Fundamental Analysis of TCS

A Study on Fundamental Analysis of Company
ACKNOWLEDGEMENT
In preparation of my assignment, I had to take the help and guidance of some
respected persons, who deserve my deepest gratitude. As the completion of this
assignment gave me much pleasure, I would like to thank Dr. Anandi Sarkar
Pyne, who introduced me to the Methodology of work, and whose passion for
the “underlying structures” had lasting effect.
Many people, especially my classmates have made valuable comment

suggestions on my paper which gave me an inspiration to improve the quality of
the assignment.
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CONTENTS
CHAPTER 1: INTRODUCTION
1.1 Fundamental Analysis
1.1.1 Meaning …………………………………………………………………….04
1.1.2 Fundamental Analysis: What is it? …………………………………………04
1.1.3 Criticism of Fundamental Analysis …………………………………………05
1.1.4 Fundamental Analysis: Qualitative Factors …………………………………05
1.1.5 Fundamental Analysis: Introduction to Financial Statements ………………08
1.1.6 Fundamental Analysis: Other Important Sections found ……………………10
1.1.7 Fundamental Analysis: The Income Statement ……………………………...12
1.1.8 Fundamental Analysis: The Balance Sheet ………………………………….14
1.1.9 Fundamental Analysis: A Brief Introduction to Valuation ………………….17
1.1.10 Fundamental Analysis: Conclusion ………………………………………...18
1.2 Objective of the Study ……………………………………………………………..19
1.3 Scope ………………………………………………………………………………19
1.4 Company Profile …………………………………………………………………..19
1.5 Research Methodology ……………………………………………………………22
1.6 Literature Review …………………………………………………………………23
1.7 Significance ……………………………………………………………………….23
CHAPTER 2: CONCEPTUAL FRAMEWORK

2.1 Indian Accounting Standards ………………………………………………………….26
2.2 International Financial Reporting Standards …………………………………………..26
CHAPTER 3: PRESENTATION OF DATA ANALYSIS AND

FINDINGS
3.1 Financial Highlights …………………………………………………………………....29
3.2 Ratio Analysis ………………………………………………………………………….29
CHAPTER 4: CONCLUSIONS
4.1 Findings ………………………………………………………………………………..37
4.2 Limitations ……………………………………………………………………………..43
4.3 Suggestions …………………………………………………………………………….44
4.4 Reference ………………………………………………………………………………44
CHAPTER 5: ANNEXURES
5.1 Balance Sheet …………………………………………………………………………..46
5.2 Income Statement ………………………………………………………………………48
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CHAPTER 1: INTRODUCTION TO THE

STUDY
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Fundamental analysis is the cornerstone of investing. In fact, some would say that you aren't
really investing if you aren't performing fundamental analysis. Because the subject is so
broad, however, it's tough to know where to start. There are an endless number of investment
strategies that are very different from each other, yet almost all use the fundamentals. The
biggest part of fundamental analysis involves delving into the financial statements. Also
known as quantitative analysis, this involves looking at revenue, expenses, assets, liabilities
and all the other financial aspects of a company. Fundamental analysts look at this
information to gain insight on a company's future performance. A good part of this tutorial
will be spent learning about the balance sheet, income statement, cash flow statement and
how they all fit together.
1.1.1 MEANING
In this section we are going to review the basics of fundamental analysis, examine how it can
be broken down into quantitative and qualitative factors, introduce the subject of intrinsic
value and conclude with some of the downfalls of using this technique. The Very Basics
When talking about stocks, fundamental analysis is a technique that attempts to determine a
security's value by focusing on underlying factors that affect a company's actual business and
its future prospects. On a broader scope, you can perform fundamental analysis on industries
or the economy as a whole. The term simply refers to the analysis of the economic well-being
of a financial entity as opposed to only its price movements. Note: The term fundamental
analysis is used most often in the context of stocks, but you can perform fundamental analysis
on any security, from a bond to a derivative. As long as you look at the economic
fundamentals, you are doing fundamental analysis. For the purpose of this tutorial,
fundamental analysis always is referred to in the context of stocks.
1.1.2 FUNDAMENTAL ANALYSIS: WHATS IS IT?

When talking about stocks, fundamental analysis is a technique that attempts to determine a
security's value by focusing on underlying factors that affect a company's actual business and
its future prospects. On a broader scope, you can perform fundamental analysis on industries
or the economy as a whole. The term simply refers to the analysis of the economic well-being
of a financial entity as opposed to only its price movements.
Fundamental analysis serves to answer questions, such as:
• Is the company's revenue growing?
• Is it actually making a profit?
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• Is it in a strong-enough position to beat out its competitors in the future?
• Is it able to repay its debts?
• Is management trying to "cook the books"?
Of course, these are very involved questions, and there are literally hundreds of others you
might have about a company. It all really boils down to one question: Is the company's stock
a good investment? Think of fundamental analysis as a toolbox to help you answer this
question.
Note: The term fundamental analysis is used most often in the context of stocks, but you can
perform fundamental analysis on any security, from a bond to a derivative. As long as you
look at the economic fundamentals, you are doing fundamental analysis.
1.1.3 CRITISISM OF FUNDAMENTAL ANALYSIS

The biggest criticisms of fundamental analysis come primarily from two groups: proponents
of technical analysis and believers of the "efficient market hypothesis".
Put simply, technical analysts base their investments (or, more precisely, their trades) solely
on the price and volume movements of securities. Using charts and a number of other tools,
they trade on momentum, not caring about the fundamentals. While it is possible to use both
techniques in combination, one of the basic tenets of technical analysis is that the market
discounts everything. Accordingly, all news about a company already is priced into a stock,
and therefore a stock's price movements give more insight than the underlying fundamental
factors of the business itself.
Followers of the efficient market hypothesis, however, are usually in disagreement with both
fundamental and technical analysts. The efficient market hypothesis contends that it is
essentially impossible to produce market-beating returns in the long run, through either
fundamental or technical analysis. The rationale for this argument is that, since the market
efficiently prices all stocks on an ongoing basis, any opportunities for excess returns derived
from fundamental (or technical) analysis would be almost immediately whittled away by the
market's many participants, making it impossible for anyone to meaningfully outperform the
market over the long term.
1.1.4 FUNDAMENTAL ANALYSIS – QUALITATIVE

FACTORS
The Company
Fundamental analysis seeks to determine the intrinsic value of a company's stock. But since
qualitative factors, by definition, represent aspects of a company's business that are difficult
or impossible to quantify, incorporating that kind of information into a pricing evaluation can
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be quite difficult. On the flip side, as we've demonstrated, you can't ignore the less tangible
characteristics of a company.
Business Model
Even before an investor looks at a company's financial statements or does any research, one
of the most important questions that should be asked is: What exactly does the company do?
This is referred to as a company's business model – it's how a company makes money. You
can get a good overview of a company's business model by checking out its website or
reading the first part of its 10-K filing. Sometimes business models are easy to understand.
Take McDonalds, for instance, which sells hamburgers, fries, soft drinks, salads and
whatever other new special they are promoting at the time. It's a simple model, easy enough
for anybody to understand. Other times, you'd be surprised how complicated it can get.
Boston Chicken Inc. is a prime example of this. Back in the early '90s its stock was the
darling of Wall Street. At one point the company's CEO bragged that they were the "first new
fast-food restaurant to reach $1 billion in sales since 1969". The problem is, they didn't make
money by selling chicken. Rather, they made their money from royalty fees and high-interest
loans to franchisees. Boston Chicken was really nothing more than a big franchisor. On top of
this, management was aggressive with how it recognized its revenue. As soon as it was
revealed that all the franchisees were losing money, the house of cards collapsed and the
company went bankrupt.
Competitive Advantage
Another business consideration for investors is competitive advantage. A company's longterm

success is driven largely by its ability to maintain a competitive advantage - and keep it.
Powerful competitive advantages, such as Coca Cola's brand name and Microsoft's
domination of the personal computer operating system, create a moat around a business
allowing it to keep competitors at bay and enjoy growth and profits. When a company can
achieve competitive advantage, its shareholders can be well rewarded for decades
Harvard Business School professor Michael Porter distinguishes between strategic

