Financial Report Analysis

on the IT Services Industry

Prepared as part of the course

ECON F212: Fundamentals of Finance and Accounts

Name ID

Dhruv Choudhary 2021B3A73142H

Sthitaprajna 2021B3A71082H

Riya Agarwal 2021B3A70996H

Sudarsan Mohanchander 2021B3A70558H

Harshith Borundia 2021B3A70727H

 Index

1. AIM and defining Ratio Analysis

2. Introduction: Tata Consultancy Services, Infosys & Wipro

3. Start of Ratio Analysis: Current Ratio

4. Quick Ratio

5. Inventory Turnover Ratio

6. Asset Turnover Ratio

7. Various Profitability and Solvency Ratios and their definitions

8. Return on Capital, Return on Assets, Return on Equity, Operating Margin, Net-
income Margin & Debt-to-Equity Ratio of TCS

9. Return on Capital, Return on Assets, Return on Equity, Operating Margin, Net-

income Margin & Debt-to-Equity Ratio of Infosys

10. Return on Capital, Return on Assets, Return on Equity, Operating Margin,

Net-income Margin & Debt-to-Equity Ratio of Wipro

11. Sources
AIM: To analyze and interpret the financial health of three major IT
companies in India vis-a-vis the industry average. By financial health, we
mean,

● Analysing the liquidity position of the company

● Measure profitability
● Analysing the riskiness of the business
● Return to its owners
● Solvency

Ratio analysis is a tool that involves methods of calculating and interpreting

financial ratios to assess the financial condition and performance of the
business. It is in the interest of shareholders, creditors, and the firm’s own
management.

● Trend analysis, comparative analysis, and industry analysis are important in

judging a firm’s performance in recent years and making predictions about
the future.
 Introduction

IT industry is a booming industry that comprises of consulting, information

technology services, and outsourcing. The establishment of Tata
Consultancy Services in 1967, Bombay, led to the birth IT Services industry.
The industry accounted for 8% of India’s GDP in 2020. India is the largest
exporter of IT services in the world. India has a core competency in
providing IT services and solutions to clients across the world. It employed
0.5 million people and produced export revenue worth US$178 billion in
FY2022. The IT-BPM industry saw a combined increase of 15.5% YoY in
FY2022. The growth can be attributed to the abundance of human capital,
the creation of IT parks, Special Economic Zones in cities like Hyderabad,
Bengaluru, and Gurugram, research and innovation, and large foreign
investments.

Interpretation: The above graph showcases the GDP share in percentage terms
of IT industry in India from 1992-93 to 2019-20. We see that IT industry has grown
steadily over the years and has contributed to the economy massively in terms of
employment opportunities, innovation and technology and revenue to the
government. We see a drop in GDP share during the Recession in 2008 from 5.9
to 5.8 percent. Another drop came during 2015-16 due to falling prices of
commodities and currency fluctuations.
Tata Consultancy Services

Tata Consultancy Services is an Indian multinational IT service and

consulting company founded by Jamsetji Tata and currently headquartered
in Mumbai. It is part of the Tata group and operates in 150 locations in 46
countries. It employs 600,000 people worldwide. It is the second-largest
company by market capitalization.

It ranked 11th in the Fortune 500 India list. It was the first IT service company
to cross US$200 billion in market capitalization. The current share price of
TCS is Rs.3384. It generated a revenue of US$25 billion with an operating
income of US$6.5 billion in 2022. The current chairman and CEO are Natarajan
Chandrasekaran and Rajesh Gopinathan respectively.

The parent company of TCS is Tata Sons which owns more than 70 percent
of the company. The subsidiaries include Tata Motors, Tata Power, Tata Steel,
Taj Hotels, Tata Consumer Products, etc.

Products and Services of TCS:

Following are the products and services TCS sells –

● IT services and consulting,

● Outsourcing and BPO
● Software Products
● Business solutions
● TCS MasterCraft
● TCS Bancs
● TCS iON
● Intelligent Testing System
● Test Automation Manager
Strengths - strong reputed brand image and extensive global presence

Weaknesses-Product segment not really unique

Opportunities-Emergence of cloud computing and AI

Threats- Strong competition and attrition in IT service-based companies

Infosys

Infosys Limited is an Indian multinational IT company headquartered in

Bengaluru, India. It was founded on 2nd July 1981 by seven engineers in Pune
with $250 capital.

Today, it provides consulting, outsourcing, and IT services. It is the second-

largest IT company after TCS by revenue. It became 602nd largest company
in the world, according to Forbes Global 2020. In August 2021, it became the
fourth Indian company to cross $100 billion in market capitalization.

