Description
The IT industry can serve as a medium of e-governance, as it assures easy accessibility to information. The use of information technology in the service sector improves operational efficiency and adds to transparency.
Financial Analysis Of Tcs And Wipro With Respect To Ratio Analysis
Dr.Rupesh Kumbhaj*, Dr.Yuvraj Kumbhaj*
Introduction
Information technology (IT) is concerned with the development, management, and use of computer-
based information systems. The Information Technology Association of America has defined information
technology (IT) as “the study, design, development, application, implementation, support or management
of computer-based information systems”, but the termhas also been applied more narrowly to describe
a branch of engineering dealing with the use of computers and telecommunications equipment to store,
retrieve, transmit and manipulate data. Although commonly used to refer to computers and computer
networks, IT encompasses other information-distribution technologies such as television and telephones,
a wider field more explicitly known as information and communications technology. The information
technology (IT) industry has become of the most robust industries in the world. IT, more than any other
industry or economic facet, has an increased productivity, particularly in the developed world, and
therefore is a key driver of global economic growth. Economies of scale and insatiable demand from
both consumers and enterprises characterize this rapidly growing sector.
Features of the IT Industry at a Glance:
· Economies of scale for the information technology industry are high.
· Unlike other common industries, the IT industry is knowledge-based.
· Efficient utilization of skilled labor forces in the IT sector can help an economy achieve a rapid
pace of economic growth.
· The IT industry helps many other sectors in the growth process of the economy including the
services and manufacturing sectors.
Big IT Services companies
Firm Revenues Employees
Fiscal
Year
Headquar
ters
TCS
$10.17
billion
243,545 2012 Mumbai
Wipro $6.30 billion 135,920 2012 Bangalore
Infosys $7.99 billion 151,151 2012 Bangalore
HCL
Technologies
$4.2 billion 89,319 2012 Noida
*Assistant Professor, Rainessance College of Commerce and Management, Indore.
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Altius Shodh Journal of Management & Commerce
The Role of the IT Industry:
The IT industry can serve as a medium of e-governance, as it assures easy accessibility to
information. The use of information technology in the service sector improves operational efficiency
and adds to transparency. It also serves as a medium of skill formation. Growth of IT industries
gets attention from every corner ex: Investors, job-seekers, government, competitors etc; and all
wants financial analysis of the companies for various purposes. Financial analysis (also referred to
as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment
of the viability, stability and profitability of a business, sub-business or project. Among various
methods available for analyzing financial statement Ratio analysis is a method of analyzing financial
statement to determine the overall financial strength of a business. Hence this research project
presents "A COMPARATIVE STUDY ON FINANCIAL ANALYSIS OF IT COMPANIES
WITH SPECIAL REFERENCE TO TCS AND WIPRO".
Objective:
The objectives of this research are:
? To analyze and compare financial position of TCS and Wipro.
? To understand current financial health of a company.
? To compare profitability of the companies.
? To compare liquidity of the companies.
? To compare potential of the companies.
Conceptual framework:
Financial analysis:
Financial analysis is an aspect of the overall business finance function that involves examining historical
data to gain information about the current and future financial health of a company. It refers to an
assessment of the viability, stability and profitability of a business, sub-business or project. Finance is
the language of business.
Users of result of financial analysis:
? Trade creditors are interested in firm’s ability to meet their claims over a very short period
of time. Their analysis will, therefore, be confined to the evaluation of the firm’s liquidity position.
? Suppliers of long-term debt, on the other hand, are concerned with the firm’s long-term solvency
and survival. They analysis the firm’s profitability over time, its ability to generate cash and able
to pay interest and repay principal. Long term creditors do analysis the
historical financial statements and also put stress on the projected financial statements.
? Investors who have invested their money in the firm’s shares are most concerned about the
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Altius Shodh Journal of Management & Commerce
firm’s earnings. They focus on the analysis of the firm’s present and future profitability. They are
also interested in firm’s financial structure to the extent it affects firm’s earning and risk.
? Management of the firm would be interested in every aspect of the financial analysis. It is
their responsibility to see that the funds are used most effectively and efficiently, and the firm’s
financial condition is sound.
? Government is also interested in financial analysis report of the companies for various purposes
ex: tax purpose etc.
Advantages of Financial Statements Analysis:
1. Financial statements analysis helps the government agencies to analyze the taxation due to the
company.