positioning and operational effectiveness. Operational effectiveness means a company is
better than rivals at similar activities while competitive advantage means a company is
performing better than rivals by doing different activities or performing similar activities in
different ways. Investors should know that few companies are able to compete successfully
for long if they are doing the same things as their competitors.
Professor Porter argues that, in general, sustainable competitive advantage gained by:
• A unique competitive position
• Clear trade-offs and choices vis-à-vis competitors
• Activities tailored to the company's strategy
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• A high degree of fit across activities (it is the activity system, not the parts that
ensure sustainability)
• A high degree of operational effectiveness
Management
Just as an army needs a general to lead it to victory, a company relies upon management to
steer it towards financial success. Some believe that management is the most important aspect
for investing in a company. It makes sense - even the best business model is doomed if the
leaders of the company fail to properly execute the plan.
So how does an average investor go about evaluating the management of a company?
This is one of the areas in which individuals are truly at a disadvantage compared to
professional investors. You can't set up a meeting with management if you want to invest a
few thousand dollars. On the other hand, if you are a fund manager interested in investing
millions of dollars, there is a good chance you can schedule a face-to-face meeting with the
upper brass of the firm.
Every public company has a corporate information section on its website. Usually there will
be a quick biography on each executive with their employment history, educational
background and any applicable achievements. Don't expect to find anything useful here. Let's
be honest: We're looking for dirt, and no company is going to put negative information on its
corporate website.
Corporate Governance
Corporate governance describes the policies in place within an organization denoting the
relationships and responsibilities between management, directors and stakeholders. These
policies are defined and determined in the company charter and its bylaws, along with
corporate laws and regulations. The purpose of corporate governance policies is to ensure
that proper checks and balances are in place, making it more difficult for anyone to conduct
unethical and illegal activities.
Good corporate governance is a situation in which a company complies with all of its
governance policies and applicable government regulations (such as the Sarbanes-Oxley Act
of 2002) in order to look out for the interests of the company's investors and other
stakeholders.
Although, there are companies and organizations (such as Standard & Poor's) that attempt to
quantitatively assess companies on how well their corporate governance policies serve
stakeholders, most of these reports are quite expensive for the average investor to purchase.
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Financial and Information Transparency
This aspect of governance relates to the quality and timeliness of a company's financial
disclosures and operational happenings. Sufficient transparency implies that a company's
financial releases are written in a manner that stakeholders can follow what management is
doing and therefore have a clear understanding of the company's current financial situation.
Structure of the Board of Directors
The board of directors is composed of representatives from the company and

representatives from outside of the company. The combination of inside and outside
director‘s attempts to provide an independent assessment of management's
performance, making sure that the interests of shareholders are represented.
The key word when looking at the board of directors is independence. The board of
directors is responsible for protecting shareholder interests and ensuring that the upper
management of the company is doing the same. The board possesses the right to hire
and fire members of the board on behalf of the shareholders. A board filled with
insiders will often not serve as objective critics of management and will defend their
actions as good and beneficial, regardless of the circumstances.
Information on the board of directors of a publicly traded company (such as biographies

of individual board members and compensation-related info) can be found in the DEF
14A proxy statement.
1.1.5 FUNDAMENTAL ANALYSIS: INTRODUCTION TO

FINANCIAL STATEMENTS
The massive amount of numbers in a company's financial statements can be bewildering
and intimidating to many investors. On the other hand, if you know how to analyse
them, the financial statements are a gold mine of information.
Financial statements are the medium by which a company discloses information

concerning its financial performance. Followers of fundamental analysis use the
quantitative information gleaned from financial statements to make investment
decisions. Before we jump into the specifics of the three most important financial
statements - income statements, balance sheets and cash flow statements - we will
briefly introduce each financial statement's specific function, along with where they can
be found.
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The Major Statements
1. The Balance Sheet
The balance sheet represents a record of a company's assets, liabilities and equity at a
particular point in time. The balance sheet is named by the fact that a business's
financial structure balances in the following manner:
Assets = Liabilities + Shareholders' Equity
Assets represent the resources that the business owns or controls at a given point in
time. This includes items such as cash, inventory, machinery and buildings. The other
side of the equation represents the total value of the financing the company has used to
acquire those assets. Financing comes as a result of liabilities or equity. Liabilities
represent debt (which of course must be paid back), while equity represents the total
value of money that the owners have contributed to the business - including retained
earnings, which is the profit made in previous years.
2. The Income Statement
While the balance sheet takes a snapshot approach in examining a business, the income
statement measures a company's performance over a specific time frame. Technically,
you could have a balance sheet for a month or even a day, but you'll only see public
companies report quarterly and annually.
3. Statement of Cash Flows
The statement of cash flows represents a record of a business' cash inflows and outflows
over a period of time. Typically, a statement of cash flows focuses on the following
cash-related activities:
• Operating Cash Flow (OCF): Cash generated from day-to-day business

operations
• Cash from investing (CFI): Cash used for investing in assets, as well as the
proceeds from the sale of other businesses, equipment or long-term assets
• Cash from financing (CFF): Cash paid or received from the issuing and
borrowing of funds
The cash flow statement is important because it's very difficult for a business to
manipulate its cash situation. There is plenty that aggressive accountants can do to
manipulate earnings, but it's tough to fake cash in the bank. For this reason some
investors use the cash flow statement as a more conservative measure of a company's
performance.
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10-K and 10-Q
Now that you have an understanding of what the three financial statements represent,
let's discuss where an investor can go about finding them. In India, the Securities and
Exchange board of India (SEBI) requires all companies that are publicly traded on a
major exchange to submit periodic filings detailing their financial activities, including
the financial statements mentioned above.
Some other pieces of information that are also required are an auditor's report,
management discussion and analysis (MD&A) and a relatively detailed description of
the company's operations and prospects for the upcoming year.
All of this information can be found in the business' annual 10-K and quarterly 10-Q
filings, which are released by the company's management and can be found on the
internet or in physical form.
The 10-K is an annual filing that discloses a business's performance over the course of
the fiscal year. In addition to finding a business's financial statements for the most
recent year, investors also have access to the business's historical financial measures,
along with information detailing the operations of the business. This includes a lot of
information, such as the number of employees, biographies of upper management, risks,
future plans for growth, etc.
Businesses also release an annual report, which some people also refer to as the 10-K.
The annual report is essentially the 10-K released in a fancier marketing format. It will
include much of the same information, but not all, that you can find in the 10-K. The
10-K really is boring - it's just pages and pages of numbers, text and legalese. But just
because it's boring doesn't mean it isn't useful. There is a lot of good information in a
10-K, and its required reading for any serious investor.
You can think of the 10-Q filing as a smaller version of a 10-K. It reports the company's
performance after each fiscal quarter. Each year three 10-Q filings are released - one for
each of the first three quarters. (Note: There is no 10-Q for the fourth quarter, because
the 10-K filing is released during that time). Unlike the 10-K filing, 10-Q filings are not
required to be audited. Here's a tip if you have trouble remembering which is which:
think "Q" for quarter.
1.1.6 FUNDAMENTAL ANALYSIS: OTHER IMPORTANT

SECTIONS FOUND
The financial statements are not the only parts found in a business's annual and
quarterly SEC filings. Here are some other noteworthy sections:
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Management Discussion and Analysis (MD&A)
As a preface to the financial statements, a company's management will typically spend a

few pages talking about the recent year (or quarter) and provide background on the
company. This is referred to as the management discussion and analysis (MD&A). In
addition to providing investors a clearer picture of what the company does, the MD&A
also points out some key areas in which the company has performed well.
Don't expect the letter from management to delve into all the juicy details affecting the
company's performance. The management's analysis is at their discretion, so understand
they probably aren't going to be disclosing any negatives.
The Auditor's Report
The auditors' job is to express an opinion on whether the financial statements are
reasonably accurate and provide adequate disclosure. This is the purpose behind the
auditor's report, which is sometimes called the "report of independent accountants".
By law, every public company that trades stocks or bonds on an exchange must have its
annual reports audited by a certified public accountants firm. An auditor's report is
meant to scrutinize the company and identify anything that might undermine the
integrity of the financial statements.
The Notes to the Financial Statements
Just as the MD&A serves an introduction to the financial statements, the notes to the
financial statements (sometimes called footnotes) tie up any loose ends and complete
the overall picture. If the income statement, balance sheet and statement of cash flows
are the heart of the financial statements, then the footnotes are the arteries that keep
everything connected.
Therefore, if you aren't reading the footnotes, you're missing out on a lot of information.
The footnotes list important information that could not be included in the actual ledgers.
For example, they list relevant things like outstanding leases, the maturity dates of
outstanding debt and details on compensation plans, such as stock options, etc.
Generally speaking there are two types of footnotes:
Accounting Methods - This type of footnote identifies and explains the major
accounting policies of the business that the company feels that you should be aware of.
This is especially important if a company has changed accounting policies. It may be
that a firm is practicing "cookie jar accounting" and is changing policies only to take
advantage of current conditions in order to hide poor performance.
Disclosure - The second type of footnote provides additional disclosure that simply
could not be put in the financial statements. The financial statements in an annual report
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are supposed to be clean and easy to follow. To maintain this cleanliness, other
calculations are left for the footnotes. For example, details of long-term debt - such as
maturity dates and the interest rates at which debt was issued - can give you a better
idea of how borrowing costs are laid out. Other areas of disclosure include everything
from pension plan liabilities for existing employees to details about ominous legal
proceedings involving the company.
The majority of investors and analysts read the balance sheet, income statement and
cash flow statement but, for whatever reason, the footnotes are often ignored. What sets
informed investors apart is digging deeper and looking for information that others
typically wouldn't.
No matter how boring it might be, read the fine print - it will make you a better
investor.
1.1.7 FUNDAMENTAL ANALYSIS: THE INCOME