Nandan Nilekani is the current chairman of the company and Salil Parekh is
the current CEO. It employed over 3 lakh employees in 2022. It generated a
revenue of $16 billion with an operating income of $3.8 billion. The current
share price of the company is Rs. 1630.

Infosys Product Portfolio:

Infosys Ltd is a global technology IT services firm. The company provides end-to-end
business solutions for their clients, such as:

● Technical consulting
● Design
● Development
● Product engineering
● Maintenance
● Systems integration
● Package-enabled consulting
● Implementation and infrastructure management services
Strengths - strategic collaborations with IBM and other tech giants in USA

- has 119 development centers in India and gets skilled labor at

cost

Weaknesses - vulnerability in home country since most operations are global.

Opportunities - Huge investment opportunity in digital transformational

technologies.

Threats - Immigration laws in US can affect its US operations

WIPRO

Wipro Limited (formerly, Western India Palm Refined Oil Limited) is an Indian
multinational corporation headquartered in Bengaluru that provides IT
consulting and business process services. Azim Premji’s father Mohammed
Premji established the company in 1945. It started as a company that sold
vegetable oils. Later, Azim Premji took over the business and shifted the
trajectory of the business to IT.

Today, Wipro’s capabilities include cloud computing, cyber security, AI,

robotics, data analytics, etc. It provides its services to customers in more than
167 countries. The market cap is around $27.73 billion. Currently, it is the 630th
most valuable company in the world based on market capitalization. The
promoter group led by Azim Premji has more than 73% shareholding in the
company. Thierry Delaporte is the current CEO of the company. In 2022, it
generated revenue of $10 billion with an operating income of $2 billion. Also, it
employed more than 2 lakh employees in the same year. The current share price
of Wipro is Rs. 402.

Products and Services of Wipro:

IT services

● Business Process – Product Engineering

● Service Offerings – Consulting and analytics
● Applications – Infrastructure service
● Data – Cybersecurity & Mobility
IT products

● Hardware products.
● Related Software products, which include database and integration.
Strengths - Diversified product offerings and low price point

Weaknesses - Low operating margin and small global presence as compared to

industry

Opportunities - Huge global market to gain

Threats - Lack of innovation and skilled workers

Ratio Analysis:
Current Ratio

The current ratio measures a company’s ability to pay off short-term liabilities
with current assets. A high current ratio indicates liquidity or short-term
solvency. However, it may also indicate that the company is not efficiently
using cash(or its assets) and other short-term assets, missing out on profitable
investment opportunities.

A. TCS

The Current Ratio for TCS, has been consistently deteriorating since 2018.
Although it has stayed above 2, since its inception. In the industry, it is
essential to have a high current ratio since the business normally needs to
fund all of its operations from current assets such as the cash received from
investors. Although total assets and liabilities have been increasing, the rate of
increase, has not been constant and thus the decreasing ratio.
B. INFOSYS

For Infosys, Current Ratio, has been a constant decline since 2018, It has
gone from nearly 3.5 to 2, as per the latest balance sheet figures. It shows the
weakening liquidity position, the company is inching towards, over the past 5
years. The rate of increase of current liabilities has been increasing at a
greater rate than current assets, leading to a decreasing current ratio.

C. WIPRO
The current ratio for WIPRO has also been fluctuating between 3 and 2, and
continuously decreasing, with the exception of 2019, when there was an
exceptionally higher value of current assets, causing the spike in current ratio,
also.

Comparative Analysis:

High current ratio indicates that the firm will able to pay their short term dues
without any exterior financial help. The difference between the Current Ratios
and the initial edge TCS had over INFOSYS and WIPRO, has been fading
and all their current ratios, converging to a value of 2. This signifies a major
deterioration in the liquidity position of TCS, compared to its competitors.
Since all of them are above 2, we may assume, they do not run into a very
immediate problem, but they should try to increase their ratio, by limiting the
rate of increase of current liabilities and increasing the growth rate of current
assets

Industry Analysis:

With the industry average of current ratio standing at nearly 4, these bigger
firms, have been underperforming compared to the industry average. It being
the IT Services sector, the Current Ratios are generally very high, with a few
firms, working as outliers and pulling the averages, very high up. Although
these companies are the leaders in their industry, but with respect to Current
Ratio, they are below the industry average, which can be mainly attributed to
their big scale, on which they run.
Quick Ratio

The Quick ratio measures the ability of a company to use its quick assets
(near cash) to pay off its liabilities. A company with a quick ratio of less than
one cannot currently pay back its current liabilities.

