROI), consider the cost of capital and aim to align management decisions with shareholder interests. 

Traditional Metrics

The table provides a summary of Dabur's traditional metrics across five fiscal years (FY2020–FY2024)

EPS (Earnings Per Share)	EPS measures profit per share, and it reached ₹10.4 in FY2024, increasing from ₹9.64 in FY2023 and ₹9.84 in FY2022. This reflects steady profitability growth since FY2020 (₹8.18), with only a minor dip in FY2023. Overall, Dabur is becoming more profitable for each share.
EPS Growth (%)	EPS growth in FY2024 was 7.93%, a bounce back from the decline of -2.06% in FY2023. This was a slowdown from earlier strong growth of 17.17% in FY2021, which fell to 2.68% in FY2022. It indicates that the company’s profitability has fluctuated over the years but improved again in FY2024.
ROE (Return on Equity %)	ROE shows how well Dabur is using its equity to generate profits. It decreased to 19.39% in FY2024 from 19.84% in FY2023, and it was at its highest in FY2021 at 24.12%. The decline over the years means the company is less effective at generating returns from shareholders' investments
ROCE (Return on Capital Employed %)	ROCE represents how well Dabur is using its total capital to generate profit. It decreased to 23.65% in FY2024 from 23.9% in FY2023 and 26.73% in FY2022, with the highest level in FY2021 (27.56%). This indicates a reduction in the efficiency of using capital to drive profits.
PE (Price to Earnings Ratio)	The PE ratio, which tells us how much investors are willing to pay per unit of earnings, fell to 50.31 in FY2024 from 56.57 in FY2023. It was consistently high in previous years (above 50), suggesting that investors were paying more for future earnings growth, but now it has become slightly cheaper, possibly reflecting lowered expectations.
PB (Price to Book Ratio)	PB compares the company’s market value to its book value. In FY2024, the ratio fell to 9.49 from 10.83 in FY2023. This shows that investors are paying less for the company relative to its net assets than in previous years, meaning the stock may be considered less overvalued now than before.
EV/EBITDA (Enterprise Value to EBITDA)	EV/EBITDA shows how the market values the company relative to its earnings before interest, taxes, depreciation, and amortization. It was 32.38 in FY2024, down from 37.33 in FY2023 and 35.99 in FY2022. A lower EV/EBITDA means Dabur is valued more cheaply relative to its earnings than in previous years.
ROA (Return on Assets %)	ROA shows how well Dabur is using its assets to generate profits. In FY2024, ROA dropped to 12.59% from 13.12% in FY2023 and 15.08% in FY2022. This steady decline since FY2021 (16.81%) suggests that Dabur’s efficiency in using its assets to produce profit has weakened.
Current Ratio	The current ratio measures Dabur's ability to pay short-term liabilities with its short-term assets. It was 1.45 in FY2024, up from 1.18 in FY2023, meaning the company has improved its ability to meet its short-term obligations. The higher the ratio, the more comfortably a company can cover its debts.
Debt-Equity Ratio	This ratio shows how much debt Dabur has compared to its equity. It remained stable at 0.12 in FY2024, the same as FY2023, showing that the company isn’t increasing its reliance on debt for financing. This is a healthy level, as it was even lower in FY2020 and FY2021 (0.05).
Dividend Yield (%)	The dividend yield, which measures how much the company pays shareholders in dividends relative to its stock price, was 1.05% in FY2024, slightly up from 0.95% in FY2023. It shows a steady rise in shareholder returns since FY2020 (0.67%), indicating that Dabur is gradually returning more value to its investors through dividends.
Net Sales Growth (%)	Net sales growth measures how fast Dabur's sales are increasing. In FY2024, it grew by 7.58%, a rise from 5.89% in FY2023, but lower than FY2022’s 13.88%. Sales growth has been uneven over the years, with a high peak in FY2022, and although it’s positive, it shows slower growth compared to earlier years.

