TECH MAHINDRAIT Services and Telecom solutions INTRODUCTION OF RATIO ANALYSIS There are various methods or techniques used in analyzing financial statements such as comparative statements, trend analysis, common – size statements, schedule of changes in working capital, funds flow and cash flow analysis, cost-volume-profit analysis and ratio analysis. The ratio analysis is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures and group figures). It is with the help of ratios that the financial statements can be analyzed more clearly and decision made from such analysis. MEANING OF RATIO: A ratio is a simple arithmetic expression of relationship of one to other. It may be defined as the indicated quotient of two mathematical expressions. According to Accountant’s Handbook by Wixon, Kell and Bedford, a ratio “is an expression of the quantitative relationship between two numbers”. According to Myers, Ratio analysis is a “study of relationship among the various financial factors in a business”. SITAMS Page 1
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
TECH MAHINDRAIT Services and Telecom solutions
INTRODUCTION OF RATIO ANALYSIS
There are various methods or techniques used in analyzing financial statements such
as comparative statements, trend analysis, common – size statements, schedule of changes in
working capital, funds flow and cash flow analysis, cost-volume-profit analysis and ratio
analysis. The ratio analysis is one of the most powerful tools of financial analysis. It is the
process of establishing and interpreting various ratios (quantitative relationship between
figures and group figures). It is with the help of ratios that the financial statements can be
analyzed more clearly and decision made from such analysis.
MEANING OF RATIO:
A ratio is a simple arithmetic expression of relationship of one to other. It may be
defined as the indicated quotient of two mathematical expressions.
According to Accountant’s Handbook by Wixon, Kell and Bedford, a ratio “is an
expression of the quantitative relationship between two numbers”.
According to Myers, Ratio analysis is a “study of relationship among the various
financial factors in a business”.
SITAMS Page 1
TECH MAHINDRAIT Services and Telecom solutions
INTRODUCTION
Tech Mahindra is a global systems integrator and business transformation consulting
firm focused on the communications industry.
With the convergence of media and telecom, the changing landscape of the telecom
industry is becoming extremely competitive. As companies rapidly strive to gain a
competitive advantage, Tech Mahindra helps companies innovate and transform by
leveraging its unique insights, differentiated services and flexible partnering models. This
has helped our customers reduce operating costs and generate new revenue streams.
Recognizing that margins from connectivity are rapidly falling and that future
growth in revenues and margins will only come from new applications, content and services,
operators today are busy addressing business opportunities revolving around Commerce,
Content, Convergence and Customer Experience to gain a sustainable Competitive
Advantage.
SITAMS Page 2
TECH MAHINDRAIT Services and Telecom solutions
At Tech Mahindra, we understand this.
For over two decades, Tech Mahindra has been the chosen transformation partner for
wire line, wireless and broadband operators in Europe, Asia-Pacific and North America.
Majority owned by Mahindra & Mahindra, one of the Top 10 industrial houses in India, in
partnership with British Telecommunications plc (BT), world’s leading communications
service provider, Tech Mahindra has grown rapidly to become the 6th largest software
exporter in India (NASSCOM 2007) and the second largest telecom software provider from
India (Voice & Data 2007).
Over 23,000 professionals service clients across the telecom eco-system, from our
global network of development centers and sales offices across Americas, Europe, Middle-
east, Africa and Asia-Pacific.
Committed to quality, Tech Mahindra adds value to client businesses through well-
established methodologies, tools and techniques backed by its stringent quality processes.
Tech Mahindra is ISO 9001:2000 certified and is assessed at SEI-CMMI Level 5. Tech
Mahindra has also been awarded the ISO 20000-1 (IT Service Management standard) and
ISO 27001 (Security Management standard) certification for its development centers across
India and UK.
Tech Mahindra is certified at PCMM Level 5 for its people-care practices and is the
third company in the world to have been appraised for SSE-CMM Level 3.