STATEMENT
The income statement is basically the first financial statement you will come across in
an annual report
It also contains the numbers most often discussed when a company announces its
results- numbers such as revenue, earnings and earnings per share. Basically, the
income statement shows how much money the company generated (revenue), how
much it spent (expenses) and the difference between the two (profit) over a certain time
period.
When it comes to analysing fundamentals, the income statement lets investors know
how well the company's business is performing - or, basically, whether or not the
company is making money. Generally speaking, companies ought to be able to bring in
more money than they spend or they don't stay in business for long. Those companies
with low expenses relative to revenue - or high profits relative to revenue - signal strong
fundamentals to investors.
Revenue as an investor signal
Revenue, also commonly known as sales, is generally the most straightforward part of
the income statement. Often, there is just a single number that represents all the money
a company brought in during a specific time period, although big companies sometimes
break down revenue by business segment or geography.
The best way for a company to improve profitability is by increasing sales revenue. For
instance, Starbucks Coffee has aggressive long-term sales growth goals that include a
distribution system of 20,000 stores worldwide. Consistent sales growth has been a
strong driver of Starbucks' profitability.
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The best revenue are those that continue year in and year out. Temporary increases,
such as those that might result from a short-term promotion, are less valuable and
should garner a lower price-to-earnings multiple for a company.
What are the Expenses?
There are many kinds of expenses, but the two most common are the cost of goods sold
(COGS) and selling, general and administrative expenses (SG&A). Cost of goods sold
is the expense most directly involved in creating revenue. It represents the costs of
producing or purchasing the goods or services sold by the company. For example, if
Wal-Mart pays a supplier $4 for a box of soap, which it sells to customers for $5. When
it is sold, Wal-Mart's cost of goods sold for the box of soap would be $4.
Next, costs involved in operating the business are SG&A. This category includes
marketing, salaries, utility bills, technology expenses and other general costs associated
with running a business. SG&A also includes depreciation and amortization.
Companies must include the cost of replacing worn out assets. Remember, some
corporate expenses, such as research and development (R&D) at technology companies,
are crucial to future growth and should not be cut, even though doing so may make for a
better-looking earnings report. Finally, there are financial costs, notably taxes and
interest payments, which need to be considered.
Profits = Revenue - Expenses
Profit, most simply put, is equal to total revenue minus total expenses. However, there
are several commonly used profit subcategories that tell investors how the company is
performing. Gross profit is calculated as revenue minus cost of sales. Returning to Wal-
Mart again, the gross profit from the sale of the soap would have been $1 ($5 sales price
less $4 cost of goods sold = $1 gross profit).
Companies with high gross margins will have a lot of money left over to spend on other
business operations, such as R&D or marketing. So be on the lookout for downward
trends in the gross margin rate over time. This is a tell-tale sign of future problems
facing the bottom line. When cost of goods sold rises rapidly, they are likely to lower
gross profit margins - unless, of course, the company can pass these costs onto
customers in the form of higher prices.
Operating profit is equal to revenues minus the cost of sales and SG&A. This number
represents the profit a company made from its actual operations, and excludes certain
expenses and revenues that may not be related to its central operations. High operating
margins can mean the company has effective control of costs, or that sales are
increasing faster than operating costs. Operating profit also gives investors an
opportunity to do profit margin comparisons between companies that do not issue a
separate disclosure of their cost of goods sold figures (which are needed to do gross
margin analysis). Operating profit measures how much cash the business throws off,
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and some consider it a more reliable measure of profitability since it is harder to

manipulate with accounting tricks than net earnings.
Net income generally represents the company's profit after all expenses, including
financial expenses, have been paid. This number is often called the "bottom line" and is
generally the figure people refer to when they use the word "profit" or "earnings".
When a company has a high profit margin, it usually means that it also has one or more
advantages over its competition. Companies with high net profit margins have a bigger
cushion to protect themselves during the hard times. Companies with low profit margins
can get wiped out in a downturn. And companies with profit margins reflecting a
competitive advantage are able to improve their market share during the hard times -
leaving them even better positioned when things improve again.
Conclusion
You can gain valuable insights about a company by examining its income statement.
Increasing sales offers the first sign of strong fundamentals. Rising margins indicate
increasing efficiency and profitability. It's also a good idea to determine whether the
company is performing in line with industry peers and competitors. Look for significant
changes in revenues, costs of goods sold and SG&A to get a sense of the company's
profit fundamentals.
1.1.8 FUNDAMENTAL ANALYSIS: THE

BALANCESHEET
Investors often overlook the balance sheet. Assets and liabilities aren't nearly as sexy as
revenue and earnings. While earnings are important, they don't tell the whole story. The
balance sheet highlights the financial condition of a company and is an integral part of
the financial statements.
The Snapshot of Health
The balance sheet, also known as the statement of financial condition, offers a snapshot
of a company's health. It tells you how much a company owns (its assets), and how
much it owes (its liabilities). The difference between what it owns and what it owes is
its equity, also commonly called "net assets" or "shareholders equity".
The balance sheet tells investors a lot about a company's fundamentals: how much debt
the company has, how much it needs to collect from customers (and how fast it does
so), how much cash and equivalents it possesses and what kinds of funds the company
has generated over time.
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The Balance Sheet's Main Three
Assets, liability and equity are the three main components of the balance sheet.
Carefully analysed, they can tell investors a lot about a company's fundamentals.
Assets
There are two main types of assets: current assets and non-current assets. Current assets
are likely to be used up or converted into cash within one business cycle - usually
treated as twelve months. Three very important current asset items found on the balance
sheet are: cash, inventories and accounts receivables.
Investors normally are attracted to companies with plenty of cash on their balance
sheets. After all, cash offers protection against tough times, and it also gives companies
more options for future growth. Growing cash reserves often signal strong company
performance. Indeed, it shows that cash is accumulating so quickly that management
doesn't have time to figure out how to make use of it. A dwindling cash pile could be a
sign of trouble. That said, if loads of cash are more or less a permanent feature of the
company's balance sheet, investors need to ask why the money is not being put to use.
Cash could be there because management has run out of investment opportunities or is
too short-sighted to know what to do with the money.
Inventories are finished products that haven't yet sold. As an investor, you want to know
if a company has too much money tied up in its inventory. Companies have limited
funds available to invest in inventory. To generate the cash to pay bills and return a
profit, they must sell the merchandise they have purchased from suppliers. Inventory
turnover (cost of goods sold divided by average inventory) measures how quickly the
company is moving merchandise through the warehouse to customers. If inventory
grows faster than sales, it is almost always a sign of deteriorating fundamentals.
Receivables are outstanding (uncollected bills). Analysing the speed at which a

company collects what it's owed can tell you a lot about its financial efficiency. If a
company's collection period is growing longer, it could mean problems ahead. The
company may be letting customers stretch their credit in order to recognize greater top-
line sales and that can spell trouble later on, especially if customers face a cash crunch.
Getting money right away is preferable to waiting for it - since some of what is owed
may never get paid. The quicker a company gets its customers to make payments, the
sooner it has cash to pay for salaries, merchandise, equipment, loans, and best of all,
dividends and growth opportunities.
Non-current assets are defined as anything not classified as a current asset. This
includes items that are fixed assets, such as property, plant and equipment (PP&E).
Unless the company is in financial distress and is liquidating assets, investors need not
pay too much attention to fixed assets. Since companies are often unable to sell their
fixed assets within any reasonable amount of time they are carried on the balance sheet
at cost regardless of their actual value. As a result, it's is possible for companies to
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grossly inflate this number, leaving investors with questionable and hard-to-compare
asset figures.
Liabilities
There are current liabilities and non-current liabilities. Current liabilities are obligations
the firm must pay within a year, such as payments owing to suppliers. Non-current
liabilities, meanwhile, represent what the company owes in a year or more time.
Typically, non-current liabilities represent bank and bondholder debt.
You usually want to see a manageable amount of debt. When debt levels are falling,
that's a good sign. Generally speaking, if a company has more assets than liabilities,
then it is in decent condition. By contrast, a company with a large amount of liabilities
relative to assets ought to be examined with more diligence. Having too much debt
relative to cash flows required to pay for interest and debt repayments is one way a
company can go bankrupt.
Look at the quick ratio. Subtract inventory from current assets and then divide by
current liabilities. If the ratio is 1 or higher, it says that the company has enough cash
and liquid assets to cover its short-term debt obligations.
Quick Ratio = Current Assets - Inventories
Current Liabilities
Equity
Equity represents what shareholders own, so it is often called shareholder's equity. As

described above, equity is equal to total assets minus total liabilities.
Equity = Total Assets – Total Liabilities
The two important equity items are paid-in capital and retained earnings. Paid-in capital
is the amount of money shareholders paid for their shares when the stock was first
offered to the public. It basically represents how much money the firm received when it
sold its shares. In other words, retained earnings are a tally of the money the company
has chosen to reinvest in the business rather than pay to shareholders. Investors should
look closely at how a company puts retained capital to use and how a company
generates a return on it.
Most of the information about debt can be found on the balance sheet - but some assets
and debt obligations are not disclosed there. For starters, companies often possess hard-
to measure intangible assets. Corporate intellectual property (items such as patents,
trademarks, copyrights and business methodologies), goodwill and brand recognition
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are all common assets in today's marketplace. But they are not listed on company's
balance sheets.
There is also off-balance sheet debt to be aware of. This is form of financing in which
large capital expenditures are kept off of a company's balance sheet through various
classification methods. Companies will often use off-balance-sheet financing to keep
the debt levels low.
(To continue reading about the balance sheet, see Reading the Balance Sheet, Testing
Balance Sheet Strength and Breaking down The Balance Sheet.)
1.1.9 FUNDAMENTAL ANALYSIS: A BRIEF

