Ratio Analysis of TCS (KIIT School of Management)

ANALYSIS OF ANNUAL REPORT ON

TATA CONSULTANCY SERVICES (TCS)

Subject – “Corporate Finance” MASTER OF BUSSINESS ADMINISTRATION (MBA) AT

Submitted To:

Submitted By:

Biranchi N Panigrahi Asst. Prof (Finance) KIIT School of Management

Purnendra Shrivastava Shivam Kumar Mahto

Analysis on Annual Report of TCS

14202118 14202078

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C E R T I F I C A T E This is to Certify that the project entitled “Analysis of Annual Report on Tata Consultancy services” is being carried out by Name of the Students in partial fulfilment for the award of degree of Master in Business Administration, KIIT University, Bhubaneswar during the academic year 2014 – 2016 under my supervision. The matter embodied in this project is original and has not been submitted for the award of any other degree.

Date: 04.01.2015 Place: KSOM, Bhubaneswar

Signature of the Guide Biranchi N Panigrahi

Asst. Prof (Finance)

Analysis on Annual Report of TCS

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ACKNOWLEDGEMENT We thankfully acknowledge the golden guidance given by Asst. Prof. Biranchi N Panigrahi (Finance) of KSOM, KIIT, without whose enthusiastic support and blessing, this project would not have taken its shape. He guided us throughout the project to complete this in the presentable manner. We would also like to thank our parents for their motivation in making this project a success. I wish to avail ourselves of this opportunity to express a sense of gratitude and love to our friends and for their manual support, strength, and help and for everything.

Date:-04.01.2014 Place: KSOM, Bhubaneswar

Analysis on Annual Report of TCS

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CONTENTS Introduction……………………………………………………………………………………………5 Company‟s Balance Sheet, Income and Cash Flow Statements………………………….….6-14 Ratio Analysis………………………………………………………………………………………15-27  Liquidity Ratio……………………….………………………………………………………..15  Current ratio…………………………………………………………………………….15  Quick Ratio……………………………………………………………………………..15  Turnover/Activity Ratio………………………………………………………………………16-18  Stock Turnover Ratio……………………………………………………………...……16  Avg. Days to Sell Inventories…………………………………………………………..17  Days Sales Outstanding………………………………………………………..………..18  Debt Management Ratio…………………………………………………………………..…19-20  Debt to Equity Ratio…………………………………………………………………...19  Interest Coverage Ratio…………………………………………………………….…..20  Assets Management Ratio……………………………………………………………..….….20-21  Fixed Asets Turnover Ratio……….………………………………………………..….20  Total Asset Turnover Ratio………………………………………………………...…..21  Profitability Ratio………………………………………………………………………….….22-24  Operating Margin Ratio………………………………………………………………...22  Profit Margin Ratio……………………………………………………………………..22  Return on Assets Ratio……………………………………………………………...…..23  Return on Equity Ratio……………………………………………………………….…24  Market Value Ratio…………………………………………………………………….….…..24-27  Earning Per Share……………………………………………………………………….24  Dividend Per Share……………………………………………………………………...25  Dividend Payout Ratio…………………………………………………………………..26  P/ E Ratio………………………………………………………………………………..27

Trend Analysis for Last Three Years……………………………………………………………..27 Bibliography…………………………………………………………………………………….…….28

Analysis on Annual Report of TCS

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INTRODUCTION Tata Consultancy Services Limited (TCS) is an Indian multinational information technology (IT) service, consulting and business solutions company headquartered in Mumbai, Maharashtra. TCS operates in 46 countries. It is a subsidiary of the Tata Group and is listed on the Bombay Stock Exchange and the National Stock Exchange of India. TCS is the largest Indian company by market capitalization and is the largest Indiabased IT services company by 2013 revenues. TCS is now placed among the „Big 4‟ most valuable IT services brands worldwide. In 2013, TCS is ranked 40th overall in the Forbes World's Most Innovative Companies ranking, making it both the highest-ranked IT services company and the top Indian company. It is the world's 10th largest IT services provider.

