The document presents a detailed comparison of key financial ratios between Tata Consultancy Services (TCS) and International Business Machines (IBM) as of October 2014. It covers various categories of ratios including profitability, liquidity, leverage, activity, and market ratios, providing specific calculations and results for each. The analysis highlights the financial health and performance of both companies using different metrics such as gross profit margin, current ratio, and return on equity.

1. Presented By:
Ujaas Madhan
Dharmender Goyal
Kunal Raj
Ashish Anurag
Prakash Kumar
19 October 2014 1
Comparison Of ratios
of TCS AND IBM

2. Important ratio analysis of TCS and IBM
Following Ratios are compared:
 Profitability Ratio.
 Liquidity Ratio.
 Leverage Ratio.
 Activity Ratio.
 Market/Shareholder’s Ratio.
19 October 2014 2
Comparison Of ratios
of TCS AND IBM

3.  It is assumed that $1=Rs 62.
 Figures of IBM are in Rs Million.
 Figures of TCS are in Rs Crores.
 Only important ratios are compared in each
type of ratios.
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Comparison Of ratios
of TCS AND IBM 3

4. In Profitability Ratios, the profit is compared
to sales, that is, profit is expressed as a
percentage of sales.
Types of Profitability Ratios:
 Gross Profit Ratio.
 Net Profit Ratio.
 Return on Investment.
 Operating Profit Ratio.
 Return on Shareholder Funds.
 Return on Equity.
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Comparison Of ratios
of TCS AND IBM

5.  Gross Profit measures the percentage of
gross profit to sales.
 Higher the Gross Profit ratio better it is.
CALCULATIONS
TATA CONSULTANCY
SERVICES(TCS)
International Business Machine
(IBM)
GP= Gross Profit *100
Sales
GP= Gross Profit *100
Sales
= 6,238 *100
81,809
= 7.62%
= 1,79,056 *100
2,67,240
= 67.10%
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Comparison Of ratios
of TCS AND IBM

6. Operating Profit ratios measures the
percentage of operating profit (EBIT) in
comparison to sales.
19 October 2014 6
Calculations
TCS IBM
Operating Profit Ratios
= Operating Profit *100
Sales
Operating Profit Ratios
= Operating Profit *100
Sales
= 19,331 *100
81,809
= 23.63%
= 1,34,602 *100
2,67,240
= 50.36%
Comparison Of ratios
of TCS AND IBM

7.  Net profit ratio measures the percentage of
net profit in comparison to sales.
NP=GP-Indirect Expenses +Indirect
Incomes
Calculations
TCS IBM
Net Profit= Net Profit *100
Sales
Net Profit= Net Profit *100
Sales
= 19,163*100
81,809
= 90,272 *100
2,67,240
= 23.42% = 33.72%
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Comparison Of ratios
of TCS AND IBM

8.  Total Investment in a business represents the
fixed assets plus working capital.
 ROI measures the effectiveness of investment
in the business.
Calculations
TCS IBM
ROI= Net Profit+Interest*{1-Tax}*100
Total Investment
= Net Profit+Interest*{1-Tax}*100
Total Investment
= 19,163 * 100
24,240+67,137-15,670
= 25.31%
= 1,34,602 *100
21,31,060
= 6.31%
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Comparison Of ratios
of TCS AND IBM

9.  It indicate the earnings with respect to the
owner’s equity.
 Owner’s equity represents equity capital and
reserves.
Calculations
TCS IBM
ROE= Net Profit * 100
Equity Share Capital
ROE= Net Profit * 100
Equity Share Capital
= 19,163 * 100
48,487
= 7,78,879 *100
19,42,342
= 39.52% = 40.10%
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Comparison Of ratios
of TCS AND IBM

10. This ratio compares the net profit with the
shareholders funds and is calculated as
follows:
Calculations
TCS IBM
Return on sh.holder fund Return on sh.holder fund
= Net Profit * 100
Shareholder’s Funds
= 19,163 * 100
49,194
= 38.95%
= Net Profit * 100
Shareholder’s Funds
= 90,272 *100
19,42,342
= 4.64%
19 October 2014
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0
Comparison Of ratios
of TCS AND IBM

