TCS FInancial Statement analysis

Major Sources of Revenue: a) Revenue from operations: accounts for 98% of the total revenue of the firm and consists of the revenues from the below categories Information technology and consultancy services: contributes 97% of the total revenue from operations Sale of equipment and software lilicenses contributes 3% of the total revenue from operations b) Other Income: accounts for approximately 2% of the total revenue of the firm and consists of the revenues from the below major categories Interest Income: Contributes to 81. 0% of the total revenue from other income 73% of the Interest income comes from Interest on Bank & Interest on long term Bonds & Debentures. 25% of the Interest income comes from Inter-Corporate deposits. Profit from Sale of mutual funds and other current Investments Contributes to 0. 57% of the total revenue from other income Major Expenses a) Employee benefit expenses: consumes 35. 78% of the total operations revenue and consists of the below categories Salaries and incentives: accounts for 87. 57% of the total employee benefits expense Contributions to Provident fund & pension [Superannuation/Gratuity etc.

Staff welfare expenses. b)BOperations and other Expenses: consumes 32. 11% of the total operations revenue and consists of the below major categories Overseas business expenses: – accounts for 43. 4 % of the total Operations and other Expenses Services rendered y business associates and others: – accounts for 18. 42% of the total Operations and other Expenses hardware and material costs: Software, – accounts for 1 1 the total Operations and other Expenses (c) Tax expenses: consume 7. 27% of the total operations revenue (d) Dividend on equity shares and tax thereon for Fiscal 2014 accounts increased by 40% Year on Year (7058. 2 crscoresiscal 2014) Major Uses of funds: a) Cash And Bank Balances: accounts for 21. 51% of the total Non-Current Investments and Current assets. Company has increased the Cash and Bank balances significantly in fiscal 2014. Horizontal analysis on the Balance Sheet for Cash and Bank Balances shows a Year on Year growth of 113. 34% for fiscal 2014. b)BPurchase of Fixed Assets: The Company has been investing in infrastructure development across various locations in India to meet its growing business needs. Additions to the gross block in fiscal 2014 amounted to 2,284. 7 crscoresHorizontal analysis on the Balance Sheet for fixed assets shows a Year on Year growth of 28. 27% for fiscal 2014. c)CNon-Current Investments: Company has increased the Non-Current Investments significantly in fiscal 2014. Horizontal analysis on the Balance Sheet for Non-Current Investments shows Year on Year growth of 134. 97% for fiscal 2014. d)DLong Term Loans & Advances: accounts for 10. 85% of the total Non-Current Investments and Current assets. e)EShort-term loans and advances: accounts for 6. 2% of the total Non-Current Question 2: Perform a horizontal and vertical analysis on the Balance Sheet and Profit and Loss Account and comment on any significant changes that you observe over the last 2 years. AnNASPlease refer the attached excel sheet for arriving at the below conclusions a) Profit & Loss statement: Significant observations on Horizontal analysis. Net Profit After tax for Fiscal 2014 shows a Year on Year growth of 37. 70%. Net Profit After tax nearly doubled when compared with Fiscal 2012. EPPEPSEarnings per Share) also show consistent growth in the last few Fiscal years.

EPPEPShows a Year on Year increase by 37. 58% in Fiscal 2014 Finance Cost for Fiscal 2014 has decreased significantly by 20%. Tax for Fiscal 2014 has increased significantly by 51% Year on Year. Profit & Loss statement: Significant observations on Vertical analysis. Despite a significant increase in

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the Employee base we find that Employee Expenses s a % of revenue remained constant around 35% in the last few Fiscal years Total Expenses as a % of revenue remained constant around 70% in the last few Fiscal years Total Tax as percentage of revenue, increased from 6. 37% in fiscal 2013 to 7. 2% b) Balance Sheet: Significant observations on Horizontal analysis. Non- Current liabilities shows a Year on Year growth of ofof4. 64% in Fiscal 2014. Fixed assets shows a Year on Year growth of 28. 27% in Fiscal 2014 Current liabilities shows a Year on Year growth of 34. 33% in Fiscal 2014. Reserves and Surplus shows a Year on Year growth of 27. 76% in Fiscal 2014. Share Capital shows a Year on Year negative growth of 33. 76% in Fiscal 2014. Current assets shows a Year on Year growth of 36. 62% in Fiscal 2014. Long Term borrowings shows a Year on Year negative growth of 2. 4% in Fiscal 2014. Balance Sheet: Significant observations on Vertical analysis. Cash and bank balances as a % of the total Assets excluding fixed assets increased from 12. 97% Fiscal 2013 to 21. 51% Fiscal 2014. Non-Current Investments as a % of the total Assets excluding fixed assets has been increasing steadily in the last few Fiscals. Short-term loans and advances as a % of the total Assets excluding fixed assets eccreasedrom 10. 81% in Fiscal 2013 to 6. 42% in Fiscal 2014. Goodwill as a % of the total Assets excluding fixed assets decreased from 6. 86% in Fiscal 2013 to 3. 7% Fiscal 2014. Question 3: Scrutinize the Notes to Accounts and Statement on Significant Accounting Policies and check for any deviations in accounting policy over the last year with respect to major items. AnNASThere were no deviations with respect to significant accounting policies. However TCTTSdopted a new hedge accounting principle under the below category. a)AForeign currency forward, option and futures contracts: TCTTSnters into foreign currency forward, option and futures contracts to manage its exposure to exchange rate fluctuations, in accordance with its risk management policies.

