Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

ACKNOWLEDGEMENT

It gives me a great sense of pleasure to present the project report of Organizational

Behavior titled Comparative Analysis of Working Capital of any two companies in IT
industry for last two years. Project undertaken during P.G.D.M. 3rd Trimester. We owe
special debt of gratitude to Dr. Anurag Pahuja for her constant support and guidance
throughout the course of our work. Her sincerity, thoroughness and perseverance have been
a constant source of inspiration for us. It is only her cognizant efforts that our endeavors
have seen light of the day.

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Last but not the least, I acknowledge my friends for their contribution in the completion of
the project.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

DECLARATION

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We hereby declare that the project work entitled Comparative Analysis of Working
Capital of any two companies in IT industry for last two years submitted to the
Institute of Management Studies, Ghaziabad, is a record of an original work done by us
under the guidance of Dr. Anurag Pahuja and this project work is submitted in the partial
fulfilment of the requirements for the award of the degree of Post-Graduation Diploma in
Management.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

TABLE OF CONTENTS

Page No.

1.

Introduction

4-6

2.

Objective of the Study

3.

Research Methodology

4.

Data Analysis and Interpretation

9-18

5.

Conclusion

19

6.

Bibliography

20

Topic

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S. No.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

INTRODUCTION
The primary objective of working capital management is to ensure smooth operating cycle
of the business. Secondary objectives are to optimize the level of working capital and
minimize the cost of such funds.

The superior objective of financial management is wealth maximization and that can be
gained by profit maximization accompanied with sustainable growth and development. For
sustainable growth and development, the objectives of all the stakeholders including
customers, suppliers, employees, etc should be aligned to the growth of the organization.
In the light of above statement, the objectives of working capital management are described
as below:
Smooth Working Capital Operating Cycle: This implies that the operating cycle i.e. the
cycle starting from acquisition of raw material to its conversion to cash should be smooth.
It is not easy; it is as good as circulating 5 balls with two hands without dropping a single
one. If following 6 points can be managed, this operating cycle can be management well.
1. It means raw material should be present on requirement and it should not be a cause to
stop pages of production.
2. All other requirements of production should be in place before time.
3. The finished goods should be sold as early as possible once they are produced and
inventoried.
4. The accounts receivable should be collected on time.
5. Accounts payable should be paid when due without any delay.
6. Cash should be available as and when required along with some cushion.
Lowest Working Capital: Working capital here refers to the current assets less current
liabilities (net working capital). It should be optimized because higher working capital
means higher interest cost and lower working capital means risk of disturbance of operating

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Minimize Rate of Interest or Cost of Capital: The cost of capital utilized on working
capital should be minimized so as to achieve higher profitability. If the investment in

cycle.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

working capital involves bank finance, interest rates should be negotiated with bank. Cost
can be minimized by utilizing long term funds but in a proper mix. While deciding the mix
of working capital, the fundamental principal of financial management should be kept in
mind that fixed assets and permanent assets should be financed by long term sources of
finance of approximately same maturity and short term or temporary assets should be
financed by short term sources of finance.
Optimal Return on Current Asset Investment: The return on the investment made in
current assets should be more than the weighted average cost of capital so as to ensure
wealth maximization of the owners. In other words, the rate of return earned due to
investment in current assets should be more than the rate of interest or cost of capital used
for financing the current assets.

WIPRO
Wipro Ltd (NYSE:WIT) is a global information technology, consulting and outsourcing
company with 156,866 employees serving clients in 175+ cities across 6 continents. The
company posted revenues of $7.3 billion for the financial year ended Mar 31, 2014.
Wipro-applying-thought Wipro helps customers do business better by leveraging our
industry-wide experience, deep technology expertise, comprehensive portfolio of services
and vertically aligned business model. Our 55+ dedicated emerging technologies Centers
of Excellence enable us to harness the latest technology for delivering business capability
to our clients.
Wipro is globally recognized for its innovative approach towards delivering business value
and its commitment to sustainability. Wipro champions optimized utilization of natural
resources, capital and talent. Today we are a trusted partner of choice for global businesses
looking to differentiate at the front and standardize at the core through technology
interventions.