INTRODUCTION TO VALUATION
While the concept behind discounted cash flow analysis is simple, its practical
application can be a different matter. The premise of the discounted cash flow method is
that the current value of a company is simply the present value of its future cash flows
that are attributable to shareholders. Its calculation is as follows:
For simplicity's sake, if we know that a company will generate $1 per share in cash flow
for shareholders every year into the future; we can calculate what this type of cash flow
is worth today. This value is then compared to the current value of the company to
determine whether the company is a good investment, based on it being undervalued or
overvalued.
There are several different techniques within the discounted cash flow realm of
valuation, essentially differing on what type of cash flow is used in the analysis. The
dividend discount model focuses on the dividends the company pays to shareholders,
while the cash flow model looks at the cash that can be paid to shareholders after all
expenses, reinvestments and debt repayments have been made. But conceptually they
are the same, as it is the present value of these streams that are taken into consideration.
As we mentioned before, the difficulty lies in the implementation of the model as there
are a considerable amount of estimates and assumptions that go into the model. As you
can imagine, forecasting the revenue and expenses for a firm five or 10 years into the
future can be considerably difficult. Nevertheless, DCF is a valuable tool used by both
analysts and everyday investors to estimate a company's value.
Ratio Valuation
Financial ratios are mathematical calculations using figures mainly from the financial
statements, and they are used to gain an idea of a company's valuation and financial
performance. Some of the most well-known valuation ratios are price-to-earnings and
price to-book. Each valuation ratio uses different measures in its calculations. For
example, price to-book compares the price per share to the company's book value.
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The calculations produced by the valuation ratios are used to gain some understanding
of the company's value. The ratios are compared on an absolute basis, in which there are
threshold values. For example, in price-to-book, companies trading below '1' are
considered undervalued. Valuation ratios are also compared to the historical values of
the ratio for the company, along with comparisons to competitors and the overall
market itself.
1.1.10 FUNDAMENTAL ANALYSIS: CONCLUSION

Whenever you're thinking of investing in a company it is vital that you understand what it
does, its market and the industry in which it operates. You should never blindly invest in a
company.
One of the most important areas for any investor to look at when researching a company
is the financial statements. It is essential to understand the purpose of each part of these
statements and how to interpret them.
Summary of what we discussed:
 Financial reports are required by law and are published both quarterly and
annually.
 Management discussion and analysis (MD&A) gives investors a better
understanding of what the company does and usually points out some key areas
where it performed well.
 Audited financial reports have much more credibility than unaudited ones.
 The balance sheet lists the assets, liabilities and shareholders' equity.
 For all balance sheets: Assets = Liabilities + Shareholders' Equity. The two sides
must always equal each other (or balance each other).
 The income statement includes figures such as revenue, expenses, earnings and
earnings per share.
 For a company, the top line is revenue while the bottom line is net income.
 The income statement takes into account some non-cash items, such as
depreciation.
 The cash flow statement strips away all non-cash items and tells you how much
actual money the company generated.
 The cash flow statement is divided into three parts: cash from operations,
financing and investing.
 Always read the notes to the financial statements. They provide more in-depth
information on a wide range of figures reported in the three financial statements.
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1.2 OBJECTIVE OF THE STUDY

* To critically assess the financial statements of TCSs in order to analyse its fundamentality.
* Understanding and analysing the factors that affect the movement of stock prices in the
Indian Stock Markets.
* Understand the performance of stocks of TCS
1.3 SCOPE:
* Knowing the company‘s revenue growth.
* Understanding the company‘s position to beat out its competitors in future. Its ability
to repay its debts.
* Whether the company is a good investment and making good profits.
1.4 COMPANY PROFILE

Tata Consultancy Services Limited (TCS) is an Indian multinational information
technology (IT) service, consulting company headquartered in Mumbai, Maharashtra. It is
part of the Tata Group and operates in 46 countries.
TCS is the second largest Indian company by market capitalization. It is just behind Reliance
Industries in term of market value. TCS is now placed among the most valuable IT services
brands worldwide. In 2015, TCS is ranked 64th overall in the Forbes World's Most
Innovative Companies ranking, making it both the highest-ranked IT services company and
the top Indian company.[8] It is the world's 2nd largest IT services provider.[9] As of 2017, it is
ranked 10th on the Fortune India 500 list. In April 2018, TCS became the first Indian IT
company to breach $100 billion market capitalization, and second Indian company ever
(after Reliance Industries achieved it in 2007) after its m-cap stood at Rs 6,79,332.81 crores
($102.6 billion) in Bombay Stock Exchange.
In 2016-2017, Parent company Tata Sons owned 70% of TCS; and more than 70% of Tata
Sons' dividends were generated by TCS. In March 2018, Tata Sons decided to sell stocks of
TCS worth $1.25 billion in a bulk deal.
On 25 August 2004, TCS became a Publicly Listed Company.
In 2005, TCS became the first India-based IT services company to enter
the bioinformatics market. In 2006, it designed an ERP system for the Indian Railway
Catering and Tourism Corporation. By 2008, its e-business activities were generating over
US$500 million in annual revenues.
TCS entered the small and medium enterprises market for the first time in 2011, with cloud-
based offerings.[31] On the last trading day of 2011, it overtook RIL to achieve the highest
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market capitalisation of any India-based company. In the 2011/12 fiscal year, TCS achieved
annual revenues of over US$10 billion for the first time.
In May 2013, TCS was awarded a six-year contract worth over ₹ 1100 crores to provide
services to the Indian Department of Posts. In 2013, the firm moved from the 13th position to
10th position in the League of top 10 global IT services companies and in July 2014, it
became the first Indian company with over Rs 5 lakh crore market capitalization.
In Jan 2015, TCS ends RIL's 23-year run as most profitable firm
In Jan 2017, the company announced a partnership with Aurus, Inc., a payments technology
company, to deliver payment solutions for retailers using TCS OmniStore, a first of its kind
unified store commerce platform. In the same year, TCS China was associated as a joint
venture with the Chinese government.
TCS announced its FY19 Q3 results posting 24 percent year-on-year (YoY) rise in profit at
Rs 8,105 crore. The stock plunged 2.5 percent intra-day as brokerages cut price target.
TCS BPS
TCS BPS (Business Process Services) is the third-largest India-based
IT outsourcing company (after Capgemini). The BPS division had revenues of US$1.44
billion in the FY 2012-13 which was 12.5% of the total revenue of TCS. TCS BPS has more
than 45,000 employees which serve over 225 million customers across 11 countries. The rate
of attrition in BPS division during the financial year 2012-13 was 19.5%.
In 2006, TCS won a $35 million contract from Eli Lilly and Company for providing data
management, biostatistics and medical writing services. In 2007, it won a major multi-year
deal from Swiss pharmaceutical major Hoffmann-La Roche to provide data
management, biostatistics, clinical programming and drug safety support to Hoffmann-La
Roche's global pharmaceutical development efforts.
The firm has also opened a business process outsourcing facility in the Philippines.
Tata Research Development and Design Centre

TCS established the first software research centre in India, the Tata Research Development
and Design Centre, in Pune, India in 1981. TRDDC undertakes research in Software
engineering, Process engineering and systems research. Researchers at TRDDC also
developed Master Craft (now a suite of digitization and optimization tools) a Model Driven
Development software that can automatically create code based on a model of a software, and
rewrite the code based on the user's needs. Research at TRDDC has also resulted in the
development of Sujal, a low-cost water purifier that can be manufactured using locally
available resources. TCS deployed thousands of these filters in the Indian Ocean
tsunami disaster of 2004 as part of its relief activities. This product has been marketed in
India as Tata swatch, a low cost water purifier.
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Innovation Labs
In 2007, TCS launched its co-innovation network, a network of innovation labs, start up
alliances, university research departments, and venture capitalists In addition, TCS has 19
innovation labs based in three countries.[95] TCS' partners include Collabnet, Cassatt,
academic institutions such as IITs, Stanford, MIT, Carnegie Mellon and venture capitalists
like Sequoia and Kleiner Perkins.
PRESS RELEASES:
TCS ranked as the #1 Employer in Europe by Top Employers Institute
London | Mumbai, March 21, 2014: Tata Consultancy Services(BSE: 532540, NSE:
TCS), a leading IT services, consulting and business solutions organization, today,
announced that it has been named as the Top Employer in Europe by the Top
Employers Institute for the second consecutive year. TCS was ranked first among the
20 companies that were eligible for the award. The company was recognized as an
exceptional performer across six core Human Resources (HR) areas: Primary
conditions, secondary benefits, working conditions, training, career development and
company culture.
TCS ranked #1 manufacturing industry IT service provider in Europe
London | Mumbai, February 24, 2014: Tata Consultancy Services (BSE: 532540,
NSE: TCS), a leading IT services, consulting and business solutions organization, has
been ranked top for overall capabilities in EMEA for manufacturing-specific
outsourcing services. The study, conducted by leading analyst firm IDC, praised TCS
for its ability to provide holistic support for large and diverse IT initiatives.
The report recognized TCS‘proven track record to design and implement systems for
some of the region‘s leading companies. TCS partners with manufacturers from a range
of industries to help transform their existing business models and implement technology
solutions. These solutions improve operations by reducing operational expenditure,
utilizing existing capacity optimally, improving operating efficiencies across the value
chain and improving the time-to-market for new product releases. Each solution is
tailored to the partner company, ensuring each business can meet its objectives within
the usual safety and regulatory parameters.
Awards and achievements
During the year, the Company received various awards and recognitions,
some of which are given below:
 Awarded Company of the Year by Business Standard
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 Ranked as India‘s Most Valuable Company in BT 500 from Business Today
 Ranked No. 1 in India by Institutional Investors 2012 All-Asia Executive Team