SITAMS Page 3
TECH MAHINDRAIT Services and Telecom solutions
Milestones :
1986 - Incorporation in India1987 - Commencement of Business1993 - Incorporation of MBT International Inc., the first overseas subsidiary1994 – Awarded the ISO 9001 certification by BVQI1995 – Established the UK branch office2001 - Incorporated MBT GmbH, Germany incorporated
- Re-certified to ISO 9001:1994 by BVQI 2002 - Assessed at Level 5 of SEI CMM by KPMG
- Incorporated MBT Software Technologies Pte. Limited, Singapore2003 - Re-certified to ISO 9001:2000 by RWTUV2005 - Certified to BS 7799-2:2002 (Information Security Management Framework) by
RWTUV now known as TUV Nord
- Acquired Axes Technologies (India) Private Limited, including its US and
Singapore subsidiaries
- Assessed at Level 5 of SEI CMMI by KPMG 2006 - Name changed to Tech Mahindra Limited
- Assessed at Level 5 of SEI People-CMM (P-CMM) by QAI India
- Raised Rs4.65 billion ($100 million) from a hugely successful IPO to build a
new facility in Pune, to house about 9,000 staff.
- Formed a JV with Motorola Inc. under the name CanvasM2007 – Acquired iPolicy Networks Private Limited
- Launched the Tech Mahindra Foundation to address the needs of the
underprivileged in our society, especially children.2009 Satyam Computer Services Ltd, announced today that its Board of Directors has
selected Venturbay Consultants Private Limited, a subsidiary controlled by Tech
Mahindra Limited as the highest bidder to acquire a controlling stake in the
SITAMS Page 4
TECH MAHINDRAIT Services and Telecom solutions
Company, subject to the approval of the Hon'ble Company Law Board.
Awards & Recognition:
• Business Week award for Asia’s Best Performing Companies 2008
• The Brand Leadership Award by the Asia Brand Congress 2008
• 2008 Growth Excellence Award by Frost & Sullivan
• Largest Independent Indian IT solutions provider focused on Telecom
• Ranked 12th Largest TOMS vendor by Gartner in "Market Share: Telecoms
Operations Management Systems – Worldwide, 2006-2007" April 2008
• Vertical Growth Leadership in Telecom Software (Frost & Sullivan Asia ICT
Awards 2007)
• Product Innovation Award for Enterprise DRM (Frost & Sullivan Asia ICT Awards
2007)
• Winners of "Best Billing Solution" Category at "Billing and OSS World (B/OSS)
Excellence Awards 2008"
• 6th largest software services company in India (NASSCOM 2008)
• Ranked 2nd in the list of Telecom Software providers of India by Voice & Data
(2008)
• In the Leaders Category in 'The 2008 Global Outsourcing 100' (IAOP's Annual
Listing of the World's Best Outsourcing Service Providers)
• 3rd largest BSS Systems Integrator and 5th largest BSS Vendor (Gartner-Dataquest,
World Wide Analysis 2000-2006, published in 2007)
• Elite member of the Deloitte Technology Fast 50 India (2007)
• Winner of the 'IT People Employer of the Year Award' (IT People Awards for
Excellence in IT 2008)
• Winner of the 'Best Overall Recruiting & Staffing Organization of the Year Award'
At Tech Mahindra, ‘community work’ is not just an act of favour or charity, directed
towards doing something for the welfare of the needy. It is, in fact, an initiative that is
voluntarily undertaken to improve the quality of life around us. As an active corporate
member of society, Tech Mahindra is committed to building relationships with local
communities and the society as a whole. Corporate social responsibility reflects both our
brand and our values by addressing some of society's most complex problems and striving to
bring about a sustainable solution.
We at Tech Mahindra have given Corporate Social Responsibility its due importance
with the creation of a foundation dedicated to funding and helping various programs in the
education of the underprivileged which will help in reducing socio-economic disparities.
SITAMS Page 8
TECH MAHINDRAIT Services and Telecom solutions
Our Aim
To inspire and motivate people around us via effective use of our resources in a
rational manner and with humility.
Focus Areas
• Education
• Woman empowerment
• Computer donations
At Tech Mahindra, we endeavor to make a positive contribution to the underprivileged
by supporting a wide range of educational and socio economic initiatives. Community
projects and programs are driven by active participation from Tech Mahindra employees.
