FINANCIAL RATIO ANALYSIS                               Submitted By:                              Kinnar Majithia         ...
ACKNOWLEDGEMENTI take the opportunity to thank Prof. Dharmendra Jain for giving me the opportunity to do a study offinanci...
INDEXAbout Tata Consultancy Services Ltd. ...................................................................................
ABOUT TATA CONSULTANCY SERVICES LTD.Tata Consultancy Services Limited (TCS) is the world-leading information technology co...
PERFORMANCE HIGHLIGHTS (2009-10)                 5
6
FINANCIAL STATEMENTSPERFORMANCE SUMMARY                      7
BALANCE SHEET (Consolidated)                 8
PROFIT AND LOSS ACCOUNT (Consolidated)                  9
FINANCIAL RATIOSUse of Financial ratios:They are relevant in assessing the performance in respect to:     Liquidity Posit...
LIQUIDITY RATIOS Current Ratio:      Also known as ‘Working Capital Ratio’, ‘Solvency Ratio’ or ‘2 to 1 ratio’      Rat...
Mar 2008 - Apr 2009               Mar 2009 - Apr 2010               Current Ratio       2.26                              ...
SOLVENCY RATIOS Debt-Equity Ratio      Ratio indicates proportion of debt fund in relation to owner’s fund      It indi...
   Overall, the ratio for TCS is good but it has gone down in the financial year 2009-10       compared to 2008-09      ...
 Fixed Asset Turnover Ratio                   Fixed Asset Turnover Ratio = Net Sales / Total Assets      It is a measure...
 Debtor’s Collection Period / Debtor’s Velocity Ratio      It is, again, an indication of the efficiency of the firm’s d...
Mar 2008 - Apr 2009             Mar 2009 - Apr 2010               Net profit before tax ratio    22.11                    ...
 Operating Ratio      It indicates:            o The efficiency of management            o Operating efficiency and prof...
   The Operating Profit in relation to Net Sales ratio went up in 2009-10 over its value in 2008-       09 indicating a b...
Mar 2008 - Apr 2009          Mar 2009 - Apr 2010               Return on proprietor’s fund (%)      33.7                  ...
 Dividend Per Share (DPS)                           DPS = Dividend / No. of equity shares      It is the value of divide...
 P/E Ratio      It indicates the relationship between the market price of the share with its available       earnings   ...
BIBLIOGRAPHYwww.tcs.comwww.moneycontrol.comwww.investopedia.comwww.equitymaster.com                       23
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Ratio analysis tcs

  1. 1. FINANCIAL RATIO ANALYSIS Submitted By: Kinnar Majithia PGDBM 2010-12 Roll No: P1026Sydenham Institute of Management Studies, Research and Entrepreneurship Education 1
  2. 2. ACKNOWLEDGEMENTI take the opportunity to thank Prof. Dharmendra Jain for giving me the opportunity to do a study offinancial statements and also analyze them through this project on analysis of financial ratios of TataConsultancy Services Ltd.I would also like to thank everyone else for helping me in carrying out this study. 2
  3. 3. INDEXAbout Tata Consultancy Services Ltd. ..................................................................................................... 4Performance Highlights for 2009-10....................................................................................................... 5Financial Statements for 2009-10 ........................................................................................................... 7Financial Ratio Analysis ......................................................................................................................... 10Bibliography .......................................................................................................................................... 22 3
  4. 4. ABOUT TATA CONSULTANCY SERVICES LTD.Tata Consultancy Services Limited (TCS) is the world-leading information technology consulting, services,and business process outsourcing organization that envisioned and pioneered the adoption of theflexible global business practices that today enable companies to operate more efficiently and producemore value.TCS commenced operations in 1968, when the IT services industry didn’t exist as it does today. Now,with a presence in 34 countries across 6 continents, & a comprehensive range of services across diverseindustries, TCS is one of the worlds leading Information Technology companies. Six of the Fortune top10 companies are among their valued customers.TCS