11.  Liquidity ratio measures the company’s ability
to generate cash resources to meet its
current obligations.
Types of Liquidity Ratios :
 Current Ratio
 Quick/Acid-Test Ratio
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1
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Comparison Of ratios
of TCS AND IBM

12.  Current ratio measures the current assets in
comparison to current liabilities.
 The ideal ratio for current ratio is 2:1.
Calculations
TCS IBM
Current Ratio= Current Assets
Current Liabilities
Current Ratio= Current Assets
Current Liabilities
= 42,897
15,670
=1,11,476
1,88,666
= 2.74:1 = 0.59:1
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2
Comparison Of ratios
of TCS AND IBM

13.  It is computed by taking quick assets that are
readily convertible into cash.
Calculations
TCS IBM
QR= Current Assets-Inventory
Current Liabilities
QR= Current Assets-Inventory
Current Liabilities
= 42,882
15,670
= 77,353
1,88,666
= 2.73:1 = 0.41:1
19 October 2014
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3
Comparison Of ratios
of TCS AND IBM

14. Leverage ratio measures the extent of risk that
the company takes by introducing debt into
finance.
Types Of Leverage Ratio:
 Debt-Equity Ratio
 Proprietary Ratio
 Interest Coverage Ratio
 Total Debt To Total Assets
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Comparison Of ratios
of TCS AND IBM

15.  It indicates the proportion of debt in relation
to equity.
 A heavy debt in capital is considered risky.
Calculations
TCS IBM
Debt equity ratio
= Debt
equity
Debt equity ratio
= Debt
equity
= 127
48,487
= 17,05,248
19,42,342
=0.0026:1 = 0.877:1
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1
5
Comparison Of ratios
of TCS AND IBM

16.  It indicates the share of shareholder’s funds
with respect to total tangible assets.
 It helps us to know whether the amount of
capital used in business is adequate.
Calculations
TCS IBM
Proprietary Ratio
= shareholder fund
Tangible Assets
Proprietary Ratio
= shareholder fund
Tangible Assets
= 48,487
66,897
= 19,42,342
24,88,556
= 0.724:1 = 0.78:1
19 October 2014 16
Comparison Of ratios of TCS AND
IBM

17.  It is used to ensure that a company’s
earnings are sufficient to meet its interest
liabilities.
 If ratio is greater than 1, the interest payment
can be covered.
Calculations
TCS IBM
ICR= EBIT
Interest
ICR= EBIT
Interest
= 19,331
1680
= 1,34,602
23,746
= 11.506 Times = 5.668 Times
19 October 2014 17
Comparison Of ratios of TCS AND
IBM

18.  It indicates that the company has sufficient
assets to meet its debt obligations.
Calculations
TCS IBM
TDTAR= Total Debt
Total Assets
TDTAR= Total Debt
Total Assets
= 254
67,137
= 17,05,248
24,88,556
= 0.00378:1 = 0.68:1
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8
Comparison Of ratios
of TCS AND IBM

19. Activity Ratio reflect the efficiency in the
utilization of assets. These ratios indicate how
fast the assets are turned into revenues.
Types Of Activity Ratios:
 Inventory Turnover Ratio
 Average Days Of Inventory
 Debtors Inventory Ratio
 Average Days Of Debtors
 Creditors Turnover Ratio
 Average Days Of Creditors
 Net Working Capital Turnover Ratio
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9
Comparison Of ratios
of TCS AND IBM

20.  It indicates the number of times the inventory
is turned over i.e, how faster stock is
converted to sales. Higher the ratio better it
is.
Calculations
TCS IBM
ITR= COGS
Average Inventory
ITR= COGS
Average Inventory
= 75,571
{21,000+15,000}/2
= 88,184
{8,122+8,256}/2
= 4.2 Times = 10.77 Times
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Comparison Of ratios
of TCS AND IBM

