"Analysts also use EPS and EVA techniques as a supplement to FCF to determine the potential for investment in a company's stock, as it is easily understood," the survey said, adding that institutional investors operating on a longer time horizon favour the use of the FCF method as it is more reliable and effective in interpreting factors like growth, risk and return expectations.

PwC interviewed around 30 equity analysts and fund managers of local and international companies in India for thesurvey. The purpose was to explore some of the approaches being adopted to assess corporate performance and valuation methodologies in vogue.

Explaining the FCF methodology, head of FAS Ashwini Puri, who carried out the survey, said cash flows of a company from all its activities including investments, as well as sale of assets are taken into account.

"Equally important is the fact that it eliminates the effects of national accounting practices such as depreciation or accounting of deferred taxes, allowing easy comparision across countries and industries. This makes FCF the ideal benchmarking metric for corporate valuation," Puri said. "The shift in focus from EPS to FCF indicates that the markets are now thinking long term, though this is not to say that they may not still act short term," he added.

According to the survey findings, majority of the analysts also preferred to source their information from the company balance sheets supplementing this by meetings with key executives. "In comparison toequity analysts, fund managers of international as well as local and regional companies expected more information from the companies on value drivers to asist valuation," Puri said.

"In particular, fixed capital investment efficiency was found to be an important value driver in India, primarily as cost of capital is high here and future uncertainty is more marked than in other developed markets," he added.

According to the survey, there is a high correlation between change in free cash flows and share price performance, with institutional investors assessing performance of listed companies on the basis of growth, cash flow returns and risk.

The orientation of the management towards enhancing shareholder value was an important criterion among local and international analysts for selecting a company for investment, the survey observed.

The survey concluded that the concept of shareholder value has become a principal issue for chief executives of listed companies due to the investor pressure for deliveryof superior returns.