rankings
 Selected as Best Managed Board in India by Aon Hewitt - Mint Study 2012
 ICAI Gold Shield for Excellence in Financial Reporting (2011-12), third time in
succession Global
 Rated as one of the world‘s greenest companies by Newsweek Magazine
 Listed in Forbes Asia‘s Fab 50
 Awarded Best Performing Consultancy Brand in Europe
 Recognized as leading IT Services and Outsourcing Firm in China
 Top honours at the Asian CIO Leadership Awards in Dubai
 Top Software Company at Quest Forum India Quality Award 2012
 Three recognitions in UKs Business in the Community‘s (BITC) Awards for

Excellence 2012
 Caring Company Award 2012 for CSR activities in Hong Kong
1.5 RESEARCH METHODOLOGY

The research has been made based on secondary data found in moneycontrol.com and the
annual report of TCSs for the years 2013-2014 to 2018-2019. The following has helped in
data collection and data analysis for the making of this research paper.
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- TOOLS USED FOR DATA COLLECTION:

a. Balance Sheet
b. Income Statement
- TOOLS USED FOR DATA ANALYSIS:

a. Ratios
1.6 REVIEW OF LITERATURE

At TCS, they achieve real business results that allow one to transform, and not just maintain,
operations. Their IT services, business solutions and outsourcing bring a level of certainty
that no other competitor can match. One will experience requirements being met on time,
within budget and with high quality; greater efficiency and responsiveness to business; and
the ability to shift investment to strategic initiatives rather than tactical functions. As the
Indian financial system sustained to grow in the new century, the necessity for technology to
constrain comprehensive augmentation became part of national schema. TCS, which had
been spending additional, time in domestic IT from the time when its commencement was
well located to assist the National Government at the central and state level, in its inventive
proposals. TCS, by its own initiative shaped a digitized delivery system. In a manifestation of
the company’s ground-breaking spirit and with an aspiration to extend the benefits of the IT
upraise across the country. TCS aptitude to convey high-quality overhauls and resolutions are
matchless. It is the world’s first organization to accomplish an enterprise-wide Maturity
Level 5 on both P-CMM and CMMI, using the most meticulous assessment methodology –
SCAMPISM. TCS Integrated Quality Management System integrates process, populace and
technology maturity through various ascertained frameworks and traditions including ISO
9001:2000, IEEE and SW-CMM, CMMI, 6-Sigma and P-CMM.
For maximum flexibility, speediness, and competence, a vigorous IT strategy is essential.

TCS contribution facilitates companies to construct the most of their IT investments from
providing system testing solutions, application development, management services, and
integration solutions.
1.7 SIGNIFICANCE
Tata Consultancy Services (TCS) (BSE: 532540, NSE: TCS), a leading global IT services,
consulting, and business solutions organization, has been recognized as a Leader in The
Forrester Wave™ for Global Continuous Testing Services[1].
TCS received the highest scores in the strategy and current offering categories. The report
noted, “Strong in all major core services, TCS also has broad and deep accelerator offerings
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that set it apart from most of its competitors.” The report added, “…clients praised TCS for
its strong outside relationships with them. Internally TCS invests in talent by grooming and
developing it with strong programs for delivering an outstanding client-first attitude.”
“In the Business 4.0 era, characterized by widespread adoption of Agile and DevOps,
continuous testing services ensure first time right quality at speed, helping organizations
deliver superior customer experiences to retain customer loyalty and grow the business,”
said Prabhakar Karamsetty, Global Head, Quality Engineering and Transformation
(QET), TCS. “We believe our positioning as a Leader in this report is a clear testament to
our strategy, strong capabilities, and transformative and cutting edge offerings.”
TCS’ QET practice offers a comprehensive portfolio of cognitive-powered services spanning

the entire quality assurance value cycle – including consulting and advisory, testing services
implementation, managed services for test environment, and test data management – helping
global customers address their business, quality, and risk management challenges.
The company has responded to the emergence of newer technologies and growing customer
investments in them, with newer offerings such as Agile/DevOps Transformation Consulting,
VR/AR Assurance, Video and Infotainment Systems Assurance, and Industry-Specific
Digital Assurance. With functional assurance constituting the largest part of customers’
assurance spending, TCS’ domain expertise across multiple industry verticals has become a
key differentiator.
TCS has made significant investments in building intellectual property in the digital
assurance domain. The newly launched Customer Experience Assurance Platform measures
and benchmarks the customer experience maturity of systems across five dimensions –
usability, accessibility, compatibility, security and performance – using cognitive and
machine learning techniques, and provides remediation to enhance business outcomes. Smart
QE is an AI-powered platform to accelerate the release cycle using contextual insights,
predictive analytics and self-healing capabilities to enhance the quality and predictability of
IT applications.
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CHAPTER 2: CONCEPTUAL
FRAMEWORK
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2.1 INDIAN ACCOUNTING STANDARDS

Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard adopted by
companies in India and issued under the supervision of Accounting Standards Board (ASB)
which was constituted as a body in the year 1977. ASB is a committee under Institute of
Chartered Accountants of India (ICAI) which consists of representatives from government
department, academicians, other professional bodies’ viz. ICAI, representatives from
ASSOCHAM, CII, FICCI, etc.
The Ind AS are named and numbered in the same way as the International Financial
Reporting Standards (IFRS). National Advisory Committee on Accounting
Standards (NACAS) recommend these standards to the Ministry of Corporate Affairs (MCA).
MCA has to spell out the accounting standards applicable for companies in India. As on date
MCA has notified 41 Ind AS. This shall be applied to the companies of financial year 2015-
16 voluntarily and from 2016-17 on a mandatory basis.
Based on the international consensus, the regulators will separately notify the date of
implementation of Ind-AS for the banks, insurance companies etc. Standards for the
computation of Tax has been notified as ICDS in February 2015.
2.2 INTERNATIONAL FINANCIAL REPORTING

STANDARDS
International Financial Reporting Standards, usually called IFRS,[1] are standards issued by
the IFRS Foundation and the International Accounting Standards Board (IASB) to provide a
common global language for business affairs so that company accountsare understandable
and comparable across international boundaries. They are a consequence of growing
international shareholding and trade and are particularly important for companies that have
dealings in several countries. They are progressively replacing the many different national
accounting standards. They are the rules to be followed by accountants to maintain books of
accounts which are comparable, understandable, reliable and relevant as per the users internal
or external. IFRS, except for IAS 29 Financial Reporting in Hyperinflationary
Economies and IFRIC 7 Applying the Restatement Approach under IAS 29, are authorized in
terms of the historical cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the units
of constant purchasing power paradigm.[2][3] IAS 2 is related to inventories in this standard
we talk about the stock its production process etc IFRS began as an attempt to harmonize
accounting across the European Union but the value of harmonization quickly made the
concept attractive around the world. However, it has been debated whether de facto
harmonization has occurred. Standards that were issued by IASC (the predecessor of IASB)
are still within use today and go by the name International Accounting Standards (IAS),
while standards issued by IASB are called IFRS. IAS were issued between 1973 and 2001 by
the Board of the International Accounting Standards Committee (IASC). On 1 April 2001,
the new International Accounting Standards Board (IASB) took over from the IASC the
responsibility for setting International Accounting Standards. During its first meeting the new
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Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The
IASB has continued to develop standards calling the new standards "International Financial
Reporting Standards".
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CHAPTER 3: PRESENTATION OF DATA

ANALYSIS AND FINDINGS
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3.1 FINANCIAL HIGHLIGHTS

1. Accounting Concept: Accounting policies not specifically refer to otherwise are
consistent and in consonance with generally accepted accounting principles end the
accounting standards pronounced by ICAI. The financial statements are prepared
following the rules and regulations laid down by Ind AS.
2. Sales turnover, duties and taxes: Sales turnover is inclusive of excise duty payable by
the company but excludes all other taxes realized from the company
3.2 RATIO ANALYSIS

