Financial Statement Analysis

Tata Consultancy Services

Group 12
Aman Gandhi – A009
Yashank Jain – A073
Krishak Khandelwal – A031
Suprey Bharambe – A065
Prachi Singhal – A040
About the company
Tata Consultancy Services Limited (TCS) is an Indian multinational information technology
(IT) service and consulting company headquartered in Mumbai, Maharashtra, India. Its parent
company is Tata group and operates in 149 locations across 46 countries.

Tata Consultancy Services Ltd. operates as an information technology services, digital and
business solutions company. It provides end-to-end technology and technology related
services to global enterprises. The company operates through five segments: Banking,
Financial Services & Insurance, Manufacturing, Retail & Consumer Packaged Goods,
Telecom, Media & Entertainment and Others such as energy, resources and utilities, Hi-Tech,
life science and healthcare, s-Governance, travel, transportation and hospitality, products, etc.
Its service portfolio includes: IT services, IT Infrastructure, consulting, e-business, enterprise
solutions, remote infrastructure management, business process outsourcing and assurance
services across various industry verticals such as banking, financial services and insurance,
energy, government, healthcare, life sciences, manufacturing, media and information
services, resources - metals, mining & construction, retail, telecom, travel, transportation &
hospitality and utilities.

By market capitalization TCS is the largest Indian company. TCS is now placed among the
most valuable IT services brands worldwide. In 2015, TCS was 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. It is the world's largest IT services provider.
As of 2018, it is ranked eleventh on the Fortune India 500 list. In April 2018, TCS became
the first Indian IT company to reach $100 billion market capitalization, and second Indian
company ever (after Reliance Industries achieved it in 2007) after its market capitalization
stood at ₹6,79,332.81 crore ($102.6 billion) on the Bombay Stock Exchange.

TCS and its 67 subsidiaries provide a wide range of information technology-related products
and services including application development, business process outsourcing, capacity
planning, consulting, enterprise software, hardware sizing, payment processing, software
management and technology education services. The firm's established software products are
TCS BaNCS and TCS MasterCraft.

TCS has 285 offices across 46 countries and 147 delivery centres in 21 countries. At the same
date TCS had a total of 58 subsidiary companies.
Tata Consultancy Services’ market capitalisation has surpassed that of US technology giant
IBM.

In June 2019, TCS’ market cap stood at Rs 8,37,198 crore, or over $120.49 billion, on the
National Stock Exchange. In midday trade on the New York Stock Exchange, IBM’s market
value was about $119.8 billion. Mumbai-based TCSNSE -1.51 % still lags Accenture, which
has a market cap of a little over $124 billion.
Competitors
IBM has been restructuring its business as it tries to focus on higher margin technologies and
software while moving away from the commoditised parts of its business. Last week, it was
reported that the company was laying off about 2,000 workers. IBM has a headcount of over
3,50,000. The US company has struggled to grow in the recent past, with a 1 per cent
increase in its top line in 2018 snapping a six-year streak of falling sales.

TCS’ rise has come on the back of industry- leading growth, helped by a slew of mega deal
wins over the past two years, although its revenue is still a fraction of IBM’s. TCS reported
revenue of $20.9 billion in the previous financial year. IBM ended 2018 with $79.6 billion in
revenue.

Company Employees Revenue

Tata consultancy 3,78,497 $ 908.8 M
services
HCL 1,20,081 $ 8.1 B
Infosys 2,28,000 $ 11.8 B
Wipro 1,50,000 $ 8.5 B 
Tech Mahindra 78,304 $ 5.1 B
Coginzant 2,81,600 $ 16.5 B
Sutherland 38,000 $ 1.2 B
Larsen & Toubro 24,000 $ 1.3 B
Hexaware 14,619 $ 651.4 M
Accenture 4,59,000 $ 43.3 B
Mphasis 15,909 $ 940.9 M 
 Analysis of Common size Financial
Statements
Balance Sheet
Common size Balance Sheet analysis is done through vertical analysis.