A. TCS
The quick ratio, of TCS, has been on a steady decline, going from 5 to now
inching towards 2, this represents a steady decline in maintaining the quick
ratio.

B. INFOSYS

The INFOSYS Quick ratio, has also been on a steady decline, going down to
a ratio, less than 2 in its last financial year statement. This decline, if not
tracked, may soon be below 1, which is a worrying situation for INFOSYS and
the management, is trying to pump up this ratio.

C. WIPRO

WIPRO, Quick ratio, has been following its current ratio trend, It has reched
the 1.5 Quick Ratio mark. It saw a bump in 2019, where it had a notable
increase in quick ratio, but thereon it has been on a steady decline.
Comparative Analysis:
If the quick ratio is 1:1 then it indicates that the company can pay its current
debts without selling its long-term assets. If a company has a quick ratio
higher than the 1:1 this means the company owns more quick assets than
current liabilities. The difference between the Quick Ratio of TCS, INFOSYS
and WIPRO, has been on a downward spiral, with all the values inching
towards 1 as per the latest financial data for Financial year 2022.INFOSYS
was performing marginally better than WIPRO, til 2021,indicating a worrying
liquidity position. Initial TCS significantly outperformed both WIPRO and
Infosys, now its lead has reduced considerably

Industry Analysis:

The Quick Ratio average for the industry for the last quarter is 3.38, WIPRO,
INFOSYS and TCS, are lacking and have been performing below the industry
average, signifying that they are in worse liquidity position compared to others
in the industry, this may again stem from the fact that these are very large big
scale companies, the case may also be that these companies are consistently
selling their quick assets, to pay off their debts.
Inventory turnover Ratio

Every firm has to maintain an inventory of finished goods to meet the

“business requirement.” This ratio indicates the velocity of conversion of
stocks into sales. The inventory turnover ratio explains the ability of the
company to convert its inventories to cash by selling.

A. TCS

FY 2018 FY 2019 FY 2020 FY 2021 FY 2022

+ Sales &
Services
Revenue 1231040 1464630 1569490 1641770 1917540
+ Inventories 0 0 50 0 200

B. INFOSYS

FY 2018 FY 2019 FY 2020 FY 2021 FY 2022

+ Sales &
Services
Revenue 705220 826750 907910 1004720 1216410

+ Inventories 0 0 0 0 0

C. WIPRO

FY 2018 FY 2019 FY 2020 FY 2021 FY 2022

+ Sales &
Services
Revenue 544871 585845 610232 619430 790934

+ Inventories 3370 3951 1865 1064 1334

Here we can see that in most case except for WIPRO the inventories are zero
this is because IT Services company don’t need any inventory as they are not
selling any physical product. Only Wipro has some inventories because apart
from IT Services WIPRO also is in the business of electric bulbs, electrical
wire devices, commercial lighting.

So, it does not make any sense in analyzing the Inventory turnover ratio for
these companies.
Asset Turnover Ratio

The asset turnover ratio indicates the effectiveness of the firm’s use of its total
asset base. It measures a company’s ability to generate sales from assets.

A. TCS
Interpretation

Trend Analysis:

The asset turnover ratio of TCS has been growing steadily over the years, it
suffered a dip in the year 2021, which would have been due to the COVID-19
pandemic.

The increase in this ratio is mainly due to the increase in the sales figure of
TCS as the sales increased by 55 % from FY2018 to FY 2022 showing that
company is growing rapidly and is taking on more work and clients.

The total assets increased by 30% from FY2018 to FY2022 showing that the
company is expanding and investing in new technology.
According to CEO Gopinathan, TCS has been able to increase its revenues
due to strong technological expertise and execution.

Industry Analysis:

The industry average for Asset turnover ratio is 0.77, so compared to the
industry TCS is doing a much better job at utilizing its assets efficiently, this
may be due to the fact that TCS has a better management and leadership
compared to the industry, it can also be due the fact TCS is a very cash rich
firm which is improving its asset turnover ratio.

Comparative Analysis:

The main competitors of TCS are HCL Technologies, Wipro and Infosys and
the asset turnover ratio of TCS is better than its competitors. As TCS had made
big investments in new technologies its able to utilize its assets more efficiently.
Thus, we can say that TCS is still able to improve its asset utilization capacity
over time and is efficiently using its assets.

B. INFOSYS
Interpretation

Trend Analysis:

The asset turnover ratio for INFOSYS has been steady till FY2021 and it had
a sharp increase from FY 2021 to FY2022.