Our commitment to address important community needs extends throughout our
philanthropic outreach programs driven by the Tech Mahindra Foundation
Vision, Mission & Values
Our Vision:
To be the leading global software solutions provider to the Telecom industry.
Our Mission:
To be the global leader in Outsourcing Services to the Telecom industry, building on
our technologies, competencies and customer interests, and creating value for our
shareholders and customers.
The Values that drive us:
SITAMS Page 9
TECH MAHINDRAIT Services and Telecom solutions
Tech Mahindra is focused on creating sustainable value growth through innovative
solutions and unique partnerships. Our values are at the heart of our business reputation and
are essential to our continued success. We foster an environment to instill these values in
every facet of our organization.
Quality Standards
As a part of its mature quality processes, Tech Mahindra uses well defined process
measurements to monitor the quality of solutions delivered and ensure continuous
improvement. With a strong focus on process management, Tech Mahindra’s Business
Management System (BMS) integrates business needs and industry best practices to deliver
services that constantly improve:
• Customer Satisfaction
• Productivity and Cycle-Time
• Quality of Solutions and Services
Integration of Initiatives
Tech Mahindra's BMS is designed to develop solutions that meet client
specifications in accordance with statutory and other industry-wide standards. Tech
Mahindra’s quality leadership conforms to world-class quality standards and models. Tech
Mahindra is ISO 9001:2000 certified and is assessed at SEI-CMMI Level 5. Tech Mahindra
has also been awarded the ISO 20000-1 (IT Service Management standard) and ISO 27001
(Security Management standard) certification for its development centers across India and
UK.
Tech Mahindra is certified at P-CMM Level 5 for its people-care practices and is the third
company in the world to have been appraised for SSE-CMM Level 3.
SITAMS Page 10
TECH MAHINDRAIT Services and Telecom solutions
Tech Mahindra's Service Delivery Framework - mASTER™
Based on proven methodologies and industry best practices, Tech Mahindra has
defined a holistic transition process framework - mASTER™ - for effective service delivery
to customers. mASTER™ offers a methodology for planning, managing, delivering and
operating complex programs through five defined phases as depicted below:
The mASTER™ methodology covers a broad range of activities that are structured around
quality gates and deliverables, thus ensuring a predictable and measurable business outcome
and consistent quality of deliverables.
SITAMS Page 11
TECH MAHINDRAIT Services and Telecom solutions
METHODOLOGY:
The study conducted was based upon the financial statement in annual report
and accounts of the firm that were published annually in the internet by the company.
The comparative size analysis has been made earlier to identify the variations
at different levels and interpretations of ratios etc and taken into account for the
period 2004-2008 to clear out the picture of the company earlier form.
To assess accurate profit & losses and estimate the expenses incurred for
financial statement in annual reports and accounts of the firm which were collected
were of secondary nature.
SITAMS Page 12
TECH MAHINDRAIT Services and Telecom solutions
OBJECTIVES
• To know, whether the company is able to pay debt promptly or not.
• To study the current financial position of the company.
• To know the ability of the firm to meet fixed interest and the cost and repayment
schedules associated with the long term borrowings.
• To know about the general profitability of the firm in relation to the sales.
• To know about the overall profitability of the firm in relation to its investment.
• To find ability of the company in utilizing of its assets.
• To find companies long term solvency and survival.
SITAMS Page 13
TECH MAHINDRAIT Services and Telecom solutions
Limitations
• It is difficult to decide in the proper basis of comparison.
• The comparison is rendered difficult because of differences in situations of two
companies are of one company over ears.
• The price level changes make the interpretation of ratio invalid.
• The difference in the definition of items in the balance sheet and the profit and loss
statement make the interpretation of ratio difficult.
• The calculated ratios at the point of time are less informative and defective as they
suffer from short term changes.
SITAMS Page 14
TECH MAHINDRAIT Services and Telecom solutions
• The ratios generally calculated from the past financial statement and thus there are
known indicators of future.