Vertical Analysis:
Vertical analysis refers to the analysis of items in relation to a base item within the same
financial period. The base item could be total assets or total liabilities which is denoted with
100%.
In our analysis, we have taken total assets as the base. All other items are expressed as a
percentage of total assets.
 In 2019, under assets, 79.43% are current assets which is very huge and only 20.57%
are non-current assets. Under equity and liabilities, equity accounts for 79.29% and
total liabilities are 20.71%.
 Under current assets, the major share is of current investments and trade receivables
which accounts for 28.42% and 24.15% of total assets respectively.
 Under non-current assets, almost 50% share is of property, plant and equipment
(PP&E)
 In 2018, under assets, 74.92% are current assets which is very huge and only 25.08%
are non-current assets. Under equity and liabilities, equity accounts for 83.32% and
total liabilities are 16.68%.
 Under current assets, the major share is of current investments and trade receivables
which accounts for 38.52% and 20.74% of total assets respectively.
 Under non-current assets, almost 40% share is of property, plant and equipment
(PP&E)
Overall, there is no significant fluctuations in the balance sheet. It seems to be
consistent over the past two years.

Statement of profit and loss

Vertical Analysis:
 Under this, we have taken total income as the base and expressed every other item as
the percentage of total income.
 In 2019, Employees benefit expenses forms a major part accounting for 45.4% of
total income. Net profit for the year is 22.99% of total income.
 In 2018, 49.92% of total revenue from operations is spent on employees benefit
expenses.
 Net profit has been reduced from 24.47% in 2018 to 22.99% in 2019. This is due to
increase in expenses from 30.95% in 2018 to 31.12% in 2019 of revenue from
operations.
 Analysis of Condensed Financial Statements
Balance Sheet

Horizontal Analysis:
 It involves comparison of a line item over a number of accounting periods. This
method is also known as trend analysis. It calculates the difference between distinct
items over different accounting periods to arrive at a number which is called absolute
variance. This absolute variance is then used to calculate percentage or relative
variance.
 In our analysis, 2018 is the base year and 2019 is the comparison year. All items on
the balance sheet have been compared with the items of balance sheet for the year
2018.
 In TCS, we observed that the major fluctuations under Non-current assets occurred in
intangible assets which increased by 1290% as compared to the previous year. Under
current assets, major changes occurred in cash and cash equivalents, bank balances,
loans receivable and other assets which increased by 160.33%, 152.29%, 151.27%,
162.63% respectively. Overall, there is an increase of 9.27% in total assets.
 Under Equity and Liabilities, in non-current liabilities, there is a major decline in
provisions which has become completely nil. In current liabilities, borrowings have
become nil but trade payables to micro and small enterprises have increased by
266.67%. Share capital has increased by 96.34%.

Statement of profit and loss

Horizontal Analysis:
 In our analysis, 2018 is the base year and 2019 is the comparison year. All items on
the Statement of profit and loss have been compared with the items of Statement of
profit and loss for the year 2018.
 In common size statement of profit and loss, total revenue from operations has
increased by 26.79% as compared to previous year. At the same time, total expenses
have also increased by 26.48%.
 Finance costs has increased drastically by 466.67% and also deferred tax by 270.74%.
 Overall, net profit has increased by 19.11% which is quite impressive in spite of
slowdown in the economy. It shows that there is an increase in the operating
efficiency of the business. Also, TCS would attract more investors this year as
investors come in the hope of getting higher returns in the form of capital gains and
dividends.
 Du Pont Analysis
“The DuPont analysis (also known as the DuPont identity or DuPont model) is a framework
for analysing fundamental performance popularized by the DuPont Corporation. DuPont
analysis is a useful technique used to decompose the different drivers of return on equity
(ROE). Decomposition of ROE allows investors to focus on the key metrics of financial
performance individually to identify strengths and weaknesses.”
(source: https://www.investopedia.com)
We have performed the DuPont analysis of TCS which is as follows:

DuPont
Analysis    
    2019 2018
Profitability Ratio 0.244 0.259
Assets Turnover Ratio 1.238 1.069
Return on assets 0.302 0.277
Leverage Ratio   1.261 1.200
Return on Equity 0.381 0.333

Profitability Ratio
Profitability Ratio implies the percentage of net profit earned w.r.t the revenue from
operations of the company in a particular financial year.

