Conversely, Ranbaxy Laboratories, Matrix Laboratories, Biocon, Aurobindo Pharma and Lupin have been the worst performers on the similar parameter. Most of these companies have seen significant volatility in their quarterly earnings.

Ranbaxy Laboratories have seen series of factors affecting its earnings chief among them are regulatory clamp-down affecting its business in US, forex losses due to currency volatility and poor performance in key markets.

Matrix Laboratories has been incurring intermittent losses in last two years due to restructuring exercise. Torrent Pharma and Dr Reddys Laboratories are other two companies with low risk-adjusted returns.

An interesting insight revealed through the analysis is the presence of companies like Lupin and Matrix Laboratories that have relatively high absolute returns but have very low risk-adjusted returns.

If one were to look at the historical market performance, companies with lesser earning volatility have given more consistent returns than the ones whose earnings has been unpredictable. For instance, Sun Pharma or Ciplas stock market performance has been more stable than say Ranbaxy or DRL (see the graph Win Some Lose Some).

Hence risk-averse investors should give priority to stability of earnings rather than higher but volatile earnings. Others, who love to take risk, should assign higher discount rates to the earnings of those companies appearing at the bottom of our list.

Finally, like any other analysis, one should remember that the above analysis represents one out of many aspects while taking an investment decisions and hence investors should look at a stock in totality.