2. Any company can analyse its own performance through financial statements analysis over any
period of time.
3. The investors get enough idea to decide about the investments of their funds in the specific
company.
Disadvantages of Financial Statements Analysis:
1. Strong financial statement analysis does not necessarily mean that the organization has a strong
financial future.
2. Financial statement analysis might look good but there may be other factors that can cause an
organization to collapse.
Companies:
a) Tata Consultancy Services Limited (TCS)
TCS is an Indian multinational information technology (IT) services, business solutions and outsourcing
Services Company headquartered in Mumbai, Maharashtra. TCS is a subsidiary of the Tata Group and
is listed on the Bombay Stock Exchange and the National Stock Exchange of India. It is one of India’s
most valuable companies and is the largest India-based IT services company by 2012 revenues. It was
founded in 1968. Its founder was JRD TATA. It’s headquarter is in Mumbai, Maharashtra, India. Its
key people are: Ratan Tata (chairman), N. Chandrasekaran (CEO and MD). By 2004, TCS’s e-
business activities were generating over US$500 million in annual revenues. 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 TCS designed an ERP systemfor the Indian Railway Cater-
ing and TourismCorporation. In 2008 TCS undertook an internal restructuring exercise which aimed
to increase the company’s ability. TCS entered the small and medium enterprises market for the first
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Altius Shodh Journal of Management & Commerce
time in 2011, with cloud-based offerings. In the 2011/12 fiscal year TCS achieved annual revenues of
over U$10 billion for the first time.
b) Wipro
Wipro Limited (formerly Western India Products Limited) is an Indian multinational provider of Infor-
mation technology (IT) services, consulting and outsourcing services. It is headquartered in Bangalore,
Karnataka, India. As of 2012, the company has over 130,000 employees and a worldwide presence
with global centers across 54 countries. The company operates in four segments: IT products and
services, Consumer care and lighting, Healthcare and Infrastructure engineering. Its founder was
Mohamed HashimPremji. AzimHashimPremji is the Chairman of Wipro.
Research Methodology
1. Study: -It is mainly an analytical study to analyze financial performance of the company.
2. Sample size:-Sample size taken here is two. First company taken as a sample for research is
Tata Consultancy Services Limited (TCS) and second company is Wipro.
3. Data collection: Data collected here is from secondary source.
Data Analysis And Interpretation
Profitability analysis of Wipro:
? The return on capital employed for financial year 11-12 is 21.41%. As compared to the past 4
year’s performance of Wipro, the return on capital employed of the company for financial year
11-12 has decreased, which implies Wipro is gaining less from its assets in financial year 11-12.
? The operating profit margin for financial year 11-12 is 19.63%. As compared to the past 4
year’s performance of Wipro the operating profit margin of the company for financial year 11-
12 has decreased, which implies Wipro is earning less per dollar of sales in financial year 11-
12.
? The asset turnover ratio for financial year 11-12 is 1.14%. As compared to the past 4 year’s
performance of Wipro the asset turnover ratio of the company for financial year 11-12 has
decreased, which implies Wipro is not using its assets optimally to generate revenue in financial
year 11-12.
? The return on equity ratio for financial year 11-12 is 19.24%. As compared to the past 4 year’s
performance of Wipro the return on equity ratio of the company for financial year 11-12 is
decreased, which implies a decrease in the company’s ability to generate profits without need-
ing as much capital. Falling return on equity is usually a problem.
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[Performance (profitability) analysis of Wipro]
Liquidity analysis of Wipro:
? The current ratio for financial year 11-12 is 1.92%. As compare to the past 4 year’s perfor-
mance of Wipro, the current ratio has increased, but in financial year 07-08 the current ratio
was 2.54% (highest). The current ratio of financial year 11-12 implies that Wipro’s market
liquidity position is better and it can meet its creditors demand in better way.
? The quick ratio for financial year 11-12 is 2.48%. As compared to the past 4 year’s perfor-
mance of Wipro the quick ratio has increased. It implies Wipro has enough short termassets to
cover its immediate liabilities without selling its inventory. The liquidity position of the company
is much better.
? Gearing equity ratio in financial year 11-12 is 22.83 times. As compared to the financial year
10-11, the Gearing equity ratio is increased but as compared to the past 4 year’s performance
of Wipro the Gearing equity ratio has decreased. It implies company’s financial position in long
run is not as good as compare to its past performance.