is part of one of Asias largest conglomerates - the TATA Group - which, with its interests in Energy,Telecommunications, Financial Services, Chemicals, Engineering & Materials, provides TCS with agrounded understanding of specific business challenges facing global companies.VISION: To be one of the top 10 global companies by 2010VALUES: Leading change, Integrity, Respect for Individual, Excellence, Learning and sharingServices and SolutionsTCS is a leading IT services provider, with a wide breadth of services across the entire Informationtechnology spectrum. TCS helps clients identify opportunities of improvement, build the roadmap togetting there & leverage technology to make it possible, by providing the following services & solutions:  Consulting.  IT Services.  BPO.  IT Infrastructure Services.  Engineering and Industrial Services.  Product Based Solutions.  Advertisements 4
  5. 5. PERFORMANCE HIGHLIGHTS (2009-10) 5
  6. 6. 6
  7. 7. FINANCIAL STATEMENTSPERFORMANCE SUMMARY 7
  8. 8. BALANCE SHEET (Consolidated) 8
  9. 9. PROFIT AND LOSS ACCOUNT (Consolidated) 9
  10. 10. FINANCIAL RATIOSUse of Financial ratios:They are relevant in assessing the performance in respect to:  Liquidity Position:  Solvency Position  Operating Efficiency  ProfitabilityLimitations of Financial Ratios:  Calculated from financial statements which are themselves subject to many limitations  For analysis, many ratios and factors are to be considered  Calculated ratios require comparison  Various terms are to be explained for inter-firm comparison  Price level to be considered while making comparison  Ratio analysis is based on judgment of the analyst 10
  11. 11. LIQUIDITY RATIOS Current Ratio:  Also known as ‘Working Capital Ratio’, ‘Solvency Ratio’ or ‘2 to 1 ratio’  Ratio indicates the relationship between Current Assets and Current Liabilities.  Current Assets are assets held for an accounting period and Current Liabilities  Current Liabilities are generally to be paid out of Current Assets.  Ideally, the Current Assets should be more than Current Liabilities. If Current Ratio > 1 then the currents are said to be enough to pay current obligations.  Analysts consider Current ratio = 2:1 to be ideal, though not always.  This ratio determines: o Company’s ability to meet its current liabilities o Credit strength of the company o Adequacy of working capital  Calculation Current Assets (Balance Sheet) on 31st March 2009 = Rs. 13511.86 crores Current Liabilities (Balance Sheet) on 31st March 2010 = Rs. 5967.74 crores Current Ratio on 31st March 2009 = 2.26 Current Assets (Balance Sheet) on 31st March 2010 = Rs. 15788.88 crores Current Liabilities (Balance Sheet) on 31st March 2010 = Rs. 8393.86 crores Current Ratio on 31st March 2010 = 1.88 11
  12. 12. Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Current Ratio 2.26 1.88  The Current Ratio value, touted as ideal at 2:1, was better in 2008-09 and it fell down below 2 in 2009-10 thus indicating a decrease in the working capital of TCS to pay out its current obligations as compared to 2008-09. Quick Ratio / Acid Test Ratio:  Also known as ‘Liquid Ratio’, ‘Acid Test Ratio’ or ‘Near Money Ratio’  Indicates relationship between liquid assets and liquid liabilities  Ideally, quick assets should be >= quick liabilities  Analysts consider a value of 1 for this ratio as satisfactory  The ratio determines: o Liquidity position o Short-term financial position o Ability to meet commitments without delay Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Quick Ratio 2.25 1.87  The quick ratio value being higher than 1 indicates that the quick assets are enough to pay out the quick liabilities.  It’s value in 2009-10, however, has decreased over its value in 2008-09 indicating a fall in the capacity of the company to pay out the obligations 12
  13. 13. SOLVENCY RATIOS Debt-Equity Ratio  Ratio indicates proportion of debt fund in relation to owner’s fund  It indicates: o The capital structure of the company o Long-term financial and solvency position Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Debt-Equity Ratio 0.04 0.01  The value has reduced from 0.04 in 2008-09 to 0.01 in 2009-10 which is viewed favorable from long-term creditor’s point of view  This means that there is relatively higher margin of safety for the creditors Interest-coverage Ratio  It is used to determine how easily a company can pay interest expenses on outstanding debt.  The lower the ratio, the more the company is burdened by debt expense.  When a companys interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable. Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Interest-coverage Ratio 784.41 684.43 13
