FINANCIAL MANAGEMENT

CIA III

TEAM MEMBERS
Name Reg. No.
Aryaman Kumar 20212013
Azan Irfan Anim 20212016
Prince Pravin Chaudhary 20212040
Ritik Raj 20212046
Sudheer Dixit 20212056
Tata Consulting Services Ltd. was founded in 1968 by a division of Tata Sons Limited
Tata Consultancy Services Limited (TCS) is the famous Indian Information technology
(IT) services, consulting and business Solutions Company headquartered in Mumbai.
TCS operates in 46 countries throughout the world. TCS is the largest Indian company
by market capital and is the biggest India-based IT services company .TCS is now
placed among the "Big 4" most valuable IT services brands worldwide. In 2013, TCS is
ranked 40th overall in the Forbes World's Most Innovative Companies ranking, making
it both the highest-ranked IT services company and the top Indian company

TCS DIVIDEND POLICY AND TRENDS

The board of Tata Consultancy Services (TCS) has approved a second interim dividend of ₹7
per equity share for the current financial year. The company made the announcement on
Friday while declaring the financial results for the quarter ended September 30, 2021.
For the year ending March 2021 Tata Consultancy Services has declared an equity dividend
of 3800.00% amounting to Rs 38 per share. At the current share price of Rs 3397.75 this
results in a dividend yield of 1.12%.

DIVIDEND DISTRIBUTION TO MEMBERS

In distributing the profits of the Company among shareholders, the Board of Directors will
seek to balance members' need for a reasonable and predictable return on their investment
with the Company's funding requirements for longer-term sustainable growth.
The financial factors that may be considered by the Board of Directors in arriving at the
decision include, without limitation, the following.

After meeting
internal cash

requirements and maintaining a reasonable cash balance towards any strategic investments,
the Company will endeavour to return the rest of the free cash generated to shareholders
through regular dividends.

TCS DIVIDENDS FOR LAST FIVE YERS AND EXPLANATION

As we clearly see from the data of TCS given that-

a) In 2021 the annual dividend is Rs. 7 and the dividend percentage is 700 % with a
yield of 1.12 % and in the following years the dividend is comparatively less and the
year of 2020 has been more profitable to the dividend holder.

b) Dividend yield can be simply calculated simply by dividing dividend by share price.
The more the dividend yield the more profit to the dividends.

CIRCUMSTANCES IN WHICH DIVIDENDS MAY NOT BE PAID OUT

Some conceivable circumstances under which shareholders may or may not expect a dividend
are: adverse market conditions and business uncertainty, inadequacy of profits earned during
the fiscal year, inadequacy of cash balance, large forthcoming capital requirements which are
best funded through internal accruals, changing government regulations, etc.

Even under such circumstances, the Board may, at its discretion, and subject to applicable
rules, choose to recommend a dividend out of the Company’s free reserves.

DIVIDEND SUMMARY

For the year ending March 2021 Tata Consultancy Services has declared an equity dividend
of 3800.00% amounting to Rs 38 per share. At the current share price of Rs 3397.75 this
results in a dividend yield of 1.12%.

The company has a good dividend track report and has consistently declared dividends for the
last 5 years.

It's important to realize that a stock's dividend yield can change over time either in response
to market fluctuations or as a result of dividend increases or decreases by the issuing
company.
CALCULATION OF COST OF CAPITAL
Preference Dividend (PD1) = Rs 15
Interest on Debt(I) = 19%
Dividend (D1) = Rs 7
Tax = 10%
Face Value (FV) = 850
Current Market Price (CMP) = 3480

Ke= D1/CMP = 7/3480 = 0.020= 20%

Kp= PD1/FV = 15/850 = 0.017= 17%

Kd = I(1-T)/FV = 19(1-0.10)/850 = 0.20 = 20%

Cost of Capital
20% 20%
Ke
Kp
Kd

17%

Sources Of Funds TCS Value (in Crs)

Equity Share Capital 370.00
15% Preference Share Capital 168.00
19% Debt 6,062

Sources of Funds

100%
80%
370 168 6062
60%
40%
20%
0%
Equity Share Capital 15% Preference Share Capital 19% Debt

Series1 Value (in Crs)

Weighted Average Cost of Capital
Value (in Crs) Specific Cost of Capital Cost of Capital Value
370 0.020 74,000,000
168 0.017 285,60,000
6,062 0.020 121,24,00,000
6600Cr 1314960000 or 131Cr
Approx.

Weighted Average Cost of Capital = Total Value of Cost of Capital/ Total Value or Amt of
Funds

= 1314960000/6600000000= 0.19923 = 19%

Hence WACC of 19% is there for TCS. Here the WACC is high which is associated with the
risk factor for the shareholders and so the board of directors should take the decisions
accordingly.
 ANALYSING PROFITABILITY

 Return on equity(ROE):  The ROE for the company improved and stood at 38.6%
during FY20, from 35.3% during FY19. The ROE measures the ability of a firm to
generate profits from its shareholders capital in the company. An increasing  ROE
suggests that the company’s management team is more efficient when it comes to
utilizing investment financing to grow their business and is more likely to provide
better returns to investors.