? Interest cover for financial year 11-12 is 79.32 times. As compared to the past 4 year’s perfor-
mance of Wipro, the interest cover has increased but as per financial year 10-11 the interest
cover has sharply decreased in the financial year 11-12. It implies the company is burdened by
debt expenses more in financial year 11-12.
? Payable turnover ratio in financial year 11-12 is 3.99 times. As compared to the past 4 year’s
performance of Wipro, the payable turnover ratio has increased. It implies there is a relatively
short time period between purchasing inventory or materials and paying for them.
? The account receivable turnover ratio for financial year 11-12 is 4.61%. As compared to the
past 4 year’s performance of Wipro, the account receivable turnover ratio has decreased. It
implies inefficient management of debtors. The business needs to reassess its credit manage-
ment procedures to ensure faster collection of debts.
? Inventory turnover ratio for financial year 11-12 is 48.33 times. As compared to the past 4
year’s performance of Wipro, inventory turnover ratio in the financial year 08-09 was 56.15
times (highest), which decreased in the financial year 09-10 and 10-11. But in financial year
11-12 it has again increased. The increase in inventory turnover ratio indicates high demand for
the product and good inventory management.
? The working capital cycle in the financial year 11-12 is 160.45. As compared to the past 4
year’s performance its value has increased. The right level of working capital depends on the
industry and the particular circumstances of the business. Too high working capital cycle indi-
cates the business has surplus funds which are not earning a return.
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Position (liquidity) analysis of Wipro
Potential analysis of Wipro:
? The earnings per share in financial year 11-12 isRs19.05. As compared to the past 4 year’s
performance the earnings per share was highest in financial year 09-10 i.e. Rs 33.36. As compare
to financial year 10-11 earnings per share of financial year 11-12 is increased, this implies
increase in the earning power of the company in financial year 11-12.
? The P/E ratio in financial year 11-12 is 10.50%. As compared to the past 4 year’s performance
the P/E ratio of Wipro is increased. It implies that investors are expecting higher
earnings growth in the future.
? The dividend yield in financial year 11-12 is 300%. As compare to dividend yield of financial
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year 10-11 i.e. 200% investors have better returns in financial year 11-12.
? The dividend cover in financial year 11-12 is Rs 3.18. As compare to past 4 year’s performance
the dividend cover value is decreased in financial year 11-12. It implies that company may face
difficulty in paying the dividend.
Potential analysis of Wipro
Profitability analysis of TCS:
? The return on capital employed for financial year 11-12 is 55.31%. As compared to the past 4
year’s performance of TCS, the return on capital employed of the company for financial year
11-12 has increased, which implies TCS is gaining more fromits assets in financial year 11-12.
? The operating profit margin for financial year 11-12 is 29.30%. As compared to the past 4
year’s performance of TCS, the operating profit margin of the company for financial year 11-
12 has decreased, which implies TCS is earning less per dollar of sales in financial year 11-12.
? The asset turnover ratio for financial year 11-12 is 1.74%. As compared to the past 4 year’s
performance of TCS, the asset turnover ratio of the company for financial year 11-12 has
sharply decreased, which implies TCS is not using its assets optimally to generate revenue in
financial year 11-12.
? The return on equity ratio for financial year 11-12 is 44.16%. As compared to the past 4 year’s
performance of TCS, the return on equity ratio of the company for financial year 11-12 has
increased, which implies increase in company ability to generate profit without needing as much
capital.
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Performance (profitability) analysis of TCS
Liquidity analysis of TCS:
? The current ratio for financial year 11-12 is 2.45%. As compared to the past 4 year’s
performance of TCS, the current ratio has increased. The increase in current ratio in financial
year 11-12 implies that TCS’s market liquidity position is better and it can meet its creditors
demand in better way.
? The quick ratio for financial year 11-12 is 2.43%. As compared to the past 4 year’s
performance of TCS, the quick ratio has increased. It implies TCS has enough short term
assets to cover its immediate liabilities without selling its inventory. The liquidity position of
the company is much better.
? Gearing equity ratio in financial year 11-12 is 24.82 times. As compared to the past 4
year’s performance of TCS, the gearing equity ratio has increased, but in the financial year
08-09 the gearing equity ratio was 37.24 (highest). It implies company’s financial position
in long run is good.