FINANCIAL RATIO ANALYSIS:
Ratio analysis is a powerful tool of financial analysis. A ratio
is defined as “the indicated quotient of two mathematical expressions” and as “the
relationship between two or more things”. In financial analysis a ratio is used as a
benchmark for evaluating the financial position and performance of a firm. The absolute
accounting figures reported in the financial statement do not provide a meaningful
understand of the performance and financial position of a firm. An accounting figure
conveys meaning when it is related to some other relevant information.
The relation between two accounting figures, expressed
mathematically is known as a financial ratio (or simply as a ratio) ratio help to
summarize large quantities of financial data and to make qualitative judgment about
SITAMS Page 15
TECH MAHINDRAIT Services and Telecom solutions
the firm’s financial performance. The point to note is that a ratio reflecting a
quantitative relationship helps to form a qualitative judgment.
NATURE OF RATIO ANALYSIS
Standards of comparison
A single ratio in itself does not indicate favorable or
unfavorable condition. It should be compared with some standards. Standard of
comparison may consist of.
Past ratio i.e. ratio calculated from the financial statement of the some firm.
Competitor’s ratios, i.e. ratios of same selected firms, especially the most
progressive and successful competitor, at the same point in time.
SITAMS Page 16
TECH MAHINDRAIT Services and Telecom solutions
Industry ratios i.e. ratios or the industry to which the firm belongs and
Projected ratios, i.e. ratios developed using the projected or Performa,
financial statements of the same firm.
There are four types of ratios to be calculated to know the status of the firm.
They are,
1. Liquidity ratio
2. Leverage ratio
3. Activity ratio
4. Profitability ratio
SITAMS Page 17
TECH MAHINDRAIT Services and Telecom solutions
I. Liquidity ratio
Liquidity ratios measure the ability of the form to meet its current obligation. In fact,
analysis of liquidity needs the preparation of cash budgets and cash and fund flow statement,
but liquidity ratios by establishing a relationship between cash and other current assets to
currents obligations, provide a quick measure of liquidity. A firm ensures that it does not
suffer from lack of liquidity, and also that it does not have excess liquidity, therefore it is
necessary to strike a proper balance between high liquidity and lack of liquidity.
SITAMS Page 18
TECH MAHINDRAIT Services and Telecom solutions
The most common ratios indicate the extent of liquidity or lack of it is:
• Current ratio
• Quick ratio
• Absolute liquidity ratio
II.LEVERAGE RATIOS
Leverage ratios are calculated t analyze the long-term financial position of the firm.
These indicate mix of funds provided by owners and lenders. As a general rule, there should
be an appropriate mix be debt and owners equity in financing the firm’s assets. The process
of magnifying the shareholders return through the use of debt is called “financial gearing” or
SITAMS Page 19
TECH MAHINDRAIT Services and Telecom solutions
“trading on equity”. Leverage ratios calculated to measure the financial risk and firm’s
ability of using debt to share holder’s advantages.
• Interest coverage ratio
• Capital equity ratio
III.ACTIVITY (OR) TURNOVER RATIOS
The turnover ratios indicate the efficiency with which the capital employed is rotated
in the business. The ratios are employed to evaluate the efficiency with which the firm
SITAMS Page 20
TECH MAHINDRAIT Services and Telecom solutions
manages and utilizes its assets to indicate the speed with which assets are being converted
on turned over into sales. A proper balance sales and generally reflects that assets are
managed well.
• Debtor’s turnover ratio.
• Total assets turnover ratio.
• Fixed assets turnover ratio.
• Current assets turnover ratio.
IV.PROFITABILITY RATIO
SITAMS Page 21
TECH MAHINDRAIT Services and Telecom solutions
Profitability is an indication of the efficiency with which the operations of the
business are carried on. Bankers, financial institutions and other creditors look at the
profitability ratios as an indicator whether or not the firm earns substantially more than it
pays interest for the use of borrowed finds and whether the ultimate repayment of their debt
appears reasonably certain. Owners are interested to know the profitability as it indicates
the return, which they can get their investments.
• Gross profit ratio
• Net profit ratio
• Operating profit ratio
• Operating ratio
• Return on investment ratio
• Return on equity
• EPS
• DPS
• Pay out
SITAMS Page 22
TECH MAHINDRAIT Services and Telecom solutions
1. Current ratio:
This ratio relates current assets to current liabilities. The current ratio indicates the ability of the organization to meet its current obligations. It measures short-term solvency of the concern.