The sales increased by 72% from FY2018 to FY 2022 this shows that the
company is growing rapidly and is taking on more work and clients to boost its
sales and in turn the profits .

The total assets also increased by 47% from FY2018 to FY 2022.

Industry Analysis:

The industry average for Asset turnover ratio is 0.77, so compared to the
industry INFOSYS is doing slightly a better job in utilizing the assets than the
industry , it may be due to the fact that the company is having rapid growth in
sales and is much more stable than the industry as it is an old company.

Comparative Analysis:

The main competitors of INFOSYS are Wipro, TCS and HCL Technologies,
the asset turnover ratio of INFOSYS is better its main competitors except
TCS, this implies that it able to utilize its assets more efficiently than most of
its main competitors

C.WIPRO
Interpretation

Trend Analysis:

The Asset turnover ratio of WIPRO has been around the same value for the
last 5 years which shows that the company has reached a saturation point on
their asset utilization and is not able to break that barrier.

The sales increased by 45 % from FY2018 to FY 2022 this shows that the
company is growing at a good rate.

The total assets also increased by 41% from FY2018 to FY 2022 which
means that they are actively investing in new technology.

Industry Analysis:

The industry average for Asset turnover ratio is 0.77, so Wipro is just near the
industry average neither more or less. This means that Wipro is managing its
assets not as good as TCS or Infosys but it is still better than the other
companies in the IT Services sector this may be due to the fact that Wipro is a
very stable company in the IT Services sector

Comparative Analysis:

The Asset turnover ratio for WIPRO is lowest among its main competitors
which are TCS, INFOSYS, HCL TECH, this may be due to the fact that
WIPRO is not only an IT Services company, it also produces light bulbs and
other electrical appliances which increases its value in assets but not
contributing much to the sales of the company.
Profitability Ratios
Profitability ratios measure a company’s ability to generate income relative to
revenue, balance sheet assets, operating costs, and equity.

Common profitability financial ratios include the following:

● Operating Margin Ratio: compares the operating income of a company

to its net sales to determine operating efficiency.

The variability of Operating Profit Margin and Net Profit Margin over time is a
prime indicator of business risk. Operating Income Return on Investment
indicates a firm's return on all its invested capital and also whether the
company is creating value for itself or not.

● Return on Equity Ratio: Return on Equity Ratio indicates the rate of

return the management has earned on the capital provided by the
stockholders after accounting for payments to all other capital
suppliers. It measures how efficiently a company is using its equity to
generate profit.

● Return on Assets Ratio: Measures how efficiently a company is using

its assets to generate profit. The objective is to find out how efficiently
the long-term funds supplied by the Debenture holders and
shareholders have been used.

● Net Profit Margin / Net Income Margin: This is a financial ratio used to
calculate the percentage of profit a company produces from its total
revenue. It measures the amount of net profit a company obtains per
 rupee of revenue gained. The net profit margin is equal to net
income/net profit divided by total revenue.

● Return on Capital Ratio: Return on Capital Employed (ROCE), a

profitability ratio, measures how efficiently a company is using its capital
to generate profits.

Where:
EBIT-> Earnings before Interest and Tax
Capital Employed-> Total assets - Current liabilities

Solvency Ratios:

● Debt-to-Equity Ratio: The ratio is used to evaluate a company’s

financial leverage. The D/E ratio is an important metric used in
corporate finance. It is a measure of the degree to which a
company is financing its operations through debt versus wholly-
owned funds.
1.TCS

Return on Assets:

Return on capital:
Return on equity:

Interpretation of return ratios:

Trend Analysis:
The trend shows that return ratios are declining slightly from 2016 and reaching
a minimum value in 2018 and then rising again. ROE and ROC are between 30
and 40.ROA is between 25-30 in the last 5 years.
The ratios are relatively stable for a company which has the second largest
assets in the country after Reliance.
Total income from operations has steadily increased from roughly Rs.97,000 Cr
in 2018 to Rs.160000 Cr in 2022.
This inference can be seen using the following statistics: -
1.The ROE for the company declined at 30.4% during FY18, from 30.6% during
FY18. The ROE measures the ability of a firm to generate profits from its
shareholders' capital in the company.
2.The ROA of the company declined at 25.2% during FY18, from 26.3% during
FY17.
3.We like the trends that we're seeing from Tata Consultancy Services. The
data shows that return on capital have increased substantially over the last five
years to 47%. The company is effectively making more money per dollar of
capital used, and it's worth noting that the amount of capital has increased too,
by 38%. This can indicate that there's plenty of opportunities to invest capital
internally and at ever higher rates, a combination that's common among multi-
baggers.
4.On a side note, we noticed that the improvement in ROCE appears to be
partly fueled by an increase in current liabilities.