? Interest cover for financial year 11-12 is 841.63 times. As compared to the past 4 year’s
performance of TCS, the interest cover has increased but in the financial year 07-08 the
interest cover was highest i.e. 1,383.58 times. It implies how easily company can pay
interest expenses on its outstanding debts.
? Payable turnover ratio in financial year 11-12 is 5.60 times. As compared to the past 4
year’s performance of TCS, the payable turnover ratio has increased. It implies there is a
relatively short time period between purchasing inventory or materials and paying for them.
? The account receivable turnover ratio for financial year 11-12 is 5.59%. As compared to
the past 4 year’s performance of TCS, the account receivable turnover ratio has decreased.
It implies inefficient management of debtors. The business needs to reassess its credit
management procedures to ensure faster collection of debts.
? Inventory turnover ratio for financial year 11-12 is 93.86%. As compared to the past 4
year’s performance of TCS, inventory turnover ratio has increased. The increase in Inventory
turnover ratio indicates high demand for the product and good inventory management.
? The working capital cycle in financial year 11-12 is 124.83. As compared to the past 4
year’s performance, its value has increased. The right level of working capital depends on
the industry and the particular circumstances of the business. Too high working capital
cycle indicates the business has surplus funds which are not earning a return.
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Position (liquidity) analysis of TCS
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Results and Findings
? Overall profitability of Wipro in financial year 11-12 has decreased, and that of TCS has
increased. As compared to Wipro, the profitability of TCS is better in the financial year 11-12.
? The liquidity position of Wipro in financial year 11-12 is better but its expected financial position
in the long run is not as good. The liquidity position of TCS is better than Wipro and its expected
financial position in long run is also good.
? According to potential analysis, the earning power of TCS is better than Wipro, but according
to P/E ratio, investors are expecting higher earning growths in future with Wipro.
? In the financial year 11-12investors have much better return with TCS and as per dividend
cover value in financial year 11-12 both TCS and Wipro may face difficulty in paying the
dividends.
Suggestions And Recommendations
? According to the results and findings of the research, although the investors are expecting
higher earning growths in future with Wipro, but according to profitability and liquidity
position in financial year 2011-12, TCS has the better financial position in long run. There-
fore it is suggested that investors should invest in TCS for good returns in the long run.
? Payable turnover ratio of both TCS and Wipro is good in financial year 2011-12, which
indicates an on time payment to creditors. But according to gearing equity ratio, the finan-
cial position of Wipro in the long run is not as good as compared to its past performance.
Therefore it is recommended that creditors should check its financial position before grant-
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ing further credit.
? The return on equity ratio for Wipro is decreasing as compared to TCS; therefore it is
suggested that investors invest in TCS shares more as compared to Wipro.
? According to the profitability ratios, job seekers are suggested to try for TCS, as they will
have more opportunities for growth and development with TCS.
Conclusion
As growth of IT industries gets attention from every corner - investors, job-seekers, government,
competitors etc., everyone would want the financial analysis of the companies for various purposes.
Fromthe above financial analysis of TCS and Wipro with respect to ratio analysis, the vision is clear
about the current and future financial health of TCS and Wipro. The current and future financial health
of TCS is better than that of Wipro. Employees and job-seekers have a good future and opportunities
of growth and development with TCS. Investors can have good long run returns with TCS, but in the
financial year 2011-12, investors in both TCS and Wipro were benefitted. Despite a bundle of limita-
tions, ratio analysis is a useful tool for users of financial statements. It highlights important information in
simple form quickly. A user can judge a company by just looking at few numbers instead of reading the
whole financial statements. This makes the analysis of financial statements easy for all i.e. Investors,
job-seekers, government, competitors etc.
References
Bibliography:
1. Double Entry Book keeping, Class XI by T.S.Grewal.
2. Elements of Book Keeping For Class 11: CBSE by Mohan Juneja C, Arora J S, Chawla R C.
3. Comprehensive Financial Accounting XI by S. A. Siddiqui, A. S. Siddiqui.
4. Fundamental of Financial Management by Prof. Nirmal Jain.
Webliography:
1. www.moneycontrol.com
2. www.wipro.com
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3. www.tcs-ca.tcs.co.in
4. www.dnb.co.in
5. journals.cambridge.org
6. www.paperdue.com
7. www.acornlive.com
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doc_219952130.pdf
The IT industry can serve as a medium of e-governance, as it assures easy accessibility to information. The use of information technology in the service sector improves operational efficiency and adds to transparency.