Tata Consultancy Services Ltd., incorporated in the year 1995, is a Large Cap company (having a market cap of Rs 503559.58 Cr.) operating in Information Technology sector. Tata Consultancy Services Ltd. key Products/Revenue Segments include Information Technology & Consultancy Services which contributed Rs 63332.83 Cr to Sales Value (97.92% of Total Sales), Sale of Equipment & Software Licences which contributed Rs 1340.10 Cr to Sales Value (2.07% of Total Sales), for the year ending 31-Mar-2014. For the quarter ended 30-Sep-2014, the company has reported a Standalone sales of Rs. 18405.05 Cr., up 5.54% from last quarter Sales of Rs. 17438.43 Cr. and up 10.82% from last year same quarter Sales of Rs. 16607.72 Cr. Company has reported net profit after tax of Rs. 4991.68 Cr. in latest quarter. The company‟s management includes Mr.Suprakash Mukhopadhyay, Mr.Ajoyendra Mukherjee, Mr.Rajesh Gopinathan, Mr.Suprakash Mukhopadhyay, Dr.Ron Sommer, Dr.Vijay Kelkar, Mr.Aman Mehta, Mr.Cyrus Mistry, Mr.Ishaat Hussain, Mr.N Chandrasekaran, Mr.O P Bhatt, Mr.Phiroz Vandrevala, Mr.V Thyagarajan, Prof.Clayton M Christensen. Company has Deloitte Haskins & Sells as its auditors. As on 30-Sep-2014, the company has a total of 1,958,727,979 shares outstanding.

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Last Three Years Annual Reports of TCS:-

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RATIO ANALYSIS A. LIQUIDITY RATIO: Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due as well as their long-term liabilities as they become current. 1. Current Ratio =

Current Assets Current Liabilities „Crores

RATIO

2013-14

Current Ratio = Current Assets Current Liabilities

2012-13

2011-12

= 34834.81 12265.70

= 23330.54 9498.81

= 2.84 : 1

= 2.45 : 1

= 16535.79 8835.48 = 1.87:1

Current Ratio Analysis 2.84 2.45

3 1.87

2.5 2 1.5 1 0.5 0

2011-12

2012-13

2013-14

Analysis:  

The Viable Current Ratio is 2:1. A Higher Current ratio enables a firms ability to pay off Current Obligations and thus provide adequate margin of safety to its creditors. There is More proportionate increase in Current asset (.39%) as compared to its Current obligations for a year 2014. This Indicate that a fair proportion of increase in current asset in 2014 as compared to previous year.

2. Quick Ratio / Acid Test Ratio = Quick Assets Quick Liabilities Quick Assets = Current Assests – Stock – Prepaid Expenses Quick Liabilities = Current Liabilities – Bank Overdraft

Analysis on Annual Report of TCS

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„Crores

RATIO

2013-14

2012-13

2011-12

Quick Assets = Current Assests – Stock – Prepaid Expenses

= 34834.81-8.57-0 = 34826.24

= 23330.54-6.34-0 = 23324.2

= 16535.79 – 4.14 = 16531.65

Quick Liabilities = Current Liabilities – Bank Overdraft

= 12265.70-0 = 12265.70

= 9498.81-80.02 = 9418.79

= 8853.48 – 0 = 8853.48

Quick Ratio = Quick Assets Quick Liabilities

= 34826.24 12265.70 = 2.84 :1

= 23324.2 9418.79 = 2.48 : 1

=

16531.65 8853.48 = 1.87:1

Quick Ratio Analysis 2.84 2.48

3 2.5

1.87

2 1.5 1 0.5 0 2011-12

2012-13

2013-14

Analysis:  

It evaluates Company‟s Overall Short-term Solvency or Liquidity Position . The Viable Acid Test Ratio is 1:1 Proportion. Investment in Quick Ratio is Increased As Company is investing in high proportion as compared to previous year (i.e.36 % more) this indicate that Company is following conservative approach and pooling high proportions of funds in liquid assets to facilitate day to day operations.