With effect from January 1, 2014, the Company has adopted hedge accounting principles in line with International Financial Reporting Standard 9 (referred to as IFFIRS), which align more closely with the Company’s risk management policy. The change has resulted in a reduction of ‘ 4. 76 crscoresn profit before tax in fiscal 2014. Question 4: Examine the Statement of Cash Flows for the last 2 years and point out the following: ) Major sources and Uses of cash: Sources: -Operations: Cash generated from operations, post adjustments to profit before tax, has gone up from 16,436. 77 crscoresn fiscal 2013 to ‘ 21,795. 4 crscoresn fiscal 2014, registering a growth of 32. 60% over the previous fiscal. -Income from Interest InInterestn funds invested went up by 71. 22%, from 798. 80 crscoresn fiscal 2013 to 1367. 72 Uses: crscoresn fiscal 2014. During fiscal 2014, the significant uses of cash were Acquisition of French Company AlAlit. A. foFor52. 41 crscoresPayment of Dividend & dividend tax for 5,489. 54 CrScoresurchase of fixed assets Increase in inter-corporate deposits Investment in fixed deposit. Pay Taxes amounting to 7,043. 63 CrScoresover Working Capital expenditures (b) Were the cash flows from operations greater than or less than net income?

Explain in detail the major reason for the differences in these 2 figures. For Fiscal 2014, by referring to the Consolidated financial statements we get the below fgfiguresNet Cash provided by from Operating activities = 14751. 41 CrScoreset Profit for the year = 19163. 87 crscoresnNASNet Cash provided by from operating activities is less the net income. Explanation: Working Capital fgfiguresnder the categories below are the major reasons for reducing the Net Cash value provided by from operating activities below the net income. ) Unbilled Revenue – (811. 60) CrScores) Trade Receivables – (4015. 80) CrScoresc) Was the firm able to generate enough cash from its operations to be able to pay for all its capital expenditures? For Fiscal 2014, by referring to the Consolidated financial statements we can arrive at the below table. Net Cash provided by/Used in Fiscal 2014 Fiscal 2013 Operating activities 14,751. 41 11,614. 96 Investing activities (9,667. 08) (6,085. 66) Financing activities 5,673. 24) (5,729. 48) Exchange difference on translation of foreign currency 21 5. 41 48. 5 Net (decrease)/increase in cash and cash equivalents after translation (373. 50) (152. 13) Purchase of fixed assets accounted for (3126. 15) CrScoresf the Net Cash of (9,667. 08) crscoressed in investing activities. From the above table we can clearly infer that the company generated enough cash from Operating activities to fund the capital expenditures on its own. (d) Did the cash flow from operations cover both the capital expenditures and payment of dividend, if any? AnNASDividend paid accounted for (5480. 7) CrScoresf the Net Cash of (5673. 24) crscoressed in financing activities.

From the above table we can clearly infer that the company generated enough cash from Operating activities to fund both capital expenditures & payment of dividends on its own. (e) How did your firm invest its excess cash (if any)? Cash flow statement from Investing Activities indicate that the excess cash that remains after investing and financing is mamajoraintained in Short-term bank deposits. From the Cash Flow Statements we can see that Short Term deposits increased from 4911. 46 crscoresn Fiscal 2013 to 12948. 9 CrScoresn Fiscal 2014. This accounts for a significant growth of 163%. g)GAre there any other unusual / extraordinary items of cash inflow / outflow? AnNASCash outflow due to Taxes: Cash Flow Statements indicate a significant increase in Taxes for Tax for Fiscal 2014. Taxes have increased significantly by 46% Year on Year. By referring to Management Discussion & Analysis & Notes forming consolidated statements we can infer that company has paid (1) Additional tax of 2,129. 82 crscoresaid by TCTTStd on its higher income for the year and (2) 92. 00 crscoresf higher tax on dividend received y TCTTStd from its overseas subsidiaries.

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