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responsive to changing customer needs. Wipro is well positioned to be a partner and co-

In todays world, organizations will have to rapidly reengineer themselves and be more

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

innovator to businesses in their transformation journey, identify new growth opportunities

and facilitate their foray into new sectors and markets.

TATA CONSULTANCY SERVICES (TCS)

Tata Consultancy Services Limited (TCS) is an Indian multinational information
technology (IT) service, consulting and business solutions company headquartered in
Mumbai, Maharashtra. TCS operates in 46 countries. It is a subsidiary of the Tata Group
and is listed on the Bombay Stock Exchange and the National Stock Exchange of India.
TCS is the largest Indian company by market capitalization ($80 billion) and is the largest
India-based IT services company by 2013 revenues. TCS is now placed among the Big 4
most valuable IT services brands worldwide. In 2013, TCS is ranked 40th overall in the
Forbes World's Most Innovative Companies ranking, making it both the highest-ranked IT
services company and the top Indian company. It is the world's 10th largest IT services

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provider, measured by the revenues.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

OBJECTIVES OF THE STUDY

1. To compare and analyze the Working Capital of Wipro and TCS for the years 2013-14 and
2012-13.
2. To compute the Working Capital Ratios for Wipro and TCS for the years 2013-14 and 201213.

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3. To analyze the Working Capital Ratios of Wipro and TCS.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

Research methodology

RESEARCH DESIGN

Descriptive Research Design this research which design was adopted for this study is exploratory
and descriptive design. This project is designed to identify the factors which influence the ratio
analysis and working capital of an I.T. Industry. The objective of descriptive study is to learn that
who want, when, where and how of the topic. The study may be simple or complex, it may be done
in many setting. The simplest descriptive study concerns an invariant question or hypothesis in
which we ask about, or state something about the size, form, distribution, or existence of variable.
Descriptive studies may involve the collection of data and the creation of a distribution of the
number of time the researcher observes a single event or characteristics or they may involve relating
the interaction of two or more variables. Descriptive studies may or may not have the potential for
drawing powerful inferences. The descriptive study is popular in business research because of its
versatility across disciplines.

Financial analysis is the process of identifying the financial strengths and weakness of the
firm. It is done by establishing relationships between the items of financial statements viz.,
balance sheet and profit and loss account. Financial analysis can be undertaken by
management of the firm, viz., owners, creditors, investors and others.

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The study has entirely based on the Secondary data. Information is collected from the profit and
loss account and balance sheet of last two years 2013-14. The data is analyzed with the help ratio
analysis and trend analysis. Apart from this, personal and informal discussions were held with the
executives in the finance and accounts department and other departments of the corporation.
Whereas the theoretical concept is taken from various text book reference on financial
management.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

CALCULATIONS AND INTERPRETATIONS

(In Rs. Million)

1. Current ratio

Current Ratio=

Year 2012-2013
a. Wipro=

b. TCS=

=2.69:1

Year 2013-2014

a. Wipro=

b. TCS=

.
.

=2.22:1
=2.74:1

Summary Table of Current Ratio

Year

Company

Wipro

TCS

2012-2013

1.81:1

2.69:1

2013-2014

2.22:1

2.74:1

Current Ratio

3
2.5
2
1.5
1
0.5
0
2012-2013

2013-2014
Wipro

ii.

=1.81:1

TCS

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i.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

Interpretation: Ideal current ratio is 2:1.

i.

Wipro had a ratio of 1.81:1 for the year 2012-2013 but gained back the ideal
ratio in 2013-2014. This was achieved by decreasing the short term borrowings
and also huge reduction in the Current maturities of long term borrowings from
Rs 20344 million to Rs. 158 million. With that there has been an increase in the
Trade receivables, Cash and bank balance, Short term loans and advances.

ii.

TCS as can be seen has been maintaining a healthy Current ratio. Even it has
improved its current ratio slightly by increasing the Current investment,
unbilled revenue, Trade receivables and cash and bank balance.

iii.