21.  The Velocity of Inventories is expressed as
number of days of inventories carried by the
company as at the balance sheet date.
Calculations
TCS IBM
ADOI= 365
Inventory Turnover
ADOI= 365
Inventory Turnover
= 365
4.2
= 365
10.77
= 87 Days = 34 Days
19 October 2014 21
Comparison Of ratios of TCS AND
IBM

22.  It indicates the number of times debtors are
turned over in a year.
 If the turnover is high, it means that the
company’s credit collection is efficient.
Calculations
TCS IBM
DTR= Credit Sales
Average Debtor
DTR= Credit Sales
Average Debtor
= 81,809
{14,095+18,230}/2
= 2,67,240
{14,880+15,020}/2
= 5.061 Times = 17.87 Times
19 October 2014
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Comparison Of ratios
of TCS AND IBM

23.  The Velocity of debtors is expressed by the
number of days of credit sales.
Calculations
TCS IBM
ADOD= 365
Debtors Turnover
ADOD= 365
Debtors Turnover
= 365
5.061
= 365
17.87
= 72 Days = 21 Days
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3
Comparison Of ratios
of TCS AND IBM

24.  It represents the number of days of creditors
to credit purchases. Reasonable CTR indicates
credit terms are negotiated.
Calculations
TCS IBM
CTR= Credit Purchases
Average Creditors
CTR= Credit Purchases
Average Creditors
= 29,570
{4269+5536}/2
= 86428
{4996+6058}/2
= 6.03 Times = 15.63 Times
19 October 2014
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Comparison Of ratios
of TCS AND IBM

25.  The Velocity of Creditors can be expressed as
number of days of credit purchases.
Calculations
TCS IBM
ADOC= 365
Creditors Turnover
ADOC= 365
Creditors Turnover
= 365
6.03
= 365
15.63
= 61 Days = 23 Days
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Comparison Of ratios
of TCS AND IBM

26.  It measure the effectiveness of the
management of working capital.
Calculations
TCS IBM
NWCTR= Sales
Net Working Capital
NWCTR= Sales
Net Working Capital
= 81,809
{42,897-15,670}
= 2,67,240
{148378-101794}
= 3.01 Times = 5.74 Times
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Comparison Of ratios
of TCS AND IBM

27.  These Ratios are useful to the company to
evaluate the company’s performance.
Types of Market Ratio:
 Earning Per Share (EPS)
 Price Earnings Ratio
 Dividend Per Share(DPS)
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Comparison Of ratios
of TCS AND IBM

28.  The ratio reflects the earnings of the
company for a specific period, per equity
share.
Calculations
TCS IBM
EPS= Net Income of equity shareholders
Number of equity shares outstanding
EPS= Net Income of equity shareholders
Number of equity shares outstanding
EPS = 19,163
197.566
EPS= 3265 = 2.61
8521
= Rs 97.67 Per Share =2.61* 62($ to rupees)
= Rs 161.82 Per Share
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Comparison Of ratios
of TCS AND IBM

29.  It is the relationship between the market price
and EPS.
 Increase in Market price and EPS will increase
PE ratio.
Calculations
TCS IBM
PER= Market Price Per Share
EPS
PER= Market Price Per Share
EPS
= 2100
97
= 6448
164.30
= 21.64 Times = 39.24 Times
19 October 2014
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9
Comparison Of ratios
of TCS AND IBM

30. It measures the amount of dividend declared
per equity shareholder. It is calculated as
follows:
Calculations
TCS IBM
DPR= Equity dividends paid
Earning for equity shareholders
DPR= Equity dividends paid
Earning for equity shareholders
= 5162
197.566
= 268212
8652
= Rs 26.11 Per Share = Rs 31 Per Share
19 October 2014
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Comparison Of ratios
of TCS AND IBM

31. 19 October 2014
Comparison Of ratios
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