Financial ratios are created with the use of numerical values taken from financial statements
to gain meaningful information about a company. The numbers found on a company’s
financial statement- balance sheet, income statement and cash flow statements are used to
perform quantitative analysis ad assess a company’s liquidity, leverage, growth, margins,
profitability, rates of return, valuation and more.
USES:
a. Track company performance: Determining individual financial ratios per period and
tracking the change in their values over time is done to spot trends that may be
developing in a company.
b. Make comparative judgements regarding company performance: Comparing financial
ratios with that of major competitors is done to identify whether the company is
performing better or worse than the industry average.
PER SHARE RATIO: The earnings per share ratio (EPS ratio) measures the amount of a
company's net income that is theoretically available for payment to the holders of
its common stock.
a. BASIC EPS
Formula:
(Net Income After tax – Preferred Stock Dividends) / Avg. Number of common
shares outstanding
YEAR 2018 2017 2016 2015 2014
RATIO 38.57 31.74 48.67 64.49 64.21
Significance: A company with a high earnings per share ratio is capable of generating a
significant dividend for investors, or it may flow the funds back into its business for more
growth; in either case, a high ratio indicates a potentially worthwhile investment, depending
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on the market price of the stock. If an investor is primarily interested in a steady source of
income, the EPS ratio is useful for estimating the amount of room that a company has for
increasing its existing dividend amount. However, in many cases, simply reviewing a
company’s history of making changes to its dividend is a better indicator of the actual size
of future dividends. Stocks are determined in the marketplace, where seller supply meets
buyer demand. There are a few fundamental factors that affect the EPS on a company.
Economic strength of market and peers can be a leading factor in EPS variation. As you can
see in the above table, the share price has increased from ₹31.74 per share to ₹38.57 in the
year 2018-2019 but has significantly decreased over a couple of years i.e. the price in the
year 2014-2015 was ₹64.41. This because over the years the share base an increased due to
which the earning per share has reduced.
LIQUIDITY RATIOS: Liquidity ratios are financial ratios that measure a company’s ability
to repay both short-term and long-term obligations. Common liquidity rations include the
following:
a. CURRENT RATIO: It measures a company’s ability to pay off short-term liabilities

with current assets.
Formula: Current Assets / Current Liabilities
YEAR 2018 2017 2016 2015 2014
RATIO 1.35 0.87 0.68 0.71 0.61
Significance- Ideal ratio: 2:1. A low ratio indicated that the company cannot meet its
short-term liability on time whereas, a high ratio indicates the funds haven’t been
utilized efficiently and are lying idle. The ratio of 2 is considered as a safe margin of
solvency since if the current assets are reduced to half i.e. 1 instead of 2, then also the
creditors will be able to get their payments in full. A current ratio can be improved by
increasing current assets or by decreasing current liabilities. That is why a safety
margin to accomplish an improvement include:
 Paying down debt
 Acquiring a long-term loan
 Selling a fixed asset
 Putting profits back into the business.
In the above table we can see that the current ratio of TCS is in a ratio which is
slightly below the ideal ratio, which means, there can be an improvement for the
company to meet its short-term liability.
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b. QUICK RATIO: It shows the relationship of quick assets with current liabilities.
Formula: Current Assets - Stock / Current Liabilities – Bank overdraft
YEAR 2018 2017 2016 2015 2014
RATIO 0.92 0.43 0.35 0.23 0.29
Implications: Ideal Ratio is 1:1. It is a better indicator of liquidity as some current

assets are not easily convertible into cash.
LEVERAGE FINANCIAL RATIOS: Leverage ratios measure the amount of capital that
comes from debt. In other words, leverage financial ratios are used to evaluate a company’s
debt levels. Common leverage ratios include the following:
a. DEBT EQUITY RATIO: It measures the relative amount of a company’s assets that
are provided from debt.
Formula: Debt or Long-term Liabilities/ Equity
Where,
Debts = Long-term Borrowing + Long-term Provisions
Equity = Share Capital + Reserves and Surplus – Non-trading Investments
OR
Equity = Fixed Assets + Non-current Investments (excluding non-trading investment)
+ Long term Loans and Advances + Current Assets – Current Liabilities – Long-term
Borrowings – Long-term Provisions
YEAR 2018 2017 2016 2015 2014
RATIO 0.41 0.56 0.41 0.36 0.39
Significance- Ideal ratio is 2:1 and not more than this as it assess long-term soundness
of the financial position of a business
EFFICIENCY RATIOS: Efficiency ratios, also known as activity financial ratios, are used
to measure how well a company is utilizing its assets and resources. Common efficiency
ratios include:
a. INVENTORY TURNOVER RATIO: It is also called as stock turnover ratio. This

ratio is a relationship between the cost of goods sold i.e. cost of revenue from
operations during a period and the cost of average inventory during a period.
Formula: Cost of Goods Sold or Cost of Revenue from Operations / Average
Inventory
Where,
- Average Inventory = Opening Inventory + Closing inventory / 2
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- Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses –

Closing stock
OR
Sales/ Revenue from Operations – Gross Profit
- Cost of Revenue from Operations = Cost of Material Consumed + Net Purchases
of Stock in Trade + Changes in Inventory of Finished Foods, Work-in-progress
and Stock-in-trade + Direct Expenses
- Cost of Materials Consumed = Raw Materials Purchased + Changes in Inventory
of Raw Material
- Changes in Inventory = Opening Inventory – Closing Inventory
-
YEAR 2018 2017 2016 2015 2014
RATIO 5.41 4.69 5.39 5.20 6.94
Significance: This ratio indicates whether investment in stock is within proper limit or not.
This shows how quickly inventory is sold. Generally, higher ratio is considered better but
very high ratio shows over trading and low ratio means stock is piled up or over investment
in stock.
PROFITABILITY RATIOS: Profitability ratio measures company’s ability to generate

income relative to revenue, balance sheet assets, operating costs and equity. Common
profitability financial ratios include the following:
a. NET PROFIT RATIO: It shows the relationship between net profits and net sales i.e.
net revenue from operations.
Formula: (Net Profit/ Net sales) x 100
Where,
Net Profit = Net Revenue from Operations – Operating Cost – Non-operating
expenses + Non-operating income
OR
Net Profit = Gross Profit - Non-operating expenses + Non-operating income –
Operating expenses
OR
Net Profit = Operating Profit - Non-operating expenses + Non-operating income
YEAR 2018 2017 2016 2015 2014
RATIO 6.99 7.17 12.82 15.41 15.37
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Significance: Indicate the percentage of net profits in relation to revenue from operations.
Generally, higher ratio indicates better profitability. Net operating income is a valuation
method used by real estate professionals to determine how much income-producing
properties are worth. To calculate net operating income generated, the property's operating
expenses must be subtracted from the income produced by the property.
Other than rent, a property might also generate revenue from parking and service fees, such
as vending and laundry machines. Operating expenses include the costs of running and
maintaining the building and its grounds, such as insurance, property management fees, legal
fees, utilities, property taxes, repairs, and janitorial fees. Capital expenditures, such as the
cost for a new air-conditioning system for the entire building, are not included in the
calculation.
Net operating income helps owners and potential owners of retail buildings, office buildings
and residential single- and multi-family properties to calculate several helpful ratios. NOI is
used in determining the capitalization rate, which helps determine the property’s value and
helps real estate investors compare different properties they might be considering buying or
selling.
For financed properties, NOI is also used in the debt coverage ratio (DCR), which tells
lenders and investors whether a property’s income covers its operating expenses and debt
payments. NOI is also used to calculate the net income multiplier, cash return on investment
and total return on investment.
b. RETURN ON INVESTMENT OR RETURN ON CAPITAL EMPLOYED: It shows

the relationship between net profit before interest, tax and dividend and capital
employed of a business.
Formula: (Capital employed/ Net Sales) x 100
Where,
- Liability Approach
Capital employed= Share capital + Reserves and Surplus – Non-trading Investments +
Non-current Liabilities
OR
Capital Employed= Shareholder’s fund+ Non-current Liabilities
- Asset Approach
Capital employed = Fixed Assets + Non-current Investment + Long-term Loans and

Advances + Current Assets – Current Liabilities
OR
Capital employed = Fixed Assets + Non-current Investment + Long-term Loans and

Advances + Working Capital
OR
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Capital Employed = Non-current Assets + Working Capital