The current ratio is calculated by dividing current assets by current liabilities.
Current assetsCurrent ratio= Current liabilities
years Current assets Current liabilities Current ratio
2004 335.21 126.20 2.66:1
2005 363.31 172.53 2.11:1
2006 525.04 398.06 1.32:1
2007 984 638.12 1.54:1
2008 1488 892.6 1.66:1
Analysis:
The current ratio of the company is decreased from 2004 to 2006 as 2.66:1, 2.11:1,
1.32:1, later it is increased from 2006 to 2008 as 1.32:1, 1.54:1, and 1.66:1.
SITAMS Page 23
TECH MAHINDRAIT Services and Telecom solutions
The graph between Years and Current ratio shows as below
Interpretation:
In the year of 2004, 2005 the current ratio of Techmahindra maintains the standards
of 2:1. After the situation is less than 2:1 it shows the margin of safety for creditors is low
and company may be struggling to meet their obligations to pay.
SITAMS Page 24
TECH MAHINDRAIT Services and Telecom solutions
1. Interest coverage:-
The interest coverage ratio or the times-interest-earned is one of the most
conventional coverage ratios used to test the firms debt-servicing capacity.it can be
calculated by dividing EBIT with interest
EBIT
Interest coverage=
INTEREST
years EBIT
(in.Rs.Cr)
INTEREST
(in.Rs.Cr)
Interest coverage
ratio2004 132.59 9.92 13.37
2005 125.89 11.85 10.62
2006 283.64 10.12 28.03
2007 127.52 28.09 4.54
2008 441.32 28.30 15.59
Analysis:-
SITAMS Page 25
TECH MAHINDRAIT Services and Telecom solutions
The interest coverage ratio of the firm for 2004 is 13.37 after
the year it decraesed to 10.62 in the year 2005. Again it increased to 28.03 later years it
decreased to 4.54 & it finally reached to 15.59.
The graph between Years and Interest coverage ratio shows as below
Interpretation:-
SITAMS Page 26
TECH MAHINDRAIT Services and Telecom solutions
The interest coverage ratio of higher ratio is desirable.the analysis indicates that the
firm using debt in conservatively.It is higher in the year 2006 i.e.28.03, it is low in the year
2007 i.e.4.54.
2.Capital equity ratio:-
This is the ratio which expressing the basic relationship between debt and equity.
Calculating the ratio of Net assets to Net worth can find this ratio.
Capital employed
Capital equity ratio =
Net worth
Capital employed = Total debt + Net worth
years Capital employed
(in.Rs.Cr)
Net worth
(in.Rs.Cr)
Capital equity ratio
2004 435.34 435.34 1.00
2005 482.82 482.83 0.99
2006 597.86 597.86 1.00
2007 930.78 878.12 1.06
SITAMS Page 27
TECH MAHINDRAIT Services and Telecom solutions
2008 1323.40 1228.40 1.08
Analysis:-
Capital equity ratio of the firm for 2004 to 2008 are 1, 0.99, 1, 1.03, 1.08.it is
decreased from 2004 to 2005 after the years it raised to 1.08.
The graph between Years and Capital equity ratios ratio shows as below
SITAMS Page 28
TECH MAHINDRAIT Services and Telecom solutions
Iterpretation:-
The funds being contributed by the lenders and owners for each rupee is almost i.e.
Rs.1/-.It indicates that the firm maintained the constant capital and equity in the equal
proportion change.
1. Debtors turnover ratio:-
Debtors turnover ratio can be calculated by dividing total sales by dividing debtors.
Sales
Debtors turn over =
Debtors
years Sales Debtors Debtors turnover
ratio
2004 711.50 276.21 2.58times
2005 922.34 217.42 4.24times
2006 1197.14 412.72 2.90times
2007 2753.22 792.02 3.48times
2008 3604.7 1057.40 3.41times
SITAMS Page 29
TECH MAHINDRAIT Services and Telecom solutions
Analysis:-
Debtor’s turnover ratio for the years 2004, 2005, 2006, 2007 and 2008 are 2.58, 4.24,
2.90, 3.48 and 3.41 respectively. It is raised to 4.24 for the year 2005 after it decreased to
3.41 in the year 2008.