TCS is in a better position to repay its short term borrowings since it is

maintaining a higher current assets in comparison to Wipro.

2. Quick Ratio

Quick Ratio=

Year 2012-2013

a. Wipro=

=1.80

. .

b. TCS=

Year 2013-2014

a. Wipro=

=2.20

. .

b. TCS=

=2.74

Summary Table of Quick Ratio

Year

Company

Wipro

TCS

2012-2013

1.80

2.69

2013-2014

2.20

2.74

10

ii.

=2.69

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i.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

Quick Ratio

3
2
1
0
2012-2013

2013-2014
Wipro

TCS

Interpretation: Ideal Quick Ratio is 1:1

i.

Wipro is maintain a healthy ratio for both the years. In fact the firm can afford
to invest its some of the current assets on inventory if required or other long
term investment to earn more profit.

ii.

TCS is again in a better position in terms of quick ratio for both the years. The
cash and bank balance it has in excess can be used to invest in other profitable
business or inventory.

3. Debtors turnover ratio (DTR)

DTR=

Average collection period (ACP) =

Year 2012-2013
a. Wipro
 Average account receivables= Rs (76698+80387)/2=Rs 78542.5
 DTR=

 ACP=

=4.76

=76.68 days

b. TCS

 DTR=

=4.92

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 Average account receivables= Rs (140765.6+115203.5)/2=Rs 127984.55

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i.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

 ACP=

ii.

=74.18 days

Year 2013-2014
a. Wipro
 Average account receivables=Rs (76698+85467)/2=Rs 81082.5
 DTR=

 ACP=

=5.35

=68.22

b. TCS
 Average account receivables= Rs (182304.+140955.8)/2=Rs 161629.9
.

 DTR=

 ACP=

=5.06

=72.13

Summary Table of Debtors Turnover Ratio

Year

Company

Wipro

TCS

2012-2013

4.76

4.92

2013-2014

5.35

5.06

Debtor's Turnover Ratio

5.5
5
4.5
4
2012-2013

2013-2014

Summary Table of Average Collection Period

12

TCS

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Wipro

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

Year

Company

Wipro

TCS

2012-2013

77 days

74 days

2013-2014

68 days

72 days

Average Collection Period in Days

80
75
70
65
60
2012-2013

2013-2014
Wipro

TCS

Interpretation
i.

DTR of Wipro has improved for the year 2013-2014 because of high Net Sales.

ii.

TCS on the other hand has suffered a reduction in the DTR because of the
increase in the Trade receivables for the year 2013-2014.

iii.

Average collection period for Wipro less than TCS for the year 2013-2014
although TCS was better positioned in the earlier year.

4. Inventory turnover ratio(ITR)

ITR=

CoGS=Net Sales-Gross Profit

Year 2012-2013
a. Wipro

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i.

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Average Inventory=

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

 CoGS=Rs 374300- Rs 113591=Rs 260709

 Average inventory=Rs (10662+3263)/2= Rs 6962.5
 ITR=

=37.44

b. TCS
 CoGS=Rs 629894.8-Rs 180897.3=Rs 448997.5
 Average inventory
 ITR=

=2307.2

Year 2013-2014
a. Wipro
 CoGS=Rs 434238-Rs 138781=Rs 295457
 Average inventory= Rs (3263+2293)/2=Rs 2778
 ITR=

=106.36

b. TCS
 CoGS=Rs 818093.6-Rs 254018.6=Rs 564075
 Average inventory=Rs (211.5+152.1)/2=Rs 181.8
 ITR=

=3102.72

Year

Company

Wipro

TCS

2012-2013

37.44

2307.2

2013-2014

106.36

3102.72

14

Summary Table of Inventory Turnover Ratio

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ii.

= Rs (177.7+211.5)/2=Rs 194.6

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

Inventory Turnover Ratio

4000
3000
2000
1000
0
2012-2013

2013-2014
Wipro

TCS

Interpretation:
i.