Conclusion from Traditional Metrics

Dabur's financial performance shows positive signs in several areas, indicating better profitability and steady growth. Earnings per share have increased, reflecting a consistent rise over the past few years, even with a small drop last year. The recent growth in earnings per share signals a recovery from that decline, suggesting the company is becoming more profitable again.

However, there are some challenges to consider. The return on equity has gone down, meaning Dabur is becoming less effective at turning shareholder investments into profits. Similarly, the return on capital employed has also decreased, which indicates that the company is not using its capital as efficiently to generate profits.

Investor sentiment seems to be cooling, as shown by lower price-to-earnings and price-to-book ratios. This suggests that investors are paying less for Dabur’s earnings and assets compared to previous years, indicating lowered expectations for growth. On a positive note, the current ratio has improved, meaning Dabur is better able to meet its short-term obligations, and the debt-equity ratio remains stable, showing that the company is not increasing its debt levels.

VBM Metrics

The table provides a summary of Dabur's VBM metrics across two fiscal years (FY2023–FY2024)

MVA (Market Value Added)	This measures the company's value added beyond the capital invested. In FY2023, it was ₹87,132.57 crore, which decreased to ₹82,372.52 crore in FY2024, indicating a reduction in shareholder value.
CFROI (Cash Flow Return on Investment)	This percentage shows how well the company generates cash from its investments. It improved from 15.76% in FY2023 to 19.54% in FY2024, meaning the company is getting better returns on its investments.
FCF (Free Cash Flow)	This indicates the cash available after covering capital expenditures. Dabur's free cash flow increased in FY2024, showing healthier cash generation for future investments.
TSR (Total Shareholder Return)	This reflects the total return to shareholders, including stock price changes and dividends. It dropped from 2.06% in FY2023 to -3.44% in FY2024, suggesting a loss for shareholders over that period.
EVA (Economic Value Added)	This measures the company's profitability after deducting the cost of capital. It rose from ₹693.876 crore in FY2023 to ₹749.266 crore in FY2024, indicating improved profitability and value creation.
ROIC (Return on Invested Capital)	This metric assesses how efficiently a company uses its capital to generate profits. It slightly decreased from 18.84% in FY2023 to 18.77% in FY2024, suggesting a stable but slightly less efficient return.
FCFF (Free Cash Flow to the Firm)	This represents the cash available to all investors (both equity and debt) after expenses. It increased from ₹2,530.69 crore in FY2023 to ₹2,974.37 crore in FY2024, showing strong cash flow available for stakeholders.
FCFE (Free Cash Flow to Equity)	This shows the cash available to equity shareholders after all expenses, reinvestments, and debt payments. It dipped in FY2024, indicating not better cash availability for shareholders.
FGV	Dabur’s Future Growth Value (FGV), an important VBM metric, was ₹81,098.83 crore in FY2023. It dropped to ₹75,857.13 crore in FY2024, which indicates a decrease in expected growth potential. This decline suggests that the company’s projected growth rate for the future is lower

Conclusion From VBM Metrics

Dabur's financial performance over the past year shows both positive and negative aspects. While Market Value Added (MVA) decreased, indicating a drop in shareholder value, the company improved its Cash Flow Return on Investment (CFROI), meaning it’s becoming better at generating cash from its investments a good sign for overall operations. Additionally, Free Cash Flow (FCF) and Free Cash Flow to the Firm (FCFF) increased, providing Dabur with more funds for future investments and demonstrating its ability to meet financial obligations without taking on extra debt. The fall in Free Cash Flow to Equity (FCFE) also means there is not more cash available for shareholders, which is not so encouraging for investors. On the profitability front, Economic Value Added (EVA) improved, indicating Dabur is creating value after covering its capital costs. However, Total Shareholder Return (TSR) declined, reflecting lower returns for shareholders despite the company's internal gains. Furthermore, Future Growth Value (FGV) slightly dropped, suggesting more cautious expectations for growth in the coming years.