Profitability
0.265

0.260 0.259

0.255

0.250

0.245
0.244

0.240

0.235
2017 2018 2019 2020
Profitability Ratio = Net Profit / Revenue from operations
From the above analysis, we can observe that the profitability of TCS has been reduced from
24.47% in 2018 to 22.99% in 2019. This decrease in profitability will negatively impact the
confidence of shareholders towards the company as their compensation will get affected.

Assets Turnover Ratio

Assets Turnover Ratio measures the value of revenue from operations relative to the value of
the assets.

Asset Turnover
1.300

1.250
1.238
1.200

1.150

1.100
1.069
1.050

1.000

0.950
2017 2018 2019 2020

Assets Turnover Ratio = Revenue from operations / Total Assets

Assets Turnover Ratio of TCS has shown an increase from 113.29% in 2018 to 131.45% in
2019. This implies that there is an increase in efficiency of TCS in using its assets to generate
revenue from operations. Also, a value of 131.45% implies that TCS does not maintain a
large base of assets as it is mainly a service organization.

Return on Assets
Return on Assets measures the profitability of a company in relation to its total assets.
 Return on Assets
1.300

1.250
1.238
1.200

1.150

1.100
1.069
1.050

1.000

0.950
2017 2018 2019 2020

Return on Assets = Net Profit / Total Assets

RoA of TCS has increased from 27.72% in 2018 to 30.22% in 2019. This implies that there is
an increase in efficiency of the TCS in using its assets to generate profits. They are earning
more with the assets relative to the previous year.

Leverage Ratio
Leverage Ratio determines how much debt is there in the capital structure of a company. It
also assesses the ability of a company to meet its financial obligations.

Leverage
1.280

1.260 1.261

1.240

1.220

1.200 1.200

1.180

1.160
2017 2018 2019 2020

In Leverage ratio, we have calculated the equity multiplier which is as follows:

Equity Multiplier = Total Assets / Total Equity
Now, equity multiplier of TCS has increased to 1.261 in 2019 from 1.2 in 2018. It shows that
the capital structure has been maintained efficiently which has led to the acquisition of more
assets. Here, debt is not specifically mentioned in the formula, it is an underlying factor that
total assets includes debt.
Return on Equity
Return on equity measures the financial performance of a company, calculated by dividing
net profit by total equity.

Return on Equity = Net profit / Total Equity

RoE of TCS has increased from 0.333 in 2018 to 0.381 in 2019. It means that there is an
increase in efficiency in the use of shareholders funds. This increase has been attributed
towards the increase in the net profits from 2018 to 2019 which is 19.11%. At the same time,
equity increased by just 4%.
 Ratio Analysis

RATIOS TCS INFOSYS TCS INFOSYS

(2019) (2019) (2018) (2018)

CURRENT 4.18 3.00 4.85 3.78

RATIO
Current asset/
Current
liabilities
QUICK RATIO 4.18 3.00 4.85 3.78
Current asset –
stock/ Liabilities
DEBTORS’ 71.20 66.75 70.79 71.60
COLLECTION
PERIOD RATIO
Avg. debtors/
Total credit sales
* 365
CREDITORS’ 45.93 46.34 50.0 39.08
COLLECTION
PERIOD RATIO
Avg. creditors/
Total purchases
* 365
DEBT TO 0 0 0 0
EQUITY
RATIO
Total debt / Total
Shareholder’s
equity
INTEREST 240.44 - 1065.37 -
COVERAGE
RATIO
PBIT / Interest
GEARING
RATIO
Debt+
Preference share
capital * 100 /
Equity share
capital +
other equity
INVENTORY 12317 - 3894.24 -
TURNOVER
RATIO
Average
inventory * 365 /
COGS
GROSS PROFIT 26.99 23.35 26.86 25.65
RATIO
Gross profit /
Sales * 100
NET PROFIT 24.40 20.11 25.92 25.06
RATIO
Net profit / Net
sales * 100
ROCE 51.78 31.77 42.00 31.55
PBIT/ Capital
employed * 100
EPS 80.12 33.75 131.86 73.97
Profit after tax /
No of equity
shares
DIVIDEND 33.54 93.64 36.78 46.42
PAYOUT
RATIO
DPS/ EPS * 100
DPS 30 21.50 50 43.50
Dividend paid/
No of equity
shares
P/E RATIO 25.06 23.32 24.46 23
MPS/EPS
EARNINGS 0.04 0.05 0.05 0.07
YIELD
EPS/MPS
DIVIDEND 5.45 5.22 5.33 4.98
YIELD
DPS/MPS
FIXED ASSET 5.67 3.57 4.79 3.45
TURNOVER
RATIO
Total sales /
Fixed assets *
100
TOTAL ASSET 1.56 1.17 1.28 0.98
TURNOVER
RATIO
Total sales /
Total assets *
100

