TCS Ratio ANALYSIS

Roll no.
47- Jatin Sawant
53- Shreya Shinde
59- Deepesh Waghela
60- pooja walmiki

FSA ASSIGNMENT (DIV-A)

FINANCIAL RATIOS & ANALYSIS (2022-23)

1. Operating Profit Margin (OPM) 2022-23 - Operating Profit*100

Income from Operations
Operating Profit= Income from Operations - Other Operating Expenses
2023: 190354-143297=47057

Other Operating Expenses= Total Expenses-Depreciation (Financial Cost)

= 143992-695= 143297

= 47057/190354*100
= 24.7%

2022:
Other Operating Expenses= Total Expenses- Depreciation (Financial Cost)
= 118104-486=117618
Operating Profit= Income from Operations – Other Operating Expenses
= 16034-117618= 42723

= 42723/ 1117618* 100 = 26.6%

Comparative Analysis for both the years-

In the year 2023 the company makes operating profit through every 24rs of sale done
by then the expenses might have also gone down to meet the efficiency level.
Similarly in year 2022 the company generated more operating profit revenue margin
with efficiency of making sales for every 26rs of sale done by then the expenses
might have also gone down to meet the efficiency level.
2. Net Profit Margin = Net Profit*100
Total Income

2023: = 39106/195628*100 = 19.97%

2022: = 381187/167827*100 = 22.7%

Comparative Analysis 2022-23

The decrease in Net Profit Margin from 22.7% in 2022 to 20% in 2023 for TCS (Tata
Consultancy Services) suggests a slight reduction in the company's ability to convert
revenue into net profit. This could be influenced by various factors such as changes in
expenses, cost structures, or economic conditions. While a lower net profit margin
indicates a smaller portion of revenue retained as profit, it's essential to consider the
broader context and additional financial metrics to understand the reasons behind this
change in profitability.

3. ROE (Return on Equity) = PAT/ NET WORTH *100

2023: = 39106/74538*100
= 52.46%

2022: = 38187/77173*100
= 49.48%

Comparative Analysis-
The increase in Return on Equity (ROE) from 49.48% in 2022 to 52.46% in 2023 for
TCS (Tata Consultancy Services) suggests improved efficiency in generating profits
relative to shareholder equity. A higher ROE indicates that TCS effectively utilized its
shareholders' investment to generate additional earnings. This improvement is
generally viewed positively, reflecting the company's ability to create value for
shareholders and potentially signalling enhanced financial performance in 2023.

4. ROCE (Return on Capital Employed) = EBIT x 100

Long Term Capital employed (LTCE)
= OP+ OI x100
LTCE
2023 = 47057 +5328 x100 = 46%
119827-5965
 2022 = 42723+7486 x100 = 43.63%
121203-6189

Comparative Analysis:
The increase in Return on Capital Employed (ROCE) from 43.63% in 2022 to 46% in
2023 for TCS (Tata Consultancy Services) indicates improved efficiency in
generating returns from its capital. This suggests that TCS has become more effective
in utilizing its capital to generate profits, potentially through enhanced operational
performance or better capital allocation. The higher ROCE is a positive signal,
reflecting increased profitability or improved efficiency in deploying capital during
the specified period.

Liquidity Ratios

5. Current Ratio= Current Asset *100

Current Liabilities
2023 = 92784/39824
= 2.35 times

2022 = 94192/37901
= 2.48 times

Comparative Analysis

The decrease in TCS's Current Ratio from 2.48 times in 2022 to 2.35 times in 2023
suggests a slight reduction in the company's overall short-term liquidity. While both
ratios are above 1, indicating that TCS has more current assets than current liabilities,
the decrease may signal a change in the company's ability to cover its short-term
obligations. It's important to delve into the specific components of current assets and
liabilities for a more detailed analysis of TCS's liquidity position during these periods.