The graph between Years and Debtors turnover ratios shows as below
SITAMS Page 30
TECH MAHINDRAIT Services and Telecom solutions
Interpretation:-The ratios are more than 2, this indicates the firm is good at the management of
credit. It is high in the year 2005 and least in the year 2004. The firm maintained conversion
of the debtor’s funds to sales is sufficiently.
SITAMS Page 31
TECH MAHINDRAIT Services and Telecom solutions
2. Total assets turnover ratio:-
This ratio shows the firms ability in ngenerating sales from all financial resources
committed ton total assets.
Sales
Total assets turnover=
Total assets
years sales Total assets Total assets turnover
ratio
2004 711.50 435.34 1.63
2005 922.34 482.82 1.91
2006 1197.14 597.86 2.00
2007 2753.22 930.78 2.96
2008 3604.7 1323.40 2.72
Analysis:-
Total assets turnover ratio of the year 2004 to 2008 are 1.63, 1.91, 2.00, 2.96 and
2.72 times respectively.it is gradually increased year by year.
SITAMS Page 32
TECH MAHINDRAIT Services and Telecom solutions
The graph between Years and total assets turnover ratio shows as below
Interpretaion:-The total assets turnover ratio of the firm are 1.63, 1.91, 2, 2.96 and 2.72 times it
implies that the firm generate a sales more than one for one rupee investment on total assets.
SITAMS Page 33
TECH MAHINDRAIT Services and Telecom solutions
3. Fixed assets turnover ratio:-
Fixed assets turnover ratio can be calculated by dividing of sales with net fixed
assets.
Sales
Fixed assets turn over ratio=
Net fixed assets
Years sales Net fixed assets Fixed assets
turnover ratio
2004 711.50 133.24 5.34
2005 922.34 170.05 5.42
2006 1197.14 156.79 7.64
2007 2753.22 247.03 11.15
2008 3604.7 290.9 12.39
Analysis:-
The fixed assets turnover ratios for 2004 to 2008 are 5.34, 5.42, 7.64, 11.15 and
12.39 times respectively. It was increased from 2004 to2008.
SITAMS Page 34
TECH MAHINDRAIT Services and Telecom solutions
The graph between Years and Fixed assets turnover ratio shows as below
SITAMS Page 35
TECH MAHINDRAIT Services and Telecom solutions
Interpretation:-Increasing fixed assets turnover ratio implies that the firms utilization of fixed assets
is increased.
4. Curent assets turnover ratio:-
Current assets turnover ratio can be calculated by dividing of sales with net current
assets.
Sales
Current assets turnover ratio=
Net current assets
Years sales Net current assets Current assets turnover
ratio
2004 711.50 209.01 3.40
2005 922.34 190.79 4.83
2006 1197.14 126.99 9.42
2007 2753.22 345.89 7.96
2008 3604.7 595.40 6.05
Analysis:-
The current assets turnover ratios for the years from 2004 to 2008 are 3.40, 4.83,
9.42, 7.96 and 6.05 times.
SITAMS Page 36
TECH MAHINDRAIT Services and Telecom solutions
The graph between Years and current assets turnover ratio shows as below
SITAMS Page 37
TECH MAHINDRAIT Services and Telecom solutions
Interpretation:-
It is increased from 2004 to 2006 and then decreased to 6.05 times for
the year 2008.it indicates that the usage of current assets is more than its
investments.
SITAMS Page 38
TECH MAHINDRAIT Services and Telecom solutions
1. Gross profit ratio:-
This ratio expresses relationship between gross profit and net sales. It relates the
efficiency with which management produces each unit of product. It indicates the degree to
which the selling price of goods per unit may decline without resulting in losses from
operations to the firm.
The first profitability ratio n relation to sales is the gross profit ratio it is calculated
by dividing the gross profit by sales.
Gross profit
Gross profit ratio = X 100
Sales
Gross profit = Net sales – cost of goods sold
Cost of goods sold = power & fuel + other manufacturing expenses