OR
Capital Employed = Total Assets – Current Liabilities
YEAR 2018 2017 2016 2015 2015
RATIO 12.87 9.89 8.97 6.50 6.95
Significance: It indicates the percentage of net profits before interest, tax and dividend in
relation to capital employed of the business. The ratio is considered as the best measurement
of overall performance of the enterprise. A higher ratio indicates better profitability.
c. RETURN ON EQUITY: Return on equity (ROE) is a measure of financial

performance calculated by dividing net income by shareholders' equity.
Because shareholders' equity is equal to a company’s assets minus its debt,
ROE could be thought of as the return on net assets.
Formula: Net Income/ Average Shareholder’s Equity
YEAR 2018 2017 2016 2015 2014
RATIO 22.92 -11.93 -0.92 -12.52 8.86
Significance: ROE is considered a measure of how effectively management is using a

company’s assets to create profits as the case given in the above table. The ROE for
the years 2015, 2016 and 2017 is in negative. ROE is expressed as a percentage and
can be calculated for any company if net income and equity are both positive
numbers. Net income is calculated before dividends paid to common shareholders and
after dividends to preferred shareholders and interest to lenders. Return on equity
(ROE) deemed good or bad will depend on what’s normal for a stock’s peers. For
example, utilities will have a lot of assets and debt on the balance sheet compared to a
relatively small amount of net income. A normal ROE in the utility sector could be
10% or less.
d. RETURN ON ASSETS: Return on assets (ROA) is an indicator of how

profitable a company is relative to its total assets. ROA gives a
manager, investor, or analyst an idea as to how efficient a company's
management is at using its assets to generate earnings. Return on assets is
displayed as a percentage.
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Formula: Net income / Total Assets
YEAR 2018 2017 2016 2015 2015
RATIO 6.40 -2.44 -0.21 -2.46 2.09
Significance: The ROA figure gives investors an idea of how effective the company is in
converting the money it invests into net income. The higher the ROA number, the better,
because the company is earning more money on less investment. Remember total assets is
also the sum of its total liabilities and shareholder's equity. Both types of financing are used
to fund the operations of the company. Since a company's assets are either funded by debt or
equity, some analysts and investors disregard the cost of acquiring the asset by adding
back interest expense in the formula for ROA. In other words, the impact of taking more debt
is negated by adding back the cost of borrowing to the net income and using the average
assets in a given period as the denominator. Interest expense is added because the net income
amount on the income statement excludes interest expense.
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CHAPTER 4: CONCLUSIONS
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4.1 FINDINGS
- PROFITABILITY RATIO: The most important ratio is Net Profit Margin
percentage or Net margin. It tells us how much out of every sale TCS gets to keep
after everything else has been paid for. It is highly variable from one industry
sector to another. An ideal company has consistent profit margins.
- RETURN ON EQUITY: From an investor's perspective, ROE is a key ratio. The

ROE (after subtracting preferred shares) tells common shareholders how
effectively their money is being employed. Ideal long term average ROE should
be above 15%.
Average 2 year ROE of TCS Ltd. : 9%
- FREE CASH FLOW: Free Cash Flow is a measure which is ignored by most
investors. FCF represents the cash that a company is able to generate after
37 | P a g e
spending the money required to maintain or expand its Property, Plant and
Equipment (PPE) also called as Capital Expenditure (Capex). FCF can be used by
the company to invest in other projects, thus enhancing shareholder value.
- LEVERAGE RATIO (CURRENT): Current Ratio measures the company's

current assets against its current liabilities. Ideally the current ratio should be
greater than 1.5. Avoid investing in companies whose current ratio is less than 1.
There are exceptions to this rule, some good companies can have less than 1 or
even a negative current ratio when they receive money faster from their customers
than they have to pay to their vendors.
- INTEREST COVERAGE: An interest coverage ratio less than 1.5 is a red flag.
The higher the ratio the less a company is burdened by debt. If a company has no
debt or the loan interest is being paid by interest income from investments or other
activities the ratio is zero which of course is excellent. A negative ratio tells us
that the company cannot even pay its interest on loans from its operating income,
stay far away from such companies.
38 | P a g e
- DEBT TO EQUITY: Debt-to-Equity ratio varies across industries but many

companies have a ratio larger than 1 that is they have more debt than equity. If the
ratio is very high, raising more cash through borrowing could be difficult. Capital
intensive industries such as auto manufacturing tend to have a debt/equity ratio
above 2, while IT companies have a debt/equity of under 0.5.
39 | P a g e
- OVERALL PERFORMANCE: Watch the overall performance of revenue and

profit, needless to say you should invest in a company whose numbers are going
up.
80
70 70.99
60
53.07
50
46.27
40 EPS
35.67 DPS
30
26.81 25
20 20 22
14 14
10
0
2009 2010 2011 2012 2013
Interpretation:
The above graphs indicate the per share ratios like EPS and DPS. The ratios shows us the
earnings which could be made by investing in a company, The EPS of TCS has significantly
increased from Rs 26.81 to Rs 70.99. This clearly means that TCS has done justice to its
investors with such a high increase in EPS every year. The investors who have an interest in
companies with a high dividend returns should certainly consider TCS during investing in
stock market.
EPS = Net income – dividends on preferred stock
Avg, Outstanding Salaries
40 | P a g e
GRAPHICAL REPRESENTATION OF % MARKET CAPITATIZATION
Market Cap %
4.86
11.23
TCS
Infosys
47.07
15.43 Wipro
HCL Tech
Tech Mahindra
21.41
According to the above chart, it represents that the market capitalization of TCS is
comparatively higher than the other top IT companies. This chart tells us that TCS is able to
acquire a lot more capital and could conduct big projects.
GRAPHICAL REPRESENTATION OF % OF NET PROFIT
Net Profit %
2.04
11.61
TCS
40.07 Infosys
17.71
Wipro
HCL Tech
Tech Mahindra
28.57
Interpretation:
The above chart represents the net profit made by the top five IT companies. Among which
TCS has a net profit of 12786Crs which is a 40.07% more than the other companies which
are compared in the chart. This is a good sign for an investor who wants to invest in TCS
41 | P a g e
Graphical representation of % of sales turnover
Sales Turnover %
4.37
9.12
TCS
35.29
Infosys
24.42 Wipro
HCL Tech
Tech Mahindra
26.79
Interpretation:
The sales turnover of TCS is 35.29 % among the top IT companies. This means with the
variety of services provided by TCS, an investor prefers it over other companies from this
sector
GRAPHICAL REPRESENTATION OF COMPARISON OF THE PERFORMANCE OF

TCS AGAINST SENSEX
42 | P a g e
Interpretation:
The above graph is a comparison of the performance of TCS against SENSEX. The
performance of TCS till 1st August was comparatively lower when compared to SENSEX.
After August TCS has been an over performer, performing better than the SENSEX. Investor
would certainly consider this graph and would want to invest in the shares of TCS.
CONCLUSION:
Fundamental analysis holds that no investment decision should be without processing and
analysing all relevant information. Its strength lies in the fact that the information analysed is
real as opposed to hunches or assumptions. On the other hand, while fundamental analysis
deals with tangible facts, it does not tend to ignore the fact that human beings do not always
act rationally. Market prices do sometimes deviate from fundamentals. Prices rise or fall due
to insider trading, speculation, rumour, and a host of other factors.
The above report says that our economic is growing after the recession and it is the good time
for the one who want to invest and according to the industry analysis investor can invest in
the banks but he/she should be careful for the investment
All the findings during this project tell us that TCS is would be a good investment and an
investor should certainly have it in the portfolio of investment.
4.2 LIMITATIONS
 Official statistics may reflect the biases of those in power – limiting what you can find
lout.
 Official statistics – the way things are measured may change over time, making
historical comparisons difficult (As with crime statistics, the definition of crime keeps
changing.)
 Documents may lack authenticity– parts of the document might be missing because of
age, and we might not even be to verify who wrote the document, meaning we cannot
check whether it’s biased or not.
 Representativeness – documents may not be representative of the wider population –
especially a problem with older documents. Many documents do not survive because
they are not stored, and others deteriorate with age and become unusable. Other
documents are deliberately withheld from researchers and the public gaze, and
therefore do not become available.
43 | P a g e
4.3 SUGGESTIONS
The analysis carried out at on the TCS, their profit and loss account, balance sheet and ratios.
I shall suggest the investors to invest in TCS than the other IT companies as a value
investment.
• Strong increase in profit year-on-year basis.