  14. 14.  Overall, the ratio for TCS is good but it has gone down in the financial year 2009-10 compared to 2008-09  Thus, it is an indication of a decrease in the capacity of the concern to pay interest expenses on its outstanding debt. However, the value is still good enough for the firm ACTIVITY RATIOS / TURNOVER RATIOS Inventory Turnover Ratio / Stock Turnover Ratio  Establishes a relation between Cost of Sales and average Inventory  Indicates the no. of times stock is replaced during the year  Indicates velocity of movement of goods  It indicates the inventory management of the company Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Stock Turnover ratio 1321.77 3398.94  The stock turnover ratio value increased greatly in 2009-10 over its value in 2008-09 indicating an even more efficient stock management  Thus, the stocks are sold more frequently and hence less money is needed for inventory maintenance 14
  15. 15.  Fixed Asset Turnover Ratio Fixed Asset Turnover Ratio = Net Sales / Total Assets  It is a measure of the company’s ability to generate net sales from fixed-assets investments  A higher value of this ratio shows that the company has been more effective in using the investment in fixed assets to generate revenue Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Fixed Asset Turnover Ratio 5.15 4.74  There has been a decrease in the value of the ratio in 2009-10 as compared to 2008-09  It means that the efficiency of the firm to generate revenues from investments in fixed assets has gone down Debtor’s Turnover Ratio  It is a relationship between sales and amount receivable  It indicates the speed with which receivables are converted into cash  It indicates the number of times average debtors (receivable) are turned over during a year Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Debtors Turnover Ratio 4.62 5.14  The value of this ratio in 2009-10 has gone up from that in 2008-09  This is an indication of a more efficient management of debtors by the firm in 2009-10  Debts are being collected at a faster rate and shorter debt collection period in 2009-10 period 15
  16. 16.  Debtor’s Collection Period / Debtor’s Velocity Ratio  It is, again, an indication of the efficiency of the firm’s debt control expressed in days  It represents the average number of days for which a firm has to wait before its debtors are converted into cash  A short collection period implies prompt payment by debtors  It reduces the chances of bad debts Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Debtors’ Collection Period 79 71  The collection period has gone down by 8 days in 2009-2010  Thus, this is an indication of the debtors being relatively more prompt in clearing their debts with TCS  Debt management, thus, was more efficient in 2009-2010 as compared to that in 2008- 2008-09 PROFITABILITY RATIOS Net Profit Ratio  It indicates a firm’s capacity to face adverse economic conditions  It also indicates: o Efficiency and profitability of the company o Higher value indicates adequate returns to the owner 16
  17. 17. Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Net profit before tax ratio 22.11 27.61 Net profit after tax ratio 18.9 23.31  Both ratios have gone up in 2009-10 as compared to 2008-09  Thus, the firm has made higher gains in 2009-10 relative to 2008-09 Gross Profit Ratio  It is ratio of Gross profit to Net Sales  Also called ‘Turnover Ratio’  Gross Profit is the Net Sales less Cost of Goods Sold  It reflects efficiency with which a firm produces its products  As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is  It indicates: o Margin of profit on sales o Company’s ability to control cost the cost of sales  The gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Gross Profit Ratio (%) 25.01 26.89  The value of this ratio has gone up for TCS for the financial year 2009-10 compared to its value in 2008-09 indicating that it has made higher profits  This is an indication of an increase in the operating efficiency of the concern in the latter financial year 17