Return on Capital Employed (ROCE): The ROCE for the company improved and
stood at 51.3% during FY20, from 46.7% during FY19. The ROCE measures the
ability of a firm to generate profits from its total capital (shareholder capital plus debt
capital) employed in the company. A high ROCE value indicates that a larger chunk
of profits can be invested back into the company for the benefit of shareholders. The
reinvested capital is employed again at a higher rate of return, which helps produce
higher earnings-per-share growth. A high ROCE is, therefore, a sign of a successful
growth company.

Return on asset (ROA): The ROA of the company declined and down at 26% during
FY20, from 27.6% during FY19. The ROA measures how efficiently the company
uses its assets to generate earnings. A low percentage return on assets indicates that
the company is not making enough income from the use of its assets. The Low
percentage return on assets may also indicate an inefficient use of company facilities
or machinery.

Current Ratio: The company's current ratio deteriorated and stood at 3.3x during
FY20, from 4.2x during FY19. The current ratio measures the company's ability to
pay short-term and long-term obligations. Generally, a decrease in current ratio means
that there are problems with inventory management, ineffective or lax standards for
collecting receivables, or an excessive cash burn rate.

Interest Coverage Ratio: The company's interest coverage ratio deteriorated and stood
at 46.7x during FY20, from 210.9x during FY19. The interest coverage ratio of a
company states how easily a company can pay its interest expense on outstanding
debt. A higher ratio is preferable.
 If a company has a low-interest coverage ratio, there's a greater chance the company
won't be able to service its debt, putting it at risk of bankruptcy. In other words, a
low-interest coverage ratio means there is a low number of profits available to meet
the interest expense on the debt.
 RELATIONSHIP BETWEEN COST OF
CAPITAL, CAPITAL STRUCTURE AND
DIVIDEND DECISIONS
Capital Structure, Cost of Capital and the Dividend decisions are actually interconnected with
each other and also dependence on each other, if we talk about Capital structure and cost of
capital then they have a direct relationship in terms of the financial well-being of a company.

When in balance, both the capital structure and the specific type of cost of capital employed
can aid in selecting the right type of investments to make on the behalf of the company, how
to make the best use of resources that are not necessary for the day-to-day operation of the
business, and even how to purchase equipment that provides the most benefit over time to
that core operation.

Without relating the capital structure and cost of capital to business activities in the most
productive manner, the potential for failure of the operation is increased. We know that
Capital structure refers to the mix of both short- and long-term debt held by the business,
along with the levels of common and preferred equity whereas Cost of capital refers to the
benefits or returns that a business expects to generate from taking on a specific project, such
as building a new manufacturing facility.

This would mean that the connection between capital structure and cost of capital helps to
demonstrate how decisions on how to operate a business have a direct impact on both the
debt and the equity that the business holds at any given point in time.

Here the dividend decision is also related as the Dividend policy is directly connected with
the theories of capital structure. If an enterprise pays dividends, it decreases the degree of
financing of equity capital from internal sources, and as a consequence may require external
financing sources that are from capital invested in shares in the form of a dividend
 CONCLUSION

 The company has been paying a dividend for a long time, and it has been quite stable
which gives us confidence in the future dividend potential. Since 2011, the first
annual payment was ₹7.00, compared to the most recent full-year payment of ₹38.00.
This implies that the company grew its distributions at a yearly rate of about 18%
over that duration. Rapidly growing dividends for a long time is a very valuable
feature for an income stock.

 TCS is possessing a stable dividend policy and therefore is likely to enjoy greater
investor interest than those companies who are suffering from a more inconsistent
approach. Stable dividend policy portrays positive image of the company to its
shareholders about its brighter future, and therefore gains more investor interest.

 The companies Interest coverage ratio has deceased a lot in the financial year 2020
compared to 2019 and therefore it could be said that the ability of the company to pay
out its outstanding debt has reduced, which is an area of concern for them. TCS needs
to maintain a high interest coverage ratio in order to remain profitable in the long run.

 The decrease in the current ratio of TCS is an issue that requires immediate attention.
They need to manager their inventory in a better manner and at the same time they
would also have to set more efficient standards of collecting receivables.

 It could also be said that organisations should properly manage the Capital Structure,
Cost of Capital and the Dividend related decisions and understand that they are
actually connected with each other and affect the profitability of the organisation
directly.

Contribution
Introduction and Dividend policy- Sudheer
Cost of capital- Ritik
Profit analysis- Prince
Relationship between Cost of Capital, Capital Structure and Dividend Policy - Azan and
Aryaman
Conclusion- Aryaman