Comparative analysis:
1.The main competitors of TCS are HCL Technologies, Wipro and Infosys. All
the three return ratios for TCS are better than the competitors. TCS has made
big investments in new technology and is able to utilize its assets efficiently.

Industry analysis:
The industry average of return on assets for the IT industry in India is
roughly 4.89 as calculated from the Bloomberg data. The industry ROE is
8 and ROCE is 6.48. This implies that TCS is doing quite well in the industry
and is the industry leader due to its strong brand image and investments in new
technologies like IoT, analytics, additive manufacturing, AR/VR, edge
computing.
To sum it up, Tata Consultancy Services has proven it can reinvest in the
business and generate higher returns on that capital employed, which is terrific.
Since the stock has returned a staggering 174% to shareholders over the last
five years, it looks like investors are recognizing these changes.

Operating Margin:
The Operating Margin measures how much profit a company makes on a
rupee of sales after paying for variable costs of production, such as wages
and raw materials, but before paying interest or tax.

Net Income Margin:

The Net Profit Margin shows how much of each rupee of revenue flows down
to the company’s net income.

Interpretation of the changes in and Operating Margin and Net Income

Margin:
While operating margins, as the name suggests, refers to the profits earned
from the core operations of the company, the net profit margins calculate the
actual margin earned after considering the effect of interest payments on debt
and tax outflows.
Trend Analysis:
From FY18-FY22, the operating margin remains the same with slight
fluctuations.
From 2018-2022, there has been a slight decrease of 5% in the net income
margin.
Revenues of the company have steadily increased for the last five years due
to global expansions and demand for its services like cloud. According to CEO
Gopinathan, TCS has been able to increase its revenues due to strong
technological expertise and execution vigor.
Net income margin has been falling possibly due to rise in current liabilities
and interest expenses.
Comparative Analysis:
TCS had operating margin 25.27, Infosys had operating margin of 23.03 and
Wipro had operating margin of 17.19.
For TCS, their operating margin continued to be industry-leading. Whereas,
the operating margin for Infosys was reduced by 2 points.
Both the margins are better for TCS in comparison to its competitors.
Industry Analysis:
Industry average for Operating profit margin is -109.79 points. TCS is doing
way better than the industry average. Many IT firms burn cash to capture the
market and increase revenues. That’s why operating margin and net profit
margin is so low in the IT industry.
To conclude, TCS has very high working capital management efficiency. TCS
has been able to manage its resources efficiently and effectively.

Debt-to-Equity Ratio:

A high Debt-to-Equity Ratio indicates that a company is borrowing more

capital from the market to fund its operations, while a low Debt-to-Equity
Ratio means that the company is utilizing its assets and borrowing less
money from the market. Debt-to-Equity Ratio reveals the solvency position of
a company.

Interpretation of the changes in Debt-to-Equity Ratio:

From FY18-FY22, there has been an increase of 143% in the Debt-to-Equity
Ratio.
1.Trend Analysis: This means there is a larger increase of total liabilities with
respect to total equity in the last 5 years. Debt is a subset of liabilities. The
current liabilities have increased to 28% of total assets, so the business is now
more funded by the likes of its suppliers or short-term creditors. It's worth
keeping an eye on this because as the percentage of current liabilities to total
assets increases, some aspects of risk also increase. TCS has a healthy
Debt-to-equity Ratio despite the increase.
2.Comparative Analysis: Competitors of TCS, Infosys and Wipro have a
similar trend of this ratio in the same time period, in which Wipro has a much
lower increase. TCS has a slightly higher increase of the Debt-to-Equity ratio
when compared to Infosys in the same period of 5 years as it has greater
current liabilities.
3.Industry Analysis: The industry average for Debt-to-Equity Ratio is around
2. TCS, even though having an increasing Debt-to-Equity ratio, it has a
significant lower ratio (less than 1) than the industrial average which means
the equity of the TCS’s shareholders is bigger, and it does not require a
significant amount of money to finance its business and operations for
growth.
2.INFOSYS

Return on Assets:

Return on Equity:
Return on Capital:

Interpretation of return ratios:

Trend Analysis:
We can see a declining trend in all the ratios from 2013 to 2017. ROA, ROE,
ROC are declining from 2013 reaching a minimum value in the financial year
2016-2017. There is a sharp increase from the financial year 2017-2018 to
2018-2019. ROE and ROC are between 25-30.ROA is between 18-23 in the
last 5 years.
The ratios are relatively stable for a company that ranked third in IT services.
The following inferences can be made about the return ratios: -
1.The ROE for the company improved and stood at 24.8% during FY18, from
20.9% during FY18. The ROE measures the ability of a firm to generate
profits from its shareholders' capital in the company.
2.The ROC for the company improved and stood at 31.4% during FY18, from
29.0% during FY17. The ROCE measures the ability of a firm to generate
profits from its total capital (shareholder capital plus debt capital) employed in
the company.
3.The ROA of the company improved and stood at 20.5% during FY18, from
17.4% during FY17. The ROA measures how efficiently the company uses its
assets to generate earnings. Current assets rose 11% and stood at Rs 672
billion in FY 21-22, while fixed assets rose 6% and stood at Rs 495 billion in
FY22. Trends of INFOSYS are quite remarkable and noteworthy. The data
shows that the return on capital has increased substantially over the last five
years to 38.46%. The company is effectively making more money per dollar of
capital used. This can indicate that there are plenty of opportunities to invest
capital internally and at ever higher rates, a combination that's common
among multi-baggers.
4. The company's current liabilities during FY22 stood at Rs 336 billion as
compared to Rs 239 billion in FY21, thereby witnessing an increase of 40.8%.
We noticed that the improvement in ROCE appears to be partly fueled by an
increase in current liabilities.

Comparative analysis:
The main competitors of the company are TCS and WIPRO. The average
return ratios of INFOSYS are greater than that of Wipro. However, these
numbers are smaller than TCS indicating that TCS is a bigger competitor of
this company and is comparatively performing better. Investment in better
technologies and inventories makes Infosys’ return ratios high. The company
is able to utilize its assets efficiently.

Industry Analysis:
The industry average of return on assets for the IT industry in India is
roughly 4.89, as calculated from the Bloomberg data. The industry ROE
is 8 and ROCE is 6.48. The ROA of Infosys is as high as 19.54. The
incubation center of Infosys called the ‘Infosys Center for Emerging
Technology Solutions’ (iCETS) focuses on the incubation of NextGen services
and offerings by identifying and building technology capabilities to accelerate
innovation. The current areas of incubation include AI & ML, Blockchain,
Computer Vision, Conversational interfaces, AR-VR, Deep Learning,
Advanced analytics using video, speech, text, and much more. These new
advancements in technologies and diversified mediums of investments can be
a possible reason for the high return ratios.
Operating Margin:

The Operating Margin measures how much profit a company makes on a

rupee of sales after paying for variable costs of production, such as wages
and raw materials, but before paying interest or tax.

Net Income Margin:

The Net Profit Margin shows how much of each rupee of revenue flows down to the
company’s net income.
Interpretation of the changes in Operating Margin and Net Income
Margin:
Trend Analysis:
From 2018-2022, there has been a decrease of 20% in the net income
margin.
From 2018-2020, there was a decrease of 12%, an increase of 8.7% form
2020-2022 in the operating margin.
1.Infosys is an export-based IT company. During COVID19, its business was
impacted due to disruption worldwide. That’s why its operating margin
declined during that phase. This year it operating margin declined due to rising
overheads, wages and salaries.IT is a global industry and its growth and
margins are greatly influenced by global economic changes. The US is facing
wage inflation that has pushed-up the salary and wage bill for tech companies
all over the world.
The company is facing effects of inflation.

2.Net income margin also seems to be declining due to inflationary situations

and unstable macroeconomic conditions around the world in recent times.

Comparative Analysis:
● The latest operating margins for TCS and Wipro were 25.27 and 17.19
respectively as compared to Infosys’ 23.03.
● Over the years, Infosys has performed better as compared to its
competitors Wipro and Tech Mahindra.
● It is second only to TCS in terms of operating margins and net income
margins.
● Although, the trend shows the margins have been falling, Infosys is still
in a better place as compared to its competitors.