Financial Analysis Of Tcs And Wipro With Respect To Ratio Analysis
Dr.Rupesh Kumbhaj*, Dr.Yuvraj Kumbhaj*
Introduction
Information technology (IT) is concerned with the development, management, and use of computer-
based information systems. The Information Technology Association of America has defined information
technology (IT) as “the study, design, development, application, implementation, support or management
of computer-based information systems”, but the termhas also been applied more narrowly to describe
a branch of engineering dealing with the use of computers and telecommunications equipment to store,
retrieve, transmit and manipulate data. Although commonly used to refer to computers and computer
networks, IT encompasses other information-distribution technologies such as television and telephones,
a wider field more explicitly known as information and communications technology. The information
technology (IT) industry has become of the most robust industries in the world. IT, more than any other
industry or economic facet, has an increased productivity, particularly in the developed world, and
therefore is a key driver of global economic growth. Economies of scale and insatiable demand from
both consumers and enterprises characterize this rapidly growing sector.
Features of the IT Industry at a Glance:
· Economies of scale for the information technology industry are high.
· Unlike other common industries, the IT industry is knowledge-based.
· Efficient utilization of skilled labor forces in the IT sector can help an economy achieve a rapid
pace of economic growth.
· The IT industry helps many other sectors in the growth process of the economy including the
services and manufacturing sectors.
Big IT Services companies
Firm Revenues Employees
Fiscal
Year
Headquar
ters
TCS
$10.17
billion
243,545 2012 Mumbai
Wipro $6.30 billion 135,920 2012 Bangalore
Infosys $7.99 billion 151,151 2012 Bangalore
HCL
Technologies
$4.2 billion 89,319 2012 Noida
*Assistant Professor, Rainessance College of Commerce and Management, Indore.
ISSN 2348 - 8891
Altius Shodh Journal of Management & Commerce
The Role of the IT Industry:
The IT industry can serve as a medium of e-governance, as it assures easy accessibility to
information. The use of information technology in the service sector improves operational efficiency
and adds to transparency. It also serves as a medium of skill formation. Growth of IT industries
gets attention from every corner ex: Investors, job-seekers, government, competitors etc; and all
wants financial analysis of the companies for various purposes. Financial analysis (also referred to
as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment
of the viability, stability and profitability of a business, sub-business or project. Among various
methods available for analyzing financial statement Ratio analysis is a method of analyzing financial
statement to determine the overall financial strength of a business. Hence this research project
presents "A COMPARATIVE STUDY ON FINANCIAL ANALYSIS OF IT COMPANIES
WITH SPECIAL REFERENCE TO TCS AND WIPRO".
Objective:
The objectives of this research are:
? To analyze and compare financial position of TCS and Wipro.
? To understand current financial health of a company.
? To compare profitability of the companies.
? To compare liquidity of the companies.
? To compare potential of the companies.
Conceptual framework:
Financial analysis:
Financial analysis is an aspect of the overall business finance function that involves examining historical
data to gain information about the current and future financial health of a company. It refers to an
assessment of the viability, stability and profitability of a business, sub-business or project. Finance is
the language of business.
Users of result of financial analysis:
? Trade creditors are interested in firm’s ability to meet their claims over a very short period
of time. Their analysis will, therefore, be confined to the evaluation of the firm’s liquidity position.
? Suppliers of long-term debt, on the other hand, are concerned with the firm’s long-term solvency
and survival. They analysis the firm’s profitability over time, its ability to generate cash and able
to pay interest and repay principal. Long term creditors do analysis the
historical financial statements and also put stress on the projected financial statements.
? Investors who have invested their money in the firm’s shares are most concerned about the
ISSN 2348 - 8891
Altius Shodh Journal of Management & Commerce
firm’s earnings. They focus on the analysis of the firm’s present and future profitability. They are
also interested in firm’s financial structure to the extent it affects firm’s earning and risk.
? Management of the firm would be interested in every aspect of the financial analysis. It is
their responsibility to see that the funds are used most effectively and efficiently, and the firm’s
financial condition is sound.
? Government is also interested in financial analysis report of the companies for various purposes
ex: tax purpose etc.
Advantages of Financial Statements Analysis:
1. Financial statements analysis helps the government agencies to analyze the taxation due to the
company.
