ANALYSIS OF ANNUAL REPORTON TATA CONSULTANCY SERVICES(TCS)

Subject Corporate Finance

MASTER OF BUSSINESS ADMINISTRATION(MBA)AT

Submitted To: Submitted By: Biranchi N Panigrahi Purnendra Shrivastava 14202118Asst. Prof (Finance) Shivam Kumar Mahto 14202078KIIT School of Management

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: 04.01.2015Signature of the Guide Place: KSOM, Bhubaneswar Biranchi N Panigrahi Asst. Prof (Finance)

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:-04.01.2014Place: KSOM, Bhubaneswar

CONTENTS

Introduction5 Companys Balance Sheet, Income and Cash Flow Statements..6-14Ratio Analysis15-27 Liquidity Ratio...15 Current ratio.15 Quick Ratio..15

Turnover/Activity Ratio16-18 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..27Trend Analysis for Last Three Years..27Bibliography..28

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 India-based 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 up10.82% 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 companys 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.

Last Three Years Annual Reports of TCS:-

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 2012-13 2011-12

Current Ratio = Current Assets Current Liabilities = 34834.81 12265.70

= 23330.54 9498.81

= 16535.79 8835.48

= 2.84 : 1= 2.45 : 1= 1.87:1

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

CroresRATIO2013-142012-132011-12

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

Analysis:-

It evaluates Companys 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 CroresRATIO2013-142012-132011-12

Cost of Goods Sold = Sales Gross Profit = 64672.93 20453.17

= 44219.76

= 48426.14 13503.41

= 34922.73= 38858.54 11335.56= 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

Stock Turnover Ratio = Cost of Goods Sold Average Stock / Inventory

= 44219.76 0.58 = 76240.97 times = 34922.73 0.54 = 64671.72 times= 27522.98 .53= 51930.15 times

Analysis:-

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 Companys 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 years & diluting companies performance.

2. Average days to sell Inventory = No. Of Days / Months in a Year Stock Turnover Ratio CroresRATIO2013-142012-132011-12

Avg. days to sell Inventory =No.of Days / Months in a Year Stock Turnover Ratio = 365 76240.97

= 0.0048 days = 365 64671.72

= 0.0056 days= 365 51930.15

= 0.0070 days

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 clearanceand reducing substantial cost blocked in stock holdings in facilitating operations of business concernas turnover period has been reduced from 70 days Conversion cycle time to 48 days cycle period.

3. Days Sales Outstanding = Average Accounts Receivables X 365 Net Credit Sales CroresRATIO2013-142012-132011-12

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

= 14471.89 X 365 64672.93

= 82 days = 11202.32 X 365 48426.14

= 84 days= 8936.76 X 365 38858.54

= 84 days

Analysis:-

The days sales outstanding formula shows investors and creditors how well companies' can collect cash from their customers. Obviously,salesdon'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 asbad 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 RATIO2013-142012-132011-12

Shareholders Fund= 195.87 + 43856.01= 44051.88 = 295.72 + 32266.53= 32562.25= 295.72 + 24560.91= 24856.63

Debt to Equity Ratio = Debt Equity = 89.69 44051.88

= 0.002 : 1 = 83.10 32562.25

= 0.0026 :1= 96.23 24856.63

= 0.0039:1

Crores

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 CroresRATIO2013-142012-132011-12

Interest Coverage Ratio = EBIT Interest = 23544.47 23.41

= 1005.74 times = 15703.18 30.62

= 512.84 times= 13366.33 16.40

= 815.02 times

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) ratioscompare the assets of a company to its sales revenue. Assetmanagementratios indicate how successfully a company is utilizing its assets to generate revenues.

1. Fixed Assets Turnover Ratio = Net Sales Fixed assets

CroresRATIO2013-142012-132011-12

Fixed Asset Turnover = Net Sales Fixed Assets= 64672.93 8976.72= 7.20= 48426.14 6868.13= 7.05= 38858.54 5463.44= 7.11

Analysis:- It is a measure of the companys 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 CroresRATIO2013-142012-132011-12

Total Asset Turnover = Net Sales Total Asset = 64672.93 57604.19= 1.12= 48426.14 43012.14= 1.12= 38858.54 34258.81=1.13

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 companys 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 CroresRATIO2013-142012-132011-12

Operating Margin Ratio = Operating Income X 100 Net Sales= 23544.47 X 100 64672.93

= 36.40 %= 15703.18 X 100 48426.14

= 32.42%= 13366.33 X 100 38858.54

= 34.39%

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 100 Revenue Crores

RATIO2013-142012-132011-12

Profit Margin Ratio = Net Profit X 100 Revenue= 18474.92 X 100 64672.93

= 28.56%= 12786.34 X 100 48426.14

= 26.40%= 10975.98 X 100 38858.54

= 28.24%

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 X 100 Total Assets

CroresRATIO2013-142012-132011-12

Return on Assets Ratio = Net Income x 100 Total Assets

= 18474.92 x100 57604.19

= 32.07 %

= 12786.34 x 100 43012.14

= 29.72%= 10975.98 X 100 34258.81

= 32.03%

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 Crores

RATIO2013-142012-132011-12

Return on Equity Ratio = Net Income X 100 Shareholder Equity = 18474.92 X 100 44051.88

= 41.89 % = 12786.34 X 100 32562.25

= 39.20 %= 10975.98 X 100 24856.63

= 44.15%

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 currentstock priceto afinancialindicatoron thecompany'sfinancial statements. The most often used indicator is a company'searnings per share.

1. Earning Per Share = Net Profit After Tax Preference Dividend No. Of Equity Shares CroresRATIO2013-142012-132011-12

Earning Per Share = Net PAT Pref. Dividend No. Of Equity Shares = 18474.92 - 19 195,87,27,979

= 0.000009422 per share= 12786.34 22 195,72,20,996

= 0.000006521 per share= 10975.98 - 24 195,72,20,996

= 0.000005595 per share

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

CroresRATIO2013-142012-132011-12

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

= 3608.63 195,87,27,979

= 0.000001842 per share = 3608.63 195,72,20,996

= 0.000001843 per share = 3608.63 195,72,20,996

= 0.000001843 per share

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 CroresRATIO2013-142012-132011-12

Dividend Payout Ratio = Dividend Per Share x 100 Earning Per Share = 0.000001842 x 100 0.000009422

= 19.55 % = 0.000001843 x 100 0.000006521

= 28.26 %= 0.000001843 x 100 0.000005595

= 32.94%

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.

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 YEARSRevenue and Net Income, EPS Growth Rate , Sales/ Revenue/ Top lineIn 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.

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 1 | Page