Industry Analysis:
● The latest industry average of operating margins as calculated from the
Bloomberg data was -109.79 points for IT industry.
● The industry operating margins had reached a seven-year high of 28.8
percent of the total income or revenues during Q3FY21. Margins have
been on a downhill since, despite double-digit growth in revenues. The
pace of margin contraction seems to have accelerated in the recent
quarters.
 ● The industry's average operating margins were down 360 basis points
on the year-on-year (YoY) basis in the first quarter while it was down
190 basis points quarter-on-quarter (QoQ).
● The combined net profit for the 17 firms, including Tata Consultancy
Services, Infosys, Wipro, HCL Tech and Tech Mahindra was up just 0.1
percent YoY to Rs 23,696 crore in Q1FY23, the slowest growth in
earnings in the last five years. The combined earnings were down 8.3
percent QoQ in the first quarter.
● Infosys has performed well as compared to the whole industry in terms
of margins.
● To sum up, we expect Infosys’ margins to start improving in FY24 as
the US central bank manages to bring down wage inflation in their
economy and employee attrition falls in India.

Debt-to-Equity Ratio:

A high Debt-to-Equity Ratio indicates that a company is borrowing more

capital from the market to fund its operations, while a low Debt-to-Equity
Ratio means that the company is utilizing its assets and borrowing less
money from the market.
Interpretation of the changes in Debt-to-Equity Ratio:
From 2018-2022, there has been an increase of 141% in the Debt-to-Equity
Ratio.
1. Trend Analysis: This means there is a larger increase of total liabilities
with respect to total equity in the last 5 years. This is partly due to the increase
in current liabilities as the business is now more funded by the likes of its
suppliers or short-term creditors.
2.Comparative Analysis: The growth in the ratio of Infosys is similar to that
of TCS and greater than that of Wipro. But in FY22, it has a lesser ratio when
compared to Wipro.
3.Industry Analysis: The given Industry Average for this ratio is around 2.
Infosys, even though having an increasing Debt-to-Equity ratio, it has a
significantly lower ratio than the industrial average. Moreover, high debt is not
necessarily an indicator that a company is struggling. Some investors prefer a
higher debt-to-equity ratio. Some companies use debt to stimulate growth, in
which case investors reap high returns if the growth plan is successful.
3.WIPRO

Return on Assets:

Return on equity:
Return on capital:

Interpretations of return ratios:

Trend analysis:
The trend shows that return ratios increased from 2013 to 2014 and there was
a declining trend in all the ratios from 2014 to 2018 after which it steadily
increased. ROE ranged from 20 to 25 in the last five years. ROA was between
10-20 in the last five years and ROC was from 10-20.
Return on equity was relatively stable as compared to return on assets and
return on capital. There was a lot of fluctuation seen in these two ratios and
their minima was reached in 2018.
The inferences about the return ratios can be seen as follows:
1.The ROE for the company declined to 16.1% during FY19, from 16.8%. The
ROE for the company declined and down at 18.7% during FY22, from 19.9%
during FY22. This decline can be attributed to the increase in current liabilities.
A low equity ratio means that the company primarily used debt to acquire
assets, which is widely viewed as an indication of greater financial risk. We
can see that the long-term significantly increased from 7 billion to 56 billion.
2.The ROCE for the company declined and down at 20.7% during FY18, from
21.8% during FY17. The company's current liabilities during FY22 stood at Rs
308 billion as compared to Rs 230 billion in FY21, thereby witnessing an
increase of 34.0%. Long-term debt stood at Rs 56 billion as compared to Rs 7
billion during FY21, a growth of 657.1%. The increase in ROC from FY21 to
FY22 can be because of the increase in the long-term loans and increasing
current liabilities. There is an increase in the current liabilities to total assets
ratios which increases the risk factor.
3.The ROA of the company declined and down at 11.4% during FY18, from
11.6% during FY17. Meanwhile, we can also see that current assets rose 19%
and stood at Rs 621 billion, while fixed assets rose 51% and stood at Rs 456
billion in FY22.The ROA of the company declined and down at 11.8% during
FY22, from 13.8% during FY21. A falling ROA indicates the company might
have over-invested in assets that have failed to produce revenue growth,
a sign the company may be trouble. The more leverage and debt a
company takes on, the higher ROE will be relative to ROA. Thus, as a
company takes on more debt, its ROE would be higher than its ROA.

Comparative analysis:
The main competitors of WIPRO are TCS and INFOSYS. All three return
ratios of WIPRO are lower than both of its strong competitors. This is alarming
for the company as its competitors are better off compared to it. There is a
need for the company to make technological advancements and invest more
in acquiring assets.

Industry analysis:
The industry average of return on assets for the IT industry in India is
roughly 4.89, as calculated from the Bloomberg data. The industry ROE is
8, and ROCE is 6.48. This implies that WIPRO is doing well in the industry.
Operating Margin:

The Operating Margin measures how much profit a company makes on a

rupee of sales after paying for variable costs of production, such as wages
and raw materials, but before paying interest or tax.

