Financial Analysis on Tata Consultancy Services

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FINANCIAL ANALYSIS
ON
TATA CONSULTANCY SERVICES

SUBMITTED
TO
PROF . D.V.RAMANA

Debasis Sarangi(77)
Dhanya K(78)
Dinesh Kumar Mandal(80

TABLE OF CONTENTS

1.Acknowledgments……………………………………………………………….3 2.Executive Summary……………………………………………………………...4 3.Environment Analysis…………………………………………………………...5 4.IT Industry Overview……………………………………………………………6 5.Company Analysis………………………………………………………………10 6.Ratio Analysis…………………………………………………………………...15

Liquidity Ratios…………………………………………………………….15
Efficiency Ratios…………………………………………………………...19
Solvency Ratios………………………………………………………….....21
Profitability…………………………………………………………………25
Market Based Returns………………………………………………………34 7DuPont Analysis…………………………………………………………………36 8Economic Value Analysis……………………………………..…………………41 9Inter Company Analysis………………………………………………………....44 10Accounting Policies……………………………………………………………..48 11References……………………………………………………………………….55

1. ACKNOWLEDGEMENTS

We would like to take this opportunity to express our gratitude and respect to Prof D V Ramana for all the efforts that he took to make the concepts clear to each and every one of us. Financial Accounting being a totally new subject to many of us, he made sure that we were getting the concepts right every now and then by way of repeated explanations, quizzes and so on. We would like to thank him once again for his unprecedented dedication and commitment towards the course and the students which made it quite an easy ride for us.

2.EXECUTIVE SUMMARY

The project report details the financial analysis done on India’s Largest Software Firm, Tata Consultancy Services. The environment and industry is studied and then the position and the policies of the company. The FSA is primarily done through various ratios which indicate the company’s liquidity, solvency, efficiency, profitability, market returns and the like. A DuPont Analysis is also carried out to estimate the returns on assets, capital employed etc.

An inter-company analysis has also been carried out in which the performance of TCS is compared with the other IT majors, Infosys and Wipro. The comparison is made on the basis of the various ratios that were discussed earlier. The significant accounting policies followed by TCS have also been listed in the report. We have also included the condensed financial statements for the past three years in the report

3. ENVIRONMENT ANALYSIS

FY 2006-07 witnessed a revalidation of the Indian Information Technology – Business Process Outsourcing (IT-BPO) growth story, driven by a maturing appreciation of India’s role and growing importance in global services trade. And this scenario is predicted to continue in the coming years too.

We will try to take a look into the major environmental factors that has contributed to this phenomenon are listed below

India has successfully leveraged its fundamental advantages of abundant talent, a keen focus on quality and security, lower cost-structure coupled with an enabling business environment to achieve a marked lead in the global outsourcing arena. This is reflected in India’s dominant and growing share of the global pie. Over FY2001-2006, India’s share in global sourcing has grown from 62 percent to 65 percent for IT and 39 percent to 45 percent for BPO. The visibly higher preference for India is driven by its unmatched superiority when measured across a range of parameters that determine the attractiveness of a sourcing location. •Abundant talent: India’s young demographic profile is an inherent advantage. •Quality Education: The quality of education available in India and the technical expertise of Indian Engineers and the fluency in English is a major factor. •Sustained cost competitiveness: The significant and sustained cost advantage, attributed to the wide differential in wage-costs and productivity gains achieved by firms in sourcing from India, continues to be a...
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