B. ACTIVITY / TURNOVER / EFFICIENCY RATIO : Accounting ratios that measure a firm's ability to convert different accounts within its balance sheets into cash or sales. Activity ratios are used to measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items. These ratios are important in determining whether a company's management is doing a good enough job of generating revenues, cash, etc. from its resources. 1.

Stock Turnover Ratio =

Cost of Goods Sold Average Stock / Inventory

Cost of Goods Sold = Sales – Gross Profit Average Stock = Opening Stock + Closing Stock 2

Analysis on Annual Report of TCS

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„Crores

RATIO

2013-14

2012-13

2011-12

Cost of Goods Sold = Sales – Gross Profit

= 64672.93 – 20453.17

= 48426.14 – 13503.41

= 38858.54 – 11335.56

= 44219.76

= 34922.73

= 27522.98

Average Stock = Op.+ Closing Stock 2

= 0.54+0.61 2 = 0.58

= 0.54+0.54 2 = 0.54

= 0.52+0.53 2 = .53

= 34922.73 0.54 = 64671.72 times

= 27522.98 .53 = 51930.15 times

= 44219.76 Stock Turnover Ratio = 0.58 Cost of Goods Sold = 76240.97 times Average Stock / Inventory

Stock Turnover Ratio Analysis 76240.97 64671.72

80000 70000

51930.15

60000 50000 40000 30000 20000 10000 0 2011-12

2012-13

2013-14

Analysis:  

2.

It represents Relative size of inventory and amount of cash available to payoff its certain liabilities. A less Inventory turnover ratio means a company has less cash tied up in Company‟s Inventory in associating with Cost of Goods or services that are to be rendered & Viceversa. Stock (Inventory) of Company has been increased, and depicting significant cost structure is ensured in holding Inventory which ultimately reflects companies has build up inventory as compared to previous year‟s & diluting companies performance. Average days to sell Inventory = No. Of Days / Months in a Year Stock Turnover Ratio „Crores RATIO

Avg. days to sell Inventory = No.of Days / Months in a Year Stock Turnover Ratio

2013-14 =

365 76240.97

= 0.0048 days

Analysis on Annual Report of TCS

2012-13 =

365 64671.72

= 0.0056 days

2011-12 =

365 51930.15

= 0.0070 days

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Avg. day to Sell Inventory Analysis 0.007 0.0056

0.007

0.0048

0.006 0.005 0.004 0.003 0.002 0.001 0 2011-12

2012-13

2013-14

Analysis: It is used to measure inventory management efficiency of business.  A higher value of inventory turnover indicate better performance & a lower value means inefficiencies in controlling inventory levels.  Management of Inventory levels are confined to maintaining a level of stock clearance and reducing substantial cost blocked in stock holdings in facilitating operations of business concern as turnover period has been reduced from 70 days Conversion cycle time to 48 days cycle period.

3.

Days Sales Outstanding =

Average Accounts Receivables Net Credit Sales

X 365 „ Crores

RATIO

2013-14

2012-13

Debtors Turnover Ratio = Avg. Accounts Receivables X 365 Net Credit Sales

= 14471.89 X 365 64672.93 = 82 days

= 11202.32 48426.14

2011-12 X 365 = 8936.76 38858.54

= 84 days

X

365

= 84 days

Days Sales Outstanding Analysis 84

84

84 83.5 83 82

82.5 82 81.5 81 2011-12

Analysis on Annual Report of TCS

2012-13

2013-14

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Analysis:-

  

The days sales outstanding formula shows investors and creditors how well companies' can collect cash from their customers. Obviously, sales don't matter if cash is never collected. This ratio measures the number of days it takes a company to convert its sales into cash. A lower ratio is more favorable because it means companies collect cash earlier from customers and can use this cash for other operations. It also shows that the accounts receivables are good and won't be written off as bad debts. Companies with high days sales ratios are unable to convert sales into cash as quickly as firms with lower ratios.