6. Quick Ratio= Current Assets- Inventory- P.E

Current Liabilities

2023: 92784-27 = 2.35 times

39324

2022: = 94192-19 = 2.48 times

 37901

Comparative Analysis
The decline in TCS's Quick Ratio from 2.48 times in 2022 to 2.35 times in 2023 suggests
a slight reduction in the company's immediate liquidity. Although both ratios are still
above 1, indicating a capacity to meet short-term obligations, the decrease might be
attributed to changes in the composition of current assets or liabilities. Investors and
analysts may further investigate these components to assess the specific factors
influencing TCS's short-term financial position and liquidity management during these
respective periods.

Efficiency Ratios
7. Debtors Days = Debtors/Credit sales x 365
2023: = 35534+7264/190354 x365
= 82 days
2022: = 29852+6250/160341 x 365
= 82 days
Comparative Analysis
If Debtors Days for TCS (Tata Consultancy Services) remained constant at 82 days
from 2022 to 2023, it suggests that the company maintained a consistent average
collection period for payments from its debtors or clients. This stability indicates that
TCS sustained a similar efficiency in managing its accounts receivable over the
specified period, without a significant change in the time it takes to collect payments
from customers.

8. Inventory Days= Inventory/COGS X 365

2023:
= 27/37634 x 365
= 0.26 days

2022:
= 19/ 82107*365
= 0.08 days
 Comparative Analysis:
The increase in Inventory Days from 0.08 in 2022 to 0.26 in 2023 for TCS (Tata
Consultancy Services) indicates that, on average, it took the company more time to
sell its inventory in 2023. This could be attributed to various factors such as changes
in demand, production delays, or adjustments in inventory management practices. A
higher Inventory Days value may suggest a potential increase in holding costs and
could prompt further examination of TCS's inventory management efficiency and
demand forecasting.

9. Payable Days = Creditors/ Operating Expenses x 365

2023: 13768/143992 x 365 = 35 days

2022: 10082/118104 x 365= 31days

Comparative Analysis for both years:

The increase in Payable Days from 31 days in 2022 to 35 days in 2023 for TCS (Tata
Consultancy Services) suggests that, on average, the company took a slightly longer
time to settle its payables in 2023. This could be influenced by changes in vendor
payment policies, cash flow considerations, or other factors impacting the company's
accounts payable management. A longer payable period may positively affect TCS's
cash flow by providing more time to use capital for other purposes before meeting
financial obligations to suppliers.

10. Working Capital Cycle= Debtors days+ inventory days-Payable days

2023: = 82+0.26-34.89
=47.37days

2022: = 82.18+0.08-31.15
= 51.11 days

 Interpretations and Analysis for Both the years

The decrease in the Working Capital Cycle from 51 days in 2022 to 47 days in
2023 for TCS (Tata Consultancy Services) suggests an improvement in the efficiency of the
company's working capital management. A shorter working capital cycle indicates that TCS
is more effective in converting its resources into cash. This improvement may be attributed to
better management of accounts receivable, inventory, or accounts payable. Overall, a reduced
working capital cycle is considered positive, indicating improved operational efficiency and
potentially enhanced liquidity in 2023 compared to 2022.

 Solvency Ratios
11. Fixed Asset Turnover Ratio= Total Revenue/Fixed Assets
2023: = 190354/119827
= 1.58 times

2022: = 160341/121263
=1.32 times

Comparative Analysis of both years:

The increase in Fixed Asset Turnover from 1.32 times in 2022 to 1.58 times in 2023 for TCS
(Tata Consultancy Services) indicates an improvement in the company's efficiency in
generating revenue from its fixed assets. This suggests that TCS was more effective in
utilizing its fixed assets to generate sales in 2023 compared to the previous year. A higher
fixed asset turnover ratio is generally considered positive, reflecting improved operational
performance and better utilization of capital assets. This increase may indicate enhanced
productivity and revenue generation from the company's fixed asset base.

