FINANCIAL RATIOS

A financial ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%.

Use of Financial ratios

They are relevant in assessing the performance in respect to: Liquidity Position Solvency Position

Operating Efficiency
Profitability

Limitations of Financial Ratios

Calculated from financial statements which are themselves subject to many limitations For analysis, many ratios and factors are to be considered

Calculated ratios require comparison

Various terms are to be explained for inter-firm comparison Price level to be considered while making comparison Rational analysis is based on judgment of the analyst

LIQUIDITY RATIOS
It is used to determine a company's ability to pay off its shortterms debts obligations. Current Ratio It measures a company's ability to pay short-term obligations. Quick Ratio It is a liquidity indicator that further refines the current ratio

by measuring the amount of the most liquid current assets

there are to cover current liabilities

SOLVENCY RATIO
It is used to measure the ability of a company to meet its long term debts. Debt Equity Ratio financial ratio indicating the relative proportion of entity's equity and debt used to finance an entity's assets. Interest Coverage Ratio

ICR is a measure of a company's ability to meet its interest

payments.

ACTIVITY RATIO
It used to measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items. Debtors Turnover Ratio

Inventory Turnover Ratio

Fixed Asset Turnover Ratio Total Assets Turnover Ratio

PROFITABILITY RATIO
Profitability ratios measure a companys ability to generate earnings relative to sales, assets and equity. Gross Profit Margin

Operating Profit Margin

Net Profit Margin Return on Capital Employed

IT Industry
Information Technology is one of the most important industries in the Indian economy. In the last ten years the Information Technology industry in

India has grown at an average annual rate of 30%.

FY2012 is a landmark year

Key Highlights during FY2012

Aggregate revenues cross the USD 100 billion mark, exports at USD 69 billion India was able to increase its market share from 51 per cent in

2009, to 58 per cent in 2011.

Net employment generator The industry exhibited resilience and adaptability in continually reinventing itself to retain its appeal to clients

TATA CONSULTANCY SERVICES

TCS is the world leading information technology consulting services, and business process outsourcing organization. Started in 1968 Presence in 34 countries across 6 continents TCS is part of Asias largest conglomerates a TATA group

Services and Solutions

Consulting IT Services BPO

IT Infrastructure Services
Engineering and Industrial Services Product Based Solutions Advertisements

Financial Ratios of TCS

SL.NO FINANCIAL RATIOS 2011 2012

I)

LIQUIDITY RATIO (a) Current Ratio (a) Quick Ratio

2.45 2.43 2.41 2.40

II)

SOLVENCY/LEVERAGE RATIO (a) Debt-Equity Ratio (a) Interest Coverage

0.01 841.63 0.01 435.25

III)

ACTIVITY/TURNOVER RATIO (a) Stock/Inventory Ratio (a) Debtors Turnover Ratio (a) Fixed Assets Turnover Ratio (a) Total Assets Turnover Ratio
9386.18 5.59 5.39 1.56 5451.71 7.19 4.91 1.50

SL.NO.

FINANCIAL RATIOS

2011

2012

IV)

PROFITABILITY RATIO (a) Gross Profit Margin (a) Operating Profit Margin (a) Net Profit Margin (a) Return on Capital Employed
27.52 29.30 26.15 55.31 28.12 29.96 25.44 44.38

Looking at its Financials

TCS is allocating 15% of its income to its contingent liability Shows the ability of the company to maintain its growth even in its aggressive acquisitions. Maintained good reserves and decreasing debt

Looking at its Ratios

TCS has one paisa of debt to equity PAT is 415 times higher than the interest paid by the company. It is a low beta stock

It has shown a consistent EPS growth rate of 6%

PE growth rate of 10%. The return on net worth is 37% which is the highest in the sector.

Infosys
Started in 1981 by seven people with US$ 250.

Global leader in consulting, technology and outsourcing with revenues of US$ 7.126 billion.
Infosys provides business consulting, technology, engineering and outsourcing services. Infosys has a global footprint with 66 offices and 69 development centers. Infosys and its subsidiaries have 153,761 employees as on Sep 30, 2012.

Financial Ratios of Infosys

SL.NO. Financial Ratios 2011 2012

I)

LIQUIDITY RATIO (a) Current Ratio (a) Quick Ratio

4.68 4.60 5.11 5.02

II)

SOLVENCY /LEVERAGE RATIO

(a) Debt-Equity Ratio (a) Interest Coverage -

(a) Debt Coverage Service Ratio

III) ACTIVITY/TURNOVER RATIO (a) Stock/Inventory Ratio

--

--

(a) Debtors Turnover Ratio

(a) Fixed Assets Turnover Ratio (a) Total Assets Turnover Ratio

6.50

6.81

Contd..
SL.NO. Financial Ratios 2011 2012

IV)

PROFITABILITY RATIO (a) Gross Profit Margin (a) Operating Profit Margin (a) Net Profit Margin (a) Return on Capital Employed 25.66

24.31

Looking at its Financials

Infosys has an average income growth rate of 19%.

It has allocated 4% of its income to its contingent liability which is higher than past year. Infosys has the highest FII holding of 37.36% (as on 1 May 2012).

Looking at its Ratios

Infosys is a low beta stock. Infosys has 10% average EPS growth rate and 6% P/E over the years. It is projected that the share price could be at Rs.3772 in a year with its current average growth rate.

WIPRO
It is a leading Information Technology, consulting and outsourcing company. Started in 1981

It has over 130,000 employees and clients across 54 countries

The company operates in four segments: IT products and

services, Consumer care and lighting, Healthcare and

Infrastructure engineering

Services and Solutions

Analytics & Information Management Business Process Outsourcing Consulting Services Product Engineering Services

Mobility
Business Application Services Cloud Services Eco Energy Infrastructure Management Services

Financial Ratios of Wipro

SL. NO. 1 Particulars LIQUIDITY RATIO (a) Current Ratio (b) Quick Ratio 2 SOLVENCY RATIOS 1.92 2.48 1.45 2.20 2012 2011

(a) Debt Equity Ratios

(b) Interest Coverage Ratio 3 ACTIVITY RATIO (a) Debtors Turnover Ratio (b) Inventory Turnover ratio

0.22
79.32

0.22
99.37

4.61 48.33

4.87 43.12

(c) Fixed Asset Turnover Ratio

(d) Total Asset Turnover Ratio

3.81
1.09

3.45
1.02

SL. NO.

PARTICULARS

2012

2011

PROFITABILITY RATIO
(a) Gross Profit Margin (b) Operating Profit Margin 17.29 19.63 19.62 21.90

(c) Net Profit Margin

(d) Return on Capital Employed

14.39
21.49

17.39
22.34

Looking at the financials

IT revenues stood at $ 5.9 billion for the year ended March 31, 2012 with a repeat business ratio of over 95%. Total income, marginally rose to 0.50% sequentially and

17.98% on year-on-year basis to Rs 109.43 billion.

Looking at the Ratios

Operating profit margin has decreased to 19.63 which was 21.90 in the year 2011. It is a low beta stock.

Wipro has 22 paisa of debt to equity.

There is an increase of 27% in EBIT of ipro IT services.