C. DEBT MANAGEMENT RATIOS: Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability to avoid financial distress in the long run. These ratios are also known as Long-Term Solvency Ratios. Debt is called Financial Leverage because the use of debt can improve returns to stockholders in good years and increase their losses in bad years. Debt generally represents a fixed cost of financing to a firm. 1. Debt to Equity Ratio = Debt Equity

Debt = Long Term Debt / Borrowed Funds = Secured Loans and Unsecured loans

Equity = Shareholders Fund / Owned Fund = Share Capital + Reserves & Surplus „ Crores

RATIO

2013-14

Shareholders Fund

= 195.87 + 43856.01 = 44051.88

Debt to Equity Ratio = Debt Equity

=

89.69 44051.88

= 0.002 : 1

2012-13

2011-12

= 295.72 + 32266.53 = 32562.25 =

= 295.72 + 24560.91 = 24856.63

83.10 32562.25

=

= 0.0026 :1

96.23 24856.63

= 0.0039:1

Debt to Equity Ratio Analysis 0.0039 0.004 0.0035

0.0026

0.003

0.002

0.0025 0.002 0.0015 0.001 0.0005 0 2011-12

Analysis on Annual Report of TCS

2012-13

2013-14

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Analysis: 

A ratio of 1 or 1 : 1 means that creditors and stockholders equally contribute to the assets of the business. Ratio indicates less contribution from its stockholders and significant contribution from equity towards generating assets & facilitating funds to ensure operations of business concern. & Less Contributions from Long terms funds & borrowings adhered for fetching revenues and providing business.

2. Interest Coverage Ratio =

Earning Before Interest & Tax Interest „ Crores

RATIO

2013-14

Interest Coverage Ratio = EBIT Interest

=

2012-13

23544.47 23.41

=

= 1005.74 times

15703.18 30.62

= 512.84 times

2011-12 = 13366.33 16.40 = 815.02 times

Interest Coverage Ratio Analysis 1005.74

1200 815.02

1000 800

512.84

600 400 200 0 2011-12

2012-13

2013-14

Analysis:  

It determines the debt servicing capacity of a business enterprise keeping in view fixed interest on long-term debt. Higher the ratio better it is. TCS has an increase in ratio by 492.9 times since last year which shows the degree of protection creditors have from default on the payment of interest by the company.

D. Asset Management Ratios: Asset management (turnover) ratios compare the assets of a company to its sales revenue. Asset management ratios indicate how successfully a company is utilizing its assets to generate revenues. 1. Fixed Assets Turnover Ratio =

Analysis on Annual Report of TCS

Net Sales Fixed assets

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„Crores

RATIO

2013-14

Fixed Asset Turnover = Net Sales Fixed Assets

2012-13

= 64672.93 8976.72 = 7.20

2011-12

= 48426.14 6868.13 = 7.05

= 38858.54 5463.44 = 7.11

Fixed Assets Turnover Ratio Analysis 7.2 7.2

7.11

7.15 7.05

7.1 7.05 7 6.95 2011-12

2012-13

2013-14

Analysis: 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.  There is a increase in the value of the ratio in 2013-14 as compared to 2012-13.  It means that the efficiency of the firm to generate revenues from investment in fixed assets has gone down. 2. Total Asset Turnover Ratio =

Net sales Total Asset „Crores

RATIO

2013-14

Total Asset Turnover = Net Sales Total Asset

2012-13

= 64672.93 57604.19 = 1.12

= 48426.14 43012.14 = 1.12

2011-12

= 38858.54 34258.81 =1.13

Total Asset Turnover Ratio Analysis 1.13 1.13 1.128 1.126 1.124 1.122 1.12 1.118 1.116 1.114

1.12

2011-12

Analysis on Annual Report of TCS

2012-13

1.12

2013-14

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Analysis:

If a company can generate more sales with fewer assets it has a higher turnover ratio which tells it is a good company because it is using its assets efficiently. A lower turnover ratio tells that the company is not using its assets optimally.

E. Profitability Ratio:- Measure a company‟s ability to generate earnings relative to sales, assets and equity. These ratios assess the ability of a company to generate earnings, profits and cash flows relative to relative to some metric, often the amount of money invested. They highlight how effectively the profitability of a company is being managed.