Comparison of Both Metrics 

Aspect	Traditional Metric Insights	VBM Metrics Insights	Key Insights
Profitability	EPS growth is positive overall but has fluctuations. The decline in ROE and ROCE raises concerns about efficiency in using capital.	CFROI and EVA show improved efficiency and profitability above capital costs, indicating operational strengths.	While traditional metrics indicate some profitability issues, VBM metrics highlight effective cash generation and management.
Market Valuation	PE ratio and PB ratio are declining, signaling reduced investor confidence and lower market valuation.	MVA shows a decrease, indicating diminished shareholder wealth.	Both sets of metrics suggest a weakening market position, but VBM provides a clearer picture of operational value creation.
Growth	Sales growth is slowing down, indicating potential market challenges.	Increasing free cash flow suggests good operational health.	While sales growth may be a concern, cash flow growth in VBM indicates that the company remains capable of funding future growth.
Return Metrics	Declining ROE and ROCE suggest less effective capital utilization.	Consistent ROIC indicates stable returns on invested capital.	Traditional metrics show declining returns, whereas VBM metrics indicate stable efficiency in capital investment.
Dividend and Shareholder Returns	Rising dividend yield is positive but may indicate less reinvestment in growth.	Negative TSR in FY2024 highlights potential dissatisfaction among shareholders.	While dividends are increasing, the drop in TSR suggests that shareholder satisfaction may be waning despite positive cash flows.

Which Metrics Are More Useful for Investors?

When deciding which metrics are more helpful for investors, traditional metrics provide a basic understanding of a company's profitability and financial health. These metrics show how well the company makes money and manages its resources. However, they can sometimes overlook the important aspect of long-term value creation. In contrast, Value-Based Management (VBM) metrics are more useful for assessing a company's overall value and ability to generate cash. These metrics help determine if the company is genuinely creating economic value for its shareholders. By focusing on cash generation and long-term performance, VBM metrics offer a deeper insight into a company's true worth.

VBM metrics are especially relevant for long-term investors who prioritize sustainable growth and consistent cash flow. They provide a clear picture of how well a company can create value over time, making them essential tools for investors looking to make informed decisions about their investments. By integrating both traditional and VBM metrics, investors can gain a comprehensive view of a company's financial health and future potential, ultimately helping them achieve better investment outcomes.

Key Insights from Traditional Metrics for Investors to review

Dabur’s traditional metrics show a mixed picture of the company’s performance. Earnings Per Share (EPS) has varied, dropping slightly in FY2023 but bouncing back in FY2024. This inconsistency may indicate some instability in earnings but also suggests the possibility of improvement. Return on Equity (ROE) has gone down, meaning the company is not as effective at turning shareholders’ investments into profits, which could worry investors looking for solid returns.

The decline in Market Value Added (MVA) shows that the market sees less value in the company, suggesting investors might doubt its growth potential. Additionally, the Price-to-Earnings (PE) ratio has fluctuated, reflecting uncertainty about future earnings. A lower PE could mean the stock is undervalued, but it might also signal some risks. Lastly, the declining current ratio indicates tighter cash flow, raising concerns about Dabur’s ability to meet its short-term financial obligations, which may lead investors to pay closer attention to its cash situation.

Key Insights from VBM Metrics for investors to review

In contrast, the VBM metrics provide a clearer view of Dabur's performance. The increase in Free Cash Flow (FCF) is important, showing that the company is generating strong cash flow, which gives it flexibility for reinvesting or paying dividends this is a good sign for investors. Economic Value Added (EVA) has also grown, meaning Dabur is creating value beyond its costs, which is a strong indicator of long-term profitability and value creation.

The stable Return on Invested Capital (ROIC) shows that the company is managing its capital well, which is reassuring for investors who want to see efficient use of resources. However, the drop in Total Shareholder Return (TSR) raises concerns about how satisfied shareholders are, suggesting that even with strong operations, investors may not be getting enough returns.