• Increasing EPS indicate good earnings.
• Increase in sharing profit with shareholders in form of dividend.
• TCS is expanding its footholds on international level also; its Insurance and
asset management business are also performing well.
• TCS is the one of largest companies in the IT industry.
• The net worth of TCS is high.
• When compared with SENSEX , TCS has been an over performer
4.3REFERENCES
https://en.wikipedia.org/wiki/IndianAccountingStandards
https://www.tcs.com/tcs-named-leader-global-continuous-testing-services-independent-
research-firm
https://www.glassdoor.co.in/Reviews/Tata-Consultancy-Services-Reviews-
E13461.htm?countryRedirect=true
https://en.wikipedia.org/wiki/TataConsultancyServices
44 | P a g e
CHAPTER 5: ANNEXURES
45 | P a g e
5.1 BALANCE SHEET

Standalone Balance Sheet ------------------- in Rs. Cr. -------------------
Mar 18 Mar 17 Mar 16 Mar 15 Mar 14
12 mths 12 mths 12 mths 12 mths 12 mths
EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 191.00 197.00 197.00 195.87 195.87
Total Share Capital 191.00 197.00 197.00 195.87 195.87
Reserves and Surplus 75,675.00 77,825.00 64,816.00 45,220.57 43,856.01
Total Reserves and Surplus 75,675.00 77,825.00 64,816.00 45,220.57 43,856.01
Total Shareholders’ Funds 75,866.00 78,022.00 65,013.00 45,416.44 44,051.88
NON-CURRENT LIABILITIES
Long Term Borrowings 39.00 44.00 50.00 64.71 89.69
Deferred Tax Liabilities [Net] 424.00 314.00 366.00 271.46 226.87
Other Long Term Liabilities 643.00 638.00 639.00 722.15 690.44
Long Term Provisions 26.00 39.00 40.00 126.91 279.61
Total Non-Current Liabilities 1,132.00 1,035.00 1,095.00 1,185.23 1,286.61
CURRENT LIABILITIES
Short Term Borrowings 181.00 200.00 113.00 185.56 0.00
Trade Payables 4,775.00 4,190.00 5,370.00 6,767.25 3,977.55
Other Current Liabilities 8,931.00 6,245.00 5,711.00 2,491.47 2,460.32
Short Term Provisions 171.00 66.00 115.00 7,019.35 5,827.83
Total Current Liabilities 14,058.00 10,701.00 11,309.00 16,463.63 12,265.70
Total Capital And Liabilities 91,056.00 89,758.00 77,417.00 63,065.30 57,604.19
ASSETS
NON-CURRENT ASSETS
Tangible Assets 9,430.00 9,214.00 9,056.00 7,964.88 5,887.09
Intangible Assets 10.00 17.00 24.00 31.41 42.10
Capital Work-In-Progress 1,238.00 1,477.00 1,640.00 2,706.94 3,047.53
Fixed Assets 10,678.00 10,708.00 10,720.00 10,703.23 8,976.72
Non-Current Investments 2,186.00 2,201.00 2,229.00 2,651.23 5,098.55
Deferred Tax Assets [Net] 3,051.00 2,447.00 2,530.00 303.47 273.58
Long Term Loans And Advances 1,503.00 6.00 2,432.00 8,452.55 6,875.54
Other Non-Current Assets 5,416.00 5,954.00 6,129.00 524.68 1,544.99
Total Non-Current Assets 22,834.00 21,316.00 24,040.00 22,635.16 22,769.38
CURRENT ASSETS
Current Investments 35,073.00 40,729.00 21,930.00 747.47 733.87
Inventories 25.00 21.00 9.00 12.34 8.57
Trade Receivables 18,882.00 16,582.00 19,058.00 17,036.76 14,471.89
Cash And Cash Equivalents 3,487.00 1,316.00 4,806.00 16,502.50 12,566.26
Short Term Loans And Advances 2,793.00 2,704.00 2,523.00 3,352.18 3,688.12
Other Current Assets 7,962.00 7,090.00 5,051.00 2,778.89 3,366.10
Total Current Assets 68,222.00 68,442.00 53,377.00 40,430.14 34,834.81
Total Assets 91,056.00 89,758.00 77,417.00 63,065.30 57,604.19
46 | P a g e
5.2 INCOME STATEMENT

Standalone Profit & Loss account ------------------- in Rs. Cr. -------------------
INCOME
Revenue From Operations [Gross] 97,356.00 92,693.00 85,864.00 73,582.15 64,676.08
Less: Excise/Service Tax/Other Levies 0.00 0.00 0.00 4.09 3.15
Revenue From Operations [Net] 97,356.00 92,693.00 85,864.00 73,578.06 64,672.93
Total Operating Revenues 97,356.00 92,693.00 85,864.00 73,578.06 64,672.93
Other Income 5,803.00 4,568.00 3,757.00 4,466.73 3,114.71
Total Revenue 103,159.00 97,261.00 89,621.00 78,044.79 67,787.64
EXPENSES
Cost Of Materials Consumed 86.00 94.00 0.00 64.62 39.77
Operating And Direct Expenses 1,920.00 1,664.00 0.00 19,796.40 16,950.73
Changes In Inventories Of FG,WIP And
0.00 0.00 0.00 0.15 -0.07
Stock-In Trade
Employee Benefit Expenses 51,499.00 48,116.00 42,420.00 27,368.32 21,466.56
Finance Costs 30.00 16.00 13.00 79.57 23.41
Depreciation And Amortisation Expenses 1,647.00 1,575.00 1,459.00 1,393.77 1,080.55
Other Expenses 16,046.00 15,730.00 16,390.00 5,320.37 4,682.22
Total Expenses 71,228.00 67,195.00 60,282.00 54,023.20 44,243.17
Profit/Loss Before Exceptional, Extra

31,931.00 30,066.00 29,339.00 24,021.59 23,544.47
Ordinary Items And Tax
Exceptional Items 0.00 0.00 0.00 528.38 0.00
Profit/Loss Before Tax 31,931.00 30,066.00 29,339.00 24,549.97 23,544.47
Tax Expenses-Continued Operations
Current Tax 6,878.00 6,643.00 6,376.00 5,208.15 4,662.41
Less: MAT Credit Entitlement 0.00 0.00 0.00 -8.83 38.30
Deferred Tax -188.00 -230.00 -112.00 14.70 -22.18
Tax For Earlier Years 0.00 0.00 0.00 61.33 467.62
Total Tax Expenses 6,690.00 6,413.00 6,264.00 5,293.01 5,069.55
Profit/Loss After Tax And Before Extra-
25,241.00 23,653.00 23,075.00 19,256.96 18,474.92
Ordinary Items
Profit/Loss From Continuing
25,241.00 23,653.00 23,075.00 19,256.96 18,474.92
Operations
Profit/Loss For The Period 25,241.00 23,653.00 23,075.00 19,256.96 18,474.92
47 | P a g e
THE END
48 | P a g e

Fundamental Analysis of TCS

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A Study on Fundamental Analysis of Company

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CHAPTER 2: CONCEPTUAL FRAMEWORK

CHAPTER 3: PRESENTATION OF DATA ANALYSIS AND

CHAPTER 1: INTRODUCTION TO THE

1.1.2 FUNDAMENTAL ANALYSIS: WHATS IS IT?

• Is the company's revenue growing?

• Is it actually making a profit?

• Is it in a strong-enough position to beat out its competitors in the future?

• Is it able to repay its debts?

• Is management trying to "cook the books"?

1.1.3 CRITISISM OF FUNDAMENTAL ANALYSIS

1.1.4 FUNDAMENTAL ANALYSIS – QUALITATIVE

Another business consideration for investors is competitive advantage. A company's longterm

Harvard Business School professor Michael Porter distinguishes between strategic

• A unique competitive position

• Clear trade-offs and choices vis-à-vis competitors

• Activities tailored to the company's strategy

• A high degree of operational effectiveness

So how does an average investor go about evaluating the management of a company?

Financial and Information Transparency

Structure of the Board of Directors

The board of directors is composed of representatives from the company and

Information on the board of directors of a publicly traded company (such as biographies

1.1.5 FUNDAMENTAL ANALYSIS: INTRODUCTION TO

Financial statements are the medium by which a company discloses information

The Major Statements

1. The Balance Sheet

Assets = Liabilities + Shareholders' Equity

2. The Income Statement

3. Statement of Cash Flows

• Operating Cash Flow (OCF): Cash generated from day-to-day business

10-K and 10-Q

1.1.6 FUNDAMENTAL ANALYSIS: OTHER IMPORTANT

Management Discussion and Analysis (MD&A)

As a preface to the financial statements, a company's management will typically spend a

The Auditor's Report

The Notes to the Financial Statements

Generally speaking there are two types of footnotes:

1.1.7 FUNDAMENTAL ANALYSIS: THE INCOME

Revenue as an investor signal

What are the Expenses?

Profits = Revenue - Expenses

and some consider it a more reliable measure of profitability since it is harder to

1.1.8 FUNDAMENTAL ANALYSIS: THE

The Snapshot of Health

The Balance Sheet's Main Three

Receivables are outstanding (uncollected bills). Analysing the speed at which a

Quick Ratio = Current Assets - Inventories

Equity represents what shareholders own, so it is often called shareholder's equity. As

Equity = Total Assets – Total Liabilities

1.1.9 FUNDAMENTAL ANALYSIS: A BRIEF

1.1.10 FUNDAMENTAL ANALYSIS: CONCLUSION

Summary of what we discussed:

1.2 OBJECTIVE OF THE STUDY

1.4 COMPANY PROFILE

Tata Research Development and Design Centre

TCS ranked as the #1 Employer in Europe by Top Employers Institute

TCS ranked #1 manufacturing industry IT service provider in Europe

Awards and achievements

 Ranked as India‘s Most Valuable Company in BT 500 from Business Today

 Ranked No. 1 in India by Institutional Investors 2012 All-Asia Executive Team

 Rated as one of the world‘s greenest companies by Newsweek Magazine

 Listed in Forbes Asia‘s Fab 50