1. Operating Margin Ratio =

Operating Income X 100 Net sales „Crores

RATIO

2013-14

Operating Margin Ratio = Operating Income Net Sales

X 100

2012-13

2011-12

= 23544.47 X 100 64672.93

= 15703.18 X 100 = 13366.33 X 100 48426.14 38858.54

= 36.40 %

= 32.42%

= 34.39%

Operating Margin Ratio Analysis 36.40% 37.00% 36.00% 35.00% 34.00% 33.00% 32.00% 31.00% 30.00%

34.39% 32.42%

2011-12

2012-13

2013-14

Analysis: The operating profit margin ratio is a key indicator for investors and creditors to see how businesses are supporting their operations  A higher operating margin is more favorable compared with a lower ratio because this shows that the company is making enough money from its ongoing operations to pay for its variable costs as well as its fixed costs. 2. Profit Margin Ratio =

Net Profit X Revenue

100 „Crores

RATIO

Profit Margin Ratio = Net Profit X 100 Revenue

2013-14

2012-13

2011-12

= 18474.92 X 100 64672.93

= 12786.34 X 100 48426.14

= 10975.98 X 100 38858.54

= 28.56%

= 26.40%

= 28.24%

Analysis on Annual Report of TCS

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Profit Margin Ratio Analysis 28.56%

28.24%

29.00% 28.50% 28.00% 27.50%

26.40%

27.00% 26.50% 26.00% 25.50% 25.00% 2011-12

2012-13

2013-14

Analysis: 

The profit margin ratio directly measures what percentage of sales is made up of net income. In other words, it measures how much profits are produced at a certain level of sales. Profit margin is an indicator of how efficient a company is and how well it controls its costs. The higher the margin is, the more effective the company is in converting revenue into actual profit.

3. Return on Assets Ratio =

Net Income Total Assets

X

100

„ Crores

RATIO

2013-14

Return on Assets Ratio = Net Income x 100 Total Assets

2012-13

= 18474.92 x100 57604.19

= 12786.34 x 100 43012.14

= 32.07 %

= 29.72%

2011-12

= 10975.98 100 34258.81

X

= 32.03%

Return on Assets Ratio Analysis 33.00%

32.03%

32.07%

32.00% 31.00%

29.72%

30.00% 29.00% 28.00% 2011-12

Analysis on Annual Report of TCS

2012-13

2013-14

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Analysis: 

It only makes sense that a higher ratio is more favorable to investors because it shows that the company is more effectively managing its assets to produce greater amounts of net income. A positive ROA ratio usually indicates an upward profit trend as well. ROA is most useful for comparing companies in the same industry as different industries use assets differently. For instance, construction companies use large, expensive equipment while software companies use computers and servers

4. Return on Equity Ratio =

Net Income X 100 Shareholder Equity

RATIO

2013-14

Return on Equity Ratio = Net Income X 100 Shareholder Equity

„Crores

2012-13

= 18474.92 X 100 44051.88

= 12786.34 32562.25

= 41.89 %

= 39.20 %

2011-12

X 100 = 10975.98 24856.63

X

100

= 44.15%

Return on Equity Ratio Analysis 44.15% 45.00% 44.00%

41.89%

43.00% 42.00% 41.00%

39.20%

40.00% 39.00% 38.00% 37.00% 36.00% 2011-12

2012-13

2013-14

Analysis:  

This ratio indicates the return which the management is realising from shareholder's equity and shows how effectively it is been utilised. Higher the ratio the better is Return on equity. This year TCS' ratio has increased by 2.69 % which is a good sign for the company which indicates co. Has increased its sahre capital.