Net Income Margin:

The Net Profit Margin shows how much of each rupee of revenue flows down
to the company’s net income.

Interpretation of the changes in Operating Margin and Net Income

Margin:
Trend Analysis:
From 2018-2021, there has been an increase of 19% followed by a decrease
of 12% from 2021-2022 in the net income margin.
From 2018-2021, there was an increase of 27.5%, a decrease of 11.3% from
2021-2022 in the operating margin.
1.Wipro is a leading technology services and consulting company. During
COVID-19, its business was impacted due to disruption worldwide. That’s why
its operating margin declined during that phase. This year its operating margin
declined due to rising overheads, wages, and salaries. IT is a global industry
and its growth and margins are greatly influenced by global economic
changes. The US is facing wage inflation that has pushed up the salary and
wage bill for tech companies all over the world.
The company is facing the effects of inflation.

2.Net income margin also seems to be declining due to inflationary situations

and unstable macroeconomic conditions around the world in recent times.

Comparative Analysis:
1. The latest operating margins for TCS and Infosys were 25.27 and 23.03
respectively as compared to Wipro’s 17.19.
2. Over the years, Wipro has been the laggard as compared to its
competitors TCS, Infosys, Tech Mahindra, and HCL Technologies.
3. Maybe the management policies need to appraise its performance and
come up with better strategies to counter the tough competition in the
industry due to emergence of startups and continued innovation of the
established companies.
4. Also, just as TCS and Infosys have invested heavily in new
technologies, Wipro needs to restructure its products and services and
spend money on Research and Development to continue its growth.

Industry Analysis:
● The latest industry average of operating margins as calculated from the
Bloomberg data was -109.79 points for the IT industry.
 ● The industry operating margins had reached a seven-year high of 28.8
percent of the total income or revenues during Q3FY21. Margins have
been on a downhill since, despite double-digit growth in revenues. The
pace of margin contraction seems to have accelerated in recent
quarters.
● The industry's average operating margins were down 360 basis points
on the year-on-year (YoY) basis in the first quarter, while it was down
190 basis points quarter-on-quarter (QoQ).
● The combined net profit for the 17 firms, including Tata Consultancy
Services, Infosys, Wipro, HCL Tech, and Tech Mahindra was up just 0.1
percent YoY to Rs 23,696 crore in Q1FY23, the slowest growth in
earnings in the last five years. The combined earnings were down 8.3
percent QoQ in the first quarter.
● Wipro has performed well as compared to the whole industry in terms of
margins.
● To sum up, we expect Wipro’s margins to start improving in FY24 as the
US central bank manages to bring down wage inflation in their economy
and employee attrition falls in India.

Debt-to-Equity Ratio:
A high Debt-to-Equity Ratio indicates that a company is borrowing more
capital from the market to fund its operations, while a low Debt-to-Equity
Ratio means that the company is utilizing its assets and borrowing less
money from the market.

Interpretation of the changes in Debt-to-Equity Ratio:

From 2018-2019, there has been a decrease of 17.8% followed by an
increase of 40% from 2019-2022 in the Debt-to-Equity Ratio.
1. Trend Analysis: We can observe a gradual incline in the ratio form 2019-
2022. The 2020-2022 period witnessed the Covid-19 pandemic.
Macroeconomic conditions caused by Covid-19 could also result in financial
difficulties for the company, including limited access to the credit markets,
insolvency, or bankruptcy. Such conditions caused clients to delay payments,
request modifications of their payment terms, or default on their payment
obligations to the company, all of which negatively impacted Wipro’s liquidity
and cash generated from its operations.

2. Competitive Analysis: Compared to the other two competing companies,

TCS and Infosys, Wipro has a greater Debt-to-Equity Ratio on average. But
Wipro had a much lesser increase in the ratio, in that period. Companies that
invest large amounts of money in assets and operations often have a higher
debt-to-equity ratio. This shows that the company has realized the potential
profit or value it could gain by borrowing and increasing operations.

3. Industry Analysis: The industry average for this ratio is around 2. The ratio
for Wipro is lower than the industry average. Even though it has a higher ratio
than competitive countries, the increase in the ratio was not as significant.
This means the equity of Wipro’s shareholders is bigger, and it does not
require a significant amount of money to finance its business and operations
for growth.
Sources:
● Bloomberg Terminal
● Indian express
● Economic Times
● Investopedia
● Deccan Chronicle
● Money Control
● IIDE.com
● The Print