2. Any company can analyse its own performance through financial statements analysis over any
period of time.
3. The investors get enough idea to decide about the investments of their funds in the specific
company.
Disadvantages of Financial Statements Analysis:
1. Strong financial statement analysis does not necessarily mean that the organization has a strong
financial future.
2. Financial statement analysis might look good but there may be other factors that can cause an
organization to collapse.
Companies:
a) Tata Consultancy Services Limited (TCS)
TCS is an Indian multinational information technology (IT) services, business solutions and outsourcing
Services Company headquartered in Mumbai, Maharashtra. TCS is a subsidiary of the Tata Group and
is listed on the Bombay Stock Exchange and the National Stock Exchange of India. It is one of India’s
most valuable companies and is the largest India-based IT services company by 2012 revenues. It was
founded in 1968. Its founder was JRD TATA. It’s headquarter is in Mumbai, Maharashtra, India. Its
key people are: Ratan Tata (chairman), N. Chandrasekaran (CEO and MD). By 2004, TCS’s e-
business activities were generating over US$500 million in annual revenues. 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 TCS designed an ERP systemfor the Indian Railway Cater-
ing and TourismCorporation. In 2008 TCS undertook an internal restructuring exercise which aimed
to increase the company’s ability. TCS entered the small and medium enterprises market for the first
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Altius Shodh Journal of Management & Commerce
time in 2011, with cloud-based offerings. In the 2011/12 fiscal year TCS achieved annual revenues of
over U$10 billion for the first time.
b) Wipro
Wipro Limited (formerly Western India Products Limited) is an Indian multinational provider of Infor-
mation technology (IT) services, consulting and outsourcing services. It is headquartered in Bangalore,
Karnataka, India. As of 2012, the company has over 130,000 employees and a worldwide presence
with global centers across 54 countries. The company operates in four segments: IT products and
services, Consumer care and lighting, Healthcare and Infrastructure engineering. Its founder was
Mohamed HashimPremji. AzimHashimPremji is the Chairman of Wipro.
Research Methodology
1. Study: -It is mainly an analytical study to analyze financial performance of the company.
2. Sample size:-Sample size taken here is two. First company taken as a sample for research is
Tata Consultancy Services Limited (TCS) and second company is Wipro.
3. Data collection: Data collected here is from secondary source.
Data Analysis And Interpretation
Profitability analysis of Wipro:
? The return on capital employed for financial year 11-12 is 21.41%. As compared to the past 4
year’s performance of Wipro, the return on capital employed of the company for financial year
11-12 has decreased, which implies Wipro is gaining less from its assets in financial year 11-12.
? The operating profit margin for financial year 11-12 is 19.63%. As compared to the past 4
year’s performance of Wipro the operating profit margin of the company for financial year 11-
12 has decreased, which implies Wipro is earning less per dollar of sales in financial year 11-
12.
? The asset turnover ratio for financial year 11-12 is 1.14%. As compared to the past 4 year’s
performance of Wipro the asset turnover ratio of the company for financial year 11-12 has
decreased, which implies Wipro is not using its assets optimally to generate revenue in financial
year 11-12.
? The return on equity ratio for financial year 11-12 is 19.24%. As compared to the past 4 year’s
performance of Wipro the return on equity ratio of the company for financial year 11-12 is
decreased, which implies a decrease in the company’s ability to generate profits without need-
ing as much capital. Falling return on equity is usually a problem.
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Altius Shodh Journal of Management & Commerce
[Performance (profitability) analysis of Wipro]
Liquidity analysis of Wipro:
? The current ratio for financial year 11-12 is 1.92%. As compare to the past 4 year’s perfor-
mance of Wipro, the current ratio has increased, but in financial year 07-08 the current ratio
was 2.54% (highest). The current ratio of financial year 11-12 implies that Wipro’s market
liquidity position is better and it can meet its creditors demand in better way.
? The quick ratio for financial year 11-12 is 2.48%. As compared to the past 4 year’s perfor-
mance of Wipro the quick ratio has increased. It implies Wipro has enough short termassets to
cover its immediate liabilities without selling its inventory. The liquidity position of the company
is much better.
? Gearing equity ratio in financial year 11-12 is 22.83 times. As compared to the financial year
10-11, the Gearing equity ratio is increased but as compared to the past 4 year’s performance
of Wipro the Gearing equity ratio has decreased. It implies company’s financial position in long
run is not as good as compare to its past performance.