  18. 18.  Operating Ratio  It indicates: o The efficiency of management o Operating efficiency and profitability Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Operating Ratio (%) 26.87 28.93  As compared to 2008-09, the value of the ratio has gone up in 2009-10  Thus, it indicates that the value of the operating costs in relation to the net sales have gone up and hence a drop in the efficiency of management Operating Profit Ratio  It is a relationship between Operating Profit and Sales  It indicates the overall profitability of the company Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Operating Profit Ratio (%) 26.87 28.93 18
  19. 19.  The Operating Profit in relation to Net Sales ratio went up in 2009-10 over its value in 2008- 09 indicating a better overall profitability in the latter financial year Return on Capital Employed  It is a type of ‘Return on Investment’  It indicates the available profits on total funds invested  It indicates: o Rate of return on total fund o Profitability of the company o Efficient utilization of funds Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Return on capital employed (%) 43.27 42.46  The slight drop in the ratio value for the financial year 2009-10 indicates a marginal reduction in the returns available to the concern, yet overall the figure holds good for the firm Return on Equity / Return on Proprietor’s Fund  It is a type of ROI, known as ‘Return on Equity’  It indicates the available return on shareholder’s funds  It determines the profit generated by the owners 19
  20. 20. Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Return on proprietor’s fund (%) 33.7 38.1  There is an increase in the value of the ratio for the financial year 2009-10 over its previous year’s value  Thus, there is an increase in the returns available to the proprietor over the funds he has invested in the business  Return on Equity Capital  It indicates the available return to equity shareholders  It indicates: o Rate of return on equity shareholder’s fund o Profitability of the company and efficient utilization of the funds Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Return on Equity Capital (%) 39.1 44.6  An appreciable rise in the value of the ratio in the year 2009-10 indicates that the Returns available to the equity shareholders for the capital invested have increased in this financial year  Thus, it is an indication of profitability and efficient utilization of fundsEarnings Per Share (EPS)  It is a measure of the profit available per equity share  It is a measure of the profitability of the company from the owner’s point of view Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 EPS 26.81 35.67  An increase In the EPS value in the year 2009-10 over the previous year indicates a higher earning value for the shareholders 20
  21. 21.  Dividend Per Share (DPS) DPS = Dividend / No. of equity shares  It is the value of dividend paid per equity share  Dividends are a form of profit distribution to the shareholder.  Having a growing DPS can be a sign that the companys management believes that the growth can be sustained. Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 DPS 14 20  The DPS value has gone up by Rs. 6 for the year 2009-10 indicating a higher dividend for the shareholders as compared to the previous year Dividend Payout Ratio  It is a relationship between the earnings available to the shareholders and dividend paid to them  It indicates the percentage of available profit distributed to shareholders  It is the most useful tool of analysis of profitability from the view of the owners  High ratio indicates liberal dividend policy Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 Dividend Payout (%) 30.54 65.45  The dividend payout value jumped by a margin of around 35% in 2009-10 as compared to its previous year value  Thus, in the latter year, the company adopted a relatively liberal dividend policy 21
  22. 22.  P/E Ratio  It indicates the relationship between the market price of the share with its available earnings  It indicates the amount the investors are willing to pay for each Rupee of earnings  Higher ratio indicates higher profitability and thereby, investor’s confidence  It indicates the no. of times the market price is higher or lower compared to EPS Mar 2008 - Apr 2009 Mar 2009 - Apr 2010 PE Ratio 10.07 21.89  A two-fold increase in the P/E ratio in the year 2009-10 over the previous year indicates better prospects for the concern and adding to its overall reputation 22
  23. 23. BIBLIOGRAPHYwww.tcs.comwww.moneycontrol.comwww.investopedia.comwww.equitymaster.com 23

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