Comparative Analysis Of TCS And Infosys Financial Performance In IT Sector

Infosys Company Profile and Financial Performance

Question:

Describe about the Financial Management and Analysis of  TCS and Infosys Company?

The technology sector has been chosen for the present assignment. The two large multinational IT companies have been chosen. They are TCS and Infosys. The financial performance has been analyzed for the year 2014 and 2013.

Infosys is the third largest IT service company. It was founded by Narayan Murthy. According to the 2014 data there are 890 clients of Infosys which is spread out across 50 countries. Infosys has presence globally and it is well established in countries like China, Australia, India, Europe and Middle East. The various services provided by Infosys includes development of software, maintenance of the validation services to insurance, finance, manufacturing. One of the major products of Infosys is Finacle which provides banking solutions across various modules in the retail sector and the corporate banking sector. Infosys has won several awards over the past years. It is considered as the 19^th most innovative firm as listed by Forbes. It is one of the most admired companies in India according to the Wall street Journal (infosys.com, 2014).

Tata consultancy services is a multinational IT company that provides consultancy  services and business solutions. It operates in 46 countries.  It is the one of the four most big IT companies in the whole world. It was ranked as the 40^th in the world’s most innovative comoanies. Over the past few years TCS has acquired several business organizations like CMC ltd , AFS , Swedish Indian IT Resources AB(tcs.com, 2015). It provides wide range of services that are technology related. The various services provided by TCS includes development of application, outsourcing of business process , planning of capacity , consulting and development of software for the enterprise. The operation of TCS is spread out worldwide in Africa, Asia, Australia, America and Europe. TCS has also started its BPS services which is an IT outsourcing company. It is the largest IT outsourcing company after Genpact. There are various research centres under TCS. The company has won several awards. It is considered as the number one service provider of IT in the manufacturing sector in Europe according to the International Data Corporation in 2014(Tcs.com, 2015).

The IT sector in UK is one of the most prosperous and well performing sectors. Globalization has brought the IT companies to a single platform. The IT industries in UK are well established and have a string future. The supplier, users and the consultants for an organized chain. It is one of the well performing sectors that contribute to the GDP of the country. The economic growth of the country is largely impacted by the performance of the IT sector. The IT sector has been performing well for the past few years (Markets.ft.com, 2015). The IT sector is undergoing rapid innovation from the past. The innovation of the IT industry has been evolutionary rather than being evolutionary. The IT sector in UK has matured over the period of time. But the maturity of the IT sector has not prevented it from being innovative. The IT sector has paved the way for the development of outsourcing (Kpmg.com, 2015).

TCS Company Profile and Financial Performance

Infosys

		2014	2013
Profitability Ratios
Return on capital employed	Net Operating Income/ ( Total Assets – Current liabilities)	36%	37.30%
Gross Profit Percentage	Gross Profit / Net Sales	39.70%	41.08%
Operating Profit Percentage	Operating Income / Net Sales	25.77%	27.36%
Liquidity Ratios
Current ratio	Current Asset/ Current Liabilities	3.83	4.82
Efficiency ratios
Debtor’s Payment Period ( Days)	Net credit sales / Average Debtors	6.003233	5.697021
		60.80057	64.06857
Financial structure
Price/ Earning ratio	Current Share Price / Earnings Per share	18.4	18.34
Dividend Yield	Dividend per share / Current Share Price	39.70%	29.90%

Profitability Ratios
		2014	2013
Return on capital employed	Net Operating Income/ ( Total Assets – Current liabilities)	159%	155.52%
Gross Profit Percentage	Gross Profit / Net Sales	23.63%	22.35%
Operating Profit Percentage	Operating Income / Net Sales	23.63%	22.35%
Liquidity Ratios
Current ratio	Current Asset/ Current Liabilities	2.737514	2.691748
Efficiency ratios
Debtor’s Payment Period ( Days)	Net credit sales / Average Debtors	4.487524	4.46874
		81.33661	81.67851
Financial structure
Price/ Earning ratio	Current Share Price / Earnings Per share	97.67	70.99
Dividend Yield	Dividend per share / Current Share Price	28.40	26.60

The profitability ratios determine the ability of the company to earn profit from sales. The profitability ratio determines the overall performance of the company over a period of time. It can be compared with other organizations of the industry to judge the performance. In the present report the profitability ratio has been determined in terms of return on capital employed , gross profit percentage and operating profit percentage. In 2014 the return on capital employed for Infosys was 36%. It was 37.30% in the year 2013.  A slight decline is seen in 2014. On the other hand the gross profit margin for 2014 is 39.70% and for 2013 it is 41.08%. There is decline in the profit margin for Infosys(Tracy, 2012).