? Interest cover for financial year 11-12 is 79.32 times. As compared to the past 4 year’s perfor-
mance of Wipro, the interest cover has increased but as per financial year 10-11 the interest
cover has sharply decreased in the financial year 11-12. It implies the company is burdened by
debt expenses more in financial year 11-12.
? Payable turnover ratio in financial year 11-12 is 3.99 times. As compared to the past 4 year’s
performance of Wipro, the payable turnover ratio has increased. It implies there is a relatively
short time period between purchasing inventory or materials and paying for them.
? The account receivable turnover ratio for financial year 11-12 is 4.61%. As compared to the
past 4 year’s performance of Wipro, the account receivable turnover ratio has decreased. It
implies inefficient management of debtors. The business needs to reassess its credit manage-
ment procedures to ensure faster collection of debts.
? Inventory turnover ratio for financial year 11-12 is 48.33 times. As compared to the past 4
year’s performance of Wipro, inventory turnover ratio in the financial year 08-09 was 56.15
times (highest), which decreased in the financial year 09-10 and 10-11. But in financial year
11-12 it has again increased. The increase in inventory turnover ratio indicates high demand for
the product and good inventory management.
? The working capital cycle in the financial year 11-12 is 160.45. As compared to the past 4
year’s performance its value has increased. The right level of working capital depends on the
industry and the particular circumstances of the business. Too high working capital cycle indi-
cates the business has surplus funds which are not earning a return.
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Position (liquidity) analysis of Wipro
Potential analysis of Wipro:
? The earnings per share in financial year 11-12 isRs19.05. As compared to the past 4 year’s
performance the earnings per share was highest in financial year 09-10 i.e. Rs 33.36. As compare
to financial year 10-11 earnings per share of financial year 11-12 is increased, this implies
increase in the earning power of the company in financial year 11-12.
? The P/E ratio in financial year 11-12 is 10.50%. As compared to the past 4 year’s performance
the P/E ratio of Wipro is increased. It implies that investors are expecting higher
earnings growth in the future.
? The dividend yield in financial year 11-12 is 300%. As compare to dividend yield of financial
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year 10-11 i.e. 200% investors have better returns in financial year 11-12.
? The dividend cover in financial year 11-12 is Rs 3.18. As compare to past 4 year’s performance
the dividend cover value is decreased in financial year 11-12. It implies that company may face
difficulty in paying the dividend.
Potential analysis of Wipro
Profitability analysis of TCS:
? The return on capital employed for financial year 11-12 is 55.31%. As compared to the past 4
year’s performance of TCS, the return on capital employed of the company for financial year
11-12 has increased, which implies TCS is gaining more fromits assets in financial year 11-12.
? The operating profit margin for financial year 11-12 is 29.30%. As compared to the past 4
year’s performance of TCS, the operating profit margin of the company for financial year 11-
12 has decreased, which implies TCS is earning less per dollar of sales in financial year 11-12.
? The asset turnover ratio for financial year 11-12 is 1.74%. As compared to the past 4 year’s
performance of TCS, the asset turnover ratio of the company for financial year 11-12 has
sharply decreased, which implies TCS is not using its assets optimally to generate revenue in
financial year 11-12.
? The return on equity ratio for financial year 11-12 is 44.16%. As compared to the past 4 year’s
performance of TCS, the return on equity ratio of the company for financial year 11-12 has
increased, which implies increase in company ability to generate profit without needing as much
capital.
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Performance (profitability) analysis of TCS
Liquidity analysis of TCS:
? The current ratio for financial year 11-12 is 2.45%. As compared to the past 4 year’s
performance of TCS, the current ratio has increased. The increase in current ratio in financial
year 11-12 implies that TCS’s market liquidity position is better and it can meet its creditors
demand in better way.
? The quick ratio for financial year 11-12 is 2.43%. As compared to the past 4 year’s
performance of TCS, the quick ratio has increased. It implies TCS has enough short term
assets to cover its immediate liabilities without selling its inventory. The liquidity position of
the company is much better.
? Gearing equity ratio in financial year 11-12 is 24.82 times. As compared to the past 4
year’s performance of TCS, the gearing equity ratio has increased, but in the financial year
08-09 the gearing equity ratio was 37.24 (highest). It implies company’s financial position
in long run is good.