12. Interest Coverage Ratios= EBIT/INTEREST

2023: 52385/695 = 75.37 times

2022: 50209/486 = 103.31 times

Comparative Analysis for both the years

The decrease in the Interest Coverage Ratio from 103.31 times in 2022 to 75.35 times in 2023
for TCS (Tata Consultancy Services) suggests a slight reduction in the company's ability to
cover its interest expenses with its operating income. While both ratios are well above 1,
indicating the company's capacity to meet its interest obligations, the decline may signal
changes in the company's financial structure or interest costs. Investors and analysts may
further investigate the reasons behind this decrease to assess TCS's ability to service its debt
in 2023 compared to 2022.

13. Debt/Equity= Debt

Equity

2023: = 5965/74538
= 0.08
2022: = 6189/77173
= 0.08 times

 Comparative Analysis for both years-

If the Debt to Equity ratio for TCS (Tata Consultancy Services) remained constant at
0.08 in both 2022 and 2023, it indicates a stable financial structure. A Debt to Equity
ratio of 0.08 suggests that TCS has a relatively low level of debt in comparison to its
equity. This stability in the ratio may signify a consistent approach to maintaining a
conservative capital structure, with a lower reliance on debt for financing. Investors
often view a lower Debt to Equity ratio positively, as it implies lower financial risk
and potential flexibility in managing debt obligations.

14. GPM = GP/SALES*100

GP = sales -cogs
2023
GP = 190354-37634 = 152720
GPM = 152720/190354*100
= 80.22%
2022
GP = 160341- 82107= 78234
GPM = 78234/160341= 48.79%

 Comparative Analysis for both years-

The Gross Profit Margin (GPM) for TCS (Tata Consultancy Services) increased from
48.79% in 2022 to 80.22% in 2023. This significant improvement suggests that TCS
experienced better control over its production and service delivery costs in 2023,
resulting in a higher proportion of gross profit relative to revenue. The rise in GPM can
be indicative of improved operational efficiency or effective cost management,
contributing to a healthier financial performance for TCS in 2023 compared to the
previous year.
 COST STRUCTURE FOR BOTH YEARS (2022-23)
(In Crore)
Cost 2023 2022
Employee benefit expenses 96218 81097
Cost of equipment and software licenses 1416 1010
Finance costs 695 486
Depreciation and amortisation expenses 3940 3522
Other expenses 41723 31989

(In crore)
- Total Expenses in 2023: ₹143,992
- Total Expenses in 2022: ₹118,104

1. Employee Benefit Expenses:

- 2023: (₹96,218 / ₹143,992) * 100 = 66.78%
- 2022: (₹81,097 / ₹118,104) * 100 = 68.61%

2. Cost of Equipment and Software Licenses:

- 2023: (₹1,416 / ₹143,992) * 100 = 0.98%
- 2022: (₹1,010 / ₹118,104) * 100 = 0.86%

3. Finance Costs:
- 2023: (₹695 / ₹143,992) * 100 = 0.48%
- 2022: (₹486 / ₹118,104) * 100 = 0.41%

4.Depreciation and Amortization Expense:

2023: (₹3,940 / ₹143,992 * 100) = 2.74%
2022: (₹3,522 / ₹118,104) * 100 = 2.98%
5. Other Expenses:
- 2023: (₹41,723 / ₹143,992) * 100 = 28.97%
- 2022: (₹31,989 / ₹118,10=) * 100 = 27.10%

 Comparative Analysis for both years-

TCS's cost structure shows a slight reduction in employee benefit expenses from 68.61% in
2022 to 66.78% in 2023, indicating a focus on talent with potential efficiency measures.
Stable percentages for equipment and software licenses at 0.98% in 2023 and 0.86% in 2022
highlight consistent cost management in technology. Finance costs, though minimal,
increased slightly from 0.41% in 2022 to 0.48% in 2023, showcasing effective financial
management. A notable drop in depreciation and amortization expenses from 2.98% in 2022
to 2.74% in 2023 suggests potential cost-saving strategies. Significant growth in other
expenses from 27.10% in 2022 to 28.97% in 2023 signals a shift in operational spending,
possibly in areas like administration, marketing, or research. TCS demonstrates adaptability
and strategic cost management across diverse categories.