Analysis
 If we look at the liquidity ratios of the company, we can see that the current ratio
and liquidity ratio has decreased. However, as the ratios are greater than 1 so it is
good for the company as it means that the company possess more current assets then
liabilities. However, it is also believed that if these ratios are above 3 then it is not an
ideal. It is needed to be looked if the company’s current assets are being put to use
efficiently. Also, we can see from the above data that TCS is performing much better
than Infosys as it has high liquidity that is high ability to pay its liabilities with the
assets it possesses.
 Debtor’s collection period is the amount of time a company takes to collect the
credit payments from its trade debtors. Ideally 45 days is believed to be a good
debtor’s collection period. If we look at the table TCS debtor collection period has
raised this year to 71.20 which means the ability of the company to collect payments
from debtors has suffered. If we compare the company’s ratio with Infosys, we can
see that Infosys has done better in terms of dealing with its trade debtors and taking
less days on an average to collect outstanding payments.
 Creditor’s collection period is the number of days it takes a business to settle its
debts with trade suppliers. The more the days taken the more the business’s
inefficiency in handling the debts. TCS has performed better in these terms as the
average number of days taken by the firm to repay debts has decreased this year to
45.93 from 50 which is an ideal period to pay debts. Also, if we compare company’s
performance with Infosys, it has again done better as the average collection period
(TCS) is less than that of Infosys.
 Interest coverage ratio indicates whether a company is having enough cash to repay
the interest on debts, it has taken from its creditors. TCS’s Interest coverage ratio has
decreased drastically in the period of one year (2018-2019) which means that there is
decrease in the availability of cash with the firm to repay its interests on the debts it
has taken from the creditors.
 Inventory turnover ratio indicates the number of times company’s inventories are
turned into cash. When inventory level is lower firm has higher amount of cash
available to invest in other day to day operating expenses. TCS has one far better in
terms of maintaining lower level of inventory. The inventory turnover ratio for the
company has increased in 2019 to 12317 which is a drastic increase and thus company
is performing better than last year in maintaining its inventory level.
 If we look at the profitability ratios, we can see that the gross profit ratio for the
company has increased in the current year in comparison to the last year. Also, the net
 profit ratio for TCS has decreased with a small amount which can be due to increase
in the operating expenses. However, overall the company has done great in terms of
making profit. If compared with Infosys, TCS is again doing better in terms of making
profits.
 ROCE for the company has increased with respect to last year indicating TCS is
getting higher returns on the capital it has employed in the business thus performing
better than last year. If compared with Infosys, TCS’s returns are much higher.
 Asset turnover ratio indicates a company’s ability to utilize its assets in an efficient
way. The asset turnover ratio for TCS has increased with a substantial amount within
a period of one year (2018-2019). This indicates that the company is utilizing its
assets properly and doing better then what it was doing in the previous year. If
compared with Infosys, the asset turnover ratio for TCS is greater and thus better in
terms of handling assets then Infosys.

Group 12
Yashank Jain
Krishak Khandelwal
Prachi Singhal
Aman Gandhi
Suprey Barambhe