We see a high anomaly in the ratios of Wipro and TCS. Although the CoGS for
TCS is only approximately 1.5 times that of Wipro, ITR of TCS almost 30-60
times of Wipro. The big reason for this is that inventory managed by TCS is far
less then Wipro. Wipro manages inventory almost 150 times that of the TCS.
This is probably because of the fact that Wipro caters to the hardware market
of PCs too.

5. Working capital

Working capital =Cash+ Marketable investments+ Trade accounts
receivable+ Inventory- Trade accounts payable
= Current assets-current liabilities
i.

Wipro
a. Year 2011-2012
 Working capital

=Rs 267804-Rs 134889=Rs 132915

b. Year 2012-2013
 Working Capital

=Rs 300635-Rs 165554=Rs 135081

ii.

TCS

=Rs 346451-Rs 156284=Rs 190167

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 Working Capital

15

c. Year 2013-2014

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

a. Year 2011-2012
 Working capital

=Rs 230617.4-Rs 103890.9=Rs 126726.5

b. Year 2012-2013
 Working Capital

=Rs 313984.6-Rs 116647.1=Rs 197337.5

c. Year 2014-2014
 Working Capital

=Rs 428976.9-Rs 156703.1=Rs 272273.8

Summary Table of Working Capital

Year

Company

Wipro

TCS

2011-2012

Rs 132915

Rs 126726.5

2012-2013

Rs 135081

Rs 197337.5

2013-2014

Rs 190167

Rs. 272273.8

Working Capital in million Rs.

300000
200000
100000
0
2011-2012

2012-2013
Wipro

2013-2014

TCS

Interpretation:
i.

From the calculated figures and graph it is evident that the working capital has
been increasing for both the firms.
Wipro saw a big jump in the working capital for the year 2013-2014 because of

decrease in the Current liabilities in the year 2013-2014.

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the Current assets as pointed earlier in the Current ratio section and also a

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ii.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

iii.

Similarly TCSs working capital has increased which they achieved by

increasing the current assets but proportionally less increase in the current
liabilities.

iv.

Working capital of TCS is more for the last 2 years in comparison to the Wipro.

6. Working capital Turnover ratio(WCTR)

WCTR=

AWC=
i.

Year 2012-2013
a. Wipro
 AWC= Rs (132915+135081)/2=Rs 133998
 Working capital turnover ratio=

=2.79

b. TCS
 AWC= Rs (126726.5+197337.5)/2=Rs 162032
 Working capital turnover ratio=

=3.89

Year 2013-2014
a. Wipro
 AWC=Rs (135081+190167)/2=Rs 162624
 Working capital turnover ratio=

=2.67

b. TCS

 Working capital turnover ratio=

.
.

=3.48

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 AWC= Rs (197337.5+272273.8)/2=Rs 234805.65

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ii.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

Summary Table of Working Capital Turnover Ratio

Year

Company

Wipro

TCS

2012-2013

2.79

3.89

2013-2014

2.67

3.48

Working Capital Turnover Ratio

4
3
2
1
0
2012-2013

2013-2014
Wipro

TCS

Interpretation:
i.

Wipro witnessed a fall in the working capital turnover ratio in the year 2013-2014
although there was an increase in the Net Sales. This can be attributed to the
increase in the working capital which effectively increased the average working
capital.
TCS too witnessed a reduction the WCTR although it is better placed in comparison
to Wipro. This reduction can again be attributed to the increase in the working
capital of TCS which was proportionally high in comparison to the corresponding

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sales.

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Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

CONCLUSION

From the study and calculations it can be concluded that TCS is maintaining a healthy
current assets and in good position to payback the short term debts hence in a better
financial position in comparison to Wipro. Wipro is doing well in the debt collection and
its debt collection period is less than TCS.
Inventory turnover ratio is abnormally in case of TCS because of the low inventory
management. Also the probable reason could be the fact that TCS is more focused on
software production and distribution while Wipro provides the hardware technology too.
We have seen a decrease in the working capital turnover ratio for both the firms because

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of the increase in the working capital.

Comparative Analysis of Working Capital of any two Companies in IT industry for last two year

Bibliography

http://www.moneycontrol.com/

http://www.wipro.com/

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http://www.tcs.com/Pages/default.aspx