F. MARKET VALUE RATIO: An equation that compares the current stock price to a financial indicator on the company's financial statements. The most often used indicator is a company's earnings per share. 1. Earning Per Share =

Analysis on Annual Report of TCS

Net Profit After Tax – Preference Dividend No. Of Equity Shares

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„ Crores

RATIO

2013-14

2012-13

2011-12

Earning Per Share = = 18474.92 - 19 = 12786.34 – 22 = 10975.98 - 24 Net PAT – Pref. Dividend 195,87,27,979 195,72,20,996 195,72,20,996 No. Of Equity Shares = 0.000009422 per share = 0.000006521 per share = 0.000005595 per share

Earning Per Share Analysis 0.000009422 0.00001 0.000009 0.000006521

0.000008 0.000007

0.000005595

0.000006 0.000005 0.000004 0.000003 0.000002 0.000001 0 2011-12

2012-13

2013-14

Analysis:  

This ratio indicates per share earning of a Company in a particular year. It also helps in evaluating the prevailing market share in the light of profit earning capacity. In this Higher the ratio the better is the EPS of company. TCS has increased its EPS by 0.03 % which is a good sign for the company.

2. Dividend Per Share = Equity Dividend Paid No. Of Equity Shares „ Crores

RATIO

Dividend Per Share = Equity Dividend Paid No. of Equity Shares

2013-14

= 3608.63 195,87,27,979

2012-13

=

3608.63 195,72,20,996

2011-12

=

3608.63 195,72,20,996

= 0.000001842 per share = 0.000001843 per share = 0.000001843 per share

Analysis on Annual Report of TCS

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Dividend Per Share Analysis 0.000001843

0.000001843

1.843E-06 1.843E-06

0.000001842

1.842E-06 1.842E-06 2011-12

2012-13

2013-14

Analysis: Objective of computing this ratio is to measure the dividend distributed per equity share.  In this Higher the ratio the better is the DPS.  In this Ratio we can analyse, TCS has not able to increase its Equity Dividend but not even reduced it as almost same no. Of people invested in company , so TCS is in stable position. 3. Dividend Payout Ratio =

Dividend Per Share x 100 Earning Per Share „ Crores

RATIO

2013-14

2012-13

2011-12

Dividend Payout Ratio = Dividend Per Share x 100 Earning Per Share

= 0.000001842 x 100 0.000009422

= 0.000001843 x 100 = 0.000001843 0.000006521 0.000005595

= 19.55 %

= 28.26 %

x 100

= 32.94%

Dividend Payout Ratio Analysis 32.94% 28.26%

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

19.55%

2011-12

2012-13

2013-14

Analysis : This ratio indicates the percentage of earnings that the company has distributed in the form of dividends.  As compared to last year TCS' percentage of Dividend Payout ratio has Decreased by 8.71 % .  A low ratio may indicate the company is using much of its earnings to reinvest in the company in order to grow further.

Analysis on Annual Report of TCS

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4. P/E Ratio = Share Price EPS TCS share price as of 7th May, 2014 is Rs 2,166. Its EPS for 2013-14 is Rs. 27. Trailing EPS for 12 months is Rs. 108. P/E Ratio = Share price / EPS = 2166 = 20 108  Means, TCS Share Price is 20 times priced to annualized EPS.   

TREND ANALYSIS FOR LAST THREE YEARS Revenue and Net Income, EPS Growth Rate , Sales/ Revenue/ Top line In Billions

Revenue or turnover or top line is income that a company receives from its normal business activities. Revenue Growth is used to measure how fast a company's business is expanding. The figure shows the annual rate of increase/decrease in a company's revenue or sales growth in terms of percentage change from the previous year. An ideal company should have an steady upward trend. Year-over-year performance is frequently used by investors seeking to gauge whether a company's financial performance is improving or worsening.

Analysis on Annual Report of TCS

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BIBLIOGRAPHY Websites:-

    

on.tcs.com/AnnualReport2014 economictimes.indiatimes.com › Markets › Stocks profit.ndtv.com/topic/tcs-annual-report www.moneycontrol.com www.tcs.com/.../Annual%20Reports/TCS_Annual_Report_2012-2013

Books:-

 

Ratio Analysis – M.F Morley Ratio Analysis and Financial Statement Analysis – Dr. B.C.M Patnaik

Analysis on Annual Report of TCS

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