On the other hand, in TCS return on capital employed for the year 2014 and 2013 has been 159% and 155% respectively. The gross profit margin for the year 2014 and 2013 is 23.63% and 22.35%. The profitability of TCS has increased for the year 2014(Besley, Brigham and Aberwald Clark, 2002).

The liquidity ratios determine the ability of the company to repay its short term debt. The two liquidity ratios are the current ratio and the quick ratio. The current ratio shows the ability of the firm to repay its short term debts using the current asset. The ideal current ratio is considered to be 2:1.

The liquidity ratio for Infosys in the year 2014 is 3.83 and the ratio for the year 2013 is 4.82. The ratio is higher than the standard ratio 2:1. It shows that the company is not using the assets properly to repay its debt. However the percentage has reduced from the previous year (Desai et al., n.d.).

The liquidity ratio for TCS for the year 2014 is 2.73 and for the year 2013 are 2.69. The liquidity ratio of the company has been. It is around 2:1.

These ratios show the ability of the company to manage the efficiency of its assets. The debtor’s turnover ratio for TCS has remained the same for 2014 and 2013. On the other hand the ratio for Infosys has declined from the year 2013 to 2014 which is a good indication (Grier, 2015).

These ratios highlight on the earning of the shareholders. They are the earning per share and the dividend yield ratio. The earnings per share for Infosys has remained the same for the year 2014 and 2013. On the other hand the earning per share of TCS has increased. It shows that with the increase in profitability of the firm, the earning of the investors is increasing (Grier, 2015).

3. Conclusion and Recommendations 

TCS and Infosys are the two giant IT companies in the world. The market share of the two firms is large in terms of the IT sector. On analysis of the financial performance for the year 2014 and 2013 it can be seen that performance of TCS is better than Infosys for the two years. The profitability of TCS has been growing. This has resulted in increase in  the earning of the investors. However the profit margin of Infosys has declined. The ability of the company to maintain its short term assets is not sound. The company is not using its short term liabilities efficiently. Thus the liquidity ratios are high for the company.

4. References

Besley, S., Brigham, E. and Aberwald Clark, D. (2002). Essentials of managerial finance. Mason, OH: South-Western.

Desai, R., Palepu, K., Gibson, C., Healy, P., Bernard, V., Wright, S., Bradbury, M. and Lee, P. (n.d.). Analysis of financial statement information.

Grier, W. (2015). Credit Analysis of Financial Institutions.

infosys.com, (2014). Infosys Annual Report 2013-14. [online] Available at: https://www.infosys.com/investors/reports-filings/annual-report/annual/Documents/Infosys-AR-14.pdf [Accessed 16 Feb. 2015].

Kpmg.com, (2015). UK tech sector records best growth performance for almost  | KPMG | UK. [online] Available at: https://www.kpmg.com/uk/en/issuesandinsights/articlespublications/newsreleases/pages/uk-tech-sector-records-best-growth-performance-for-almost-a-decade-according-to-kpmg-markit-tech-monitor-uk-report.aspx [Accessed 16 Feb. 2015].

Markets.ft.com, (2015). Sectors and Industries – latest news, data and trends – FT.com. [online] Available at: https://markets.ft.com/research/Markets/Sectors-and-industries [Accessed 16 Feb. 2015].

tcs.com, (2015). TCS – IFRS ANNUAL REPORT. [online] Available at: https://www.tcs.com/investors/Documents/Financial%20Statements/TCS_IFRS_Q4_13_USD.PDF [Accessed 16 Feb. 2015].

Tcs.com, (2015). TCS News & Events:   Press Release  :                       Department of Posts Awards Core System Integrator project to TCS. [online] Available at: https://www.tcs.com/news_events/press_releases/Pages/Department-Posts-Core-System-Integrator-project-TCS.aspx [Accessed 16 Feb. 2015].

Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to …. pp.5-40.