? Interest cover for financial year 11-12 is 841.63 times. As compared to the past 4 year’s
performance of TCS, the interest cover has increased but in the financial year 07-08 the
interest cover was highest i.e. 1,383.58 times. It implies how easily company can pay
interest expenses on its outstanding debts.
? Payable turnover ratio in financial year 11-12 is 5.60 times. As compared to the past 4
year’s performance of TCS, the payable turnover ratio has increased. It implies there is a
relatively short time period between purchasing inventory or materials and paying for them.
? The account receivable turnover ratio for financial year 11-12 is 5.59%. As compared to
the past 4 year’s performance of TCS, the account receivable turnover ratio has decreased.
It implies inefficient management of debtors. The business needs to reassess its credit
management procedures to ensure faster collection of debts.
? Inventory turnover ratio for financial year 11-12 is 93.86%. As compared to the past 4
year’s performance of TCS, inventory turnover ratio has increased. The increase in Inventory
turnover ratio indicates high demand for the product and good inventory management.
? The working capital cycle in financial year 11-12 is 124.83. As compared to the past 4
year’s performance, its value has increased. The right level of working capital depends on
the industry and the particular circumstances of the business. Too high working capital
cycle indicates the business has surplus funds which are not earning a return.
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Position (liquidity) analysis of TCS
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Results and Findings
? Overall profitability of Wipro in financial year 11-12 has decreased, and that of TCS has
increased. As compared to Wipro, the profitability of TCS is better in the financial year 11-12.
? The liquidity position of Wipro in financial year 11-12 is better but its expected financial position
in the long run is not as good. The liquidity position of TCS is better than Wipro and its expected
financial position in long run is also good.
? According to potential analysis, the earning power of TCS is better than Wipro, but according
to P/E ratio, investors are expecting higher earning growths in future with Wipro.
? In the financial year 11-12investors have much better return with TCS and as per dividend
cover value in financial year 11-12 both TCS and Wipro may face difficulty in paying the
dividends.
Suggestions And Recommendations
? According to the results and findings of the research, although the investors are expecting
higher earning growths in future with Wipro, but according to profitability and liquidity
position in financial year 2011-12, TCS has the better financial position in long run. There-
fore it is suggested that investors should invest in TCS for good returns in the long run.
? Payable turnover ratio of both TCS and Wipro is good in financial year 2011-12, which
indicates an on time payment to creditors. But according to gearing equity ratio, the finan-
cial position of Wipro in the long run is not as good as compared to its past performance.
Therefore it is recommended that creditors should check its financial position before grant-
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ing further credit.
? The return on equity ratio for Wipro is decreasing as compared to TCS; therefore it is
suggested that investors invest in TCS shares more as compared to Wipro.
? According to the profitability ratios, job seekers are suggested to try for TCS, as they will
have more opportunities for growth and development with TCS.
Conclusion
As growth of IT industries gets attention from every corner - investors, job-seekers, government,
competitors etc., everyone would want the financial analysis of the companies for various purposes.
Fromthe above financial analysis of TCS and Wipro with respect to ratio analysis, the vision is clear
about the current and future financial health of TCS and Wipro. The current and future financial health
of TCS is better than that of Wipro. Employees and job-seekers have a good future and opportunities
of growth and development with TCS. Investors can have good long run returns with TCS, but in the
financial year 2011-12, investors in both TCS and Wipro were benefitted. Despite a bundle of limita-
tions, ratio analysis is a useful tool for users of financial statements. It highlights important information in
simple form quickly. A user can judge a company by just looking at few numbers instead of reading the
whole financial statements. This makes the analysis of financial statements easy for all i.e. Investors,
job-seekers, government, competitors etc.
References
Bibliography:
1. Double Entry Book keeping, Class XI by T.S.Grewal.
2. Elements of Book Keeping For Class 11: CBSE by Mohan Juneja C, Arora J S, Chawla R C.
3. Comprehensive Financial Accounting XI by S. A. Siddiqui, A. S. Siddiqui.
4. Fundamental of Financial Management by Prof. Nirmal Jain.
Webliography:
1. www.moneycontrol.com
2. www.wipro.com
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3. www.tcs-ca.tcs.co.in
4. www.dnb.co.in
5. journals.cambridge.org
6. www.paperdue.com
7. www.acornlive.com
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