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A Study on Working Capital Management Efficiency of TCS (India's Top 1

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 Wesleyan Journal of Research, Vol 13 No 2 (July 2020) Research article: (Commerce)

A Study on Working Capital Management Efficiency of TCS

(India’s Top 1 Company)
Ruby Mittal1 and Dr. Sanjay Kumar Sadana2
1
Research Scholar, 2Professor
1,2
School of Business Management and Commerce, MVN University, Palwal, Haryana, India.
1
sheena.mittal4@gmail.com, 2talent77@rediffmail.com
Abstract: Working capital and Working Capital Management both are very crucial for every
company. Through this Paper, Researcher has tried to make the analysis of the working capital of
TCS Company and also tried to find out the relationship between the profitability and working
capital. An efficient working capital Management helps for smooth running and higher earnings
of company. For this Paper the researcher used various types of accounting ratios for measuring
the working capital efficiency like – liquidity ratio and profitability ratio. The hypotheses test
reveal there is a significant relationship between working capital and profitability. There is a
significant relationship between liquidity and profitability. Overall performance of the TCS is
satisfactory.

Key Words: Working Capital, Liquidity Ratio, Profitability Ratio.

Article History

Received: 15/06/2020; Accepted: 24/07/2020

Corresponding author: Ruby Mittal, Email id: sheena.mittal4@gmail.com

INTRODUCTION
Every firm/organization requires two types of finance that is short-term finance and long term
finance. Both type of finance is important to manage for firm because short term finance
fulfill the needs of daily or day to day expense of the firm and Long term finance is useful for
acquiring the fixed assets for the firm. Working capital management deals in managing the
cash management, operating cycle, inventory management, collection periodsetc. Working
capital is the nerve system of every company, it is considered to be vitalfor efficiency and
growth of a company.so an effective utilization of capital is essential to increase the rate of
development and to enhance the efficiency of production system of company. Working capital

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 Wesleyan Journal of Research, Vol. 13 No. 2
helps in taking the financial and investment decisions .working capital management make the
direct impact on liquidity and profitability of the company.
Company Profile
TCS company become the first Indian company in software industry.it have a market of 100
billion dollars. It is largest IT giant of India, was established in 1968 and wholly owned
subsidiary of TATA Group.JRD Tata was the first chairman of the company.TCS generates
70 percent of the revenue for Tata sons and become the oneof the global leaders in the
sector.TCS ranked among the top in Forbes most innovative company in the world.TCS
ranked 10th in the Forbes India 500 list.Tcs company is doing a various No. of research and
development projects. A smart watch development by partnering with SATS is the latest
project of TCS. More than 400,000 employees are employed under TCS, which is one of the
highest in the world. In India, This Company is the largest IT recruiter of the last decade.
TCS set up the largest corporate learning center which can train approx.50,000 graduates at
Trivandrum, Kerala. TCS and its 67 subsidiaries provide a wide-range of technology-related
products and services for both the government bodies and private enterprises as well. TCS has
289 offices across 46 countries and 147 delivery centers in 21 countries. It also has 19
innovation labs in three countries and has partnership with leading institutes like IITs,
Stanford, MIT, CMU etc. sales and strength of employees of TCS---
Net Sales (Crs) = Rs 95192 Employee Strength: 390880
Review of Literature
Shiva Kumar and N Babitha Thimmaiah (2016) studied on impact of working capital
management on liquidity and profitability of coal India ltd. Researcher found improvement in
performance of liquidity and profitability of the firm. Acc to study, performance of the firm is
better during the study period. Researchers suggested that firm should try to increase the
debtor ratio and working capital turnover ratio for improving the performance of liquidity and
profitability position at a higher level.
Purnima Joshi(2016)Studied on working capital management in Gail Ltd. in India through
schedule of changes in working capital followed by Fund Flow Statement. She found that
working capital is decreasing and it leads to poor performance of the firm .She also found the
difference between current receipts and current payments from the comparison of fund flow
statement. She indicates that change in current assets and current liability leads to change in

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 Wesleyan Journal of Research, Vol. 13 No. 2
working capital position. She suggested that firm should revise their plan and policies, reduce
its liability and increase in investment for increasing the working capital.
A.K Panigrahi (2014) focused on relationship of working capital with liquidity, Profitability
and solvency of ACC company.Resercher found that firm is earning profits but its liquidity
position is not good. The firm adopted the aggressive policy to increase earnings. Researcher
suggested firm should manage the working capital efficiently to meet the current liabilities
and maintain business operations.
Fatemeh Baghiyan (2013) studied on the impact of working capital management on
Management performance.Resercher found positive association between the working capital
management and performance Management. Study indicated that the firm should adopt the
aggressive policy of financing and investment for improvement in Management performance
of firms.
N.Suresh Babu and G.V.Chalam (2014) analyzed working capital management efficiency in
Indian Leather Industry.Resercher found that there is a insignificant positive relationship
between inventory conversion period and profitability of the firm. Study also disclosed the
positive relationship between average collection period and leverage but average payment
period and cash conversion cycle have negative association.Reserchers concluded that the
firm should manage the working capital components and cash conversion cycle. The firm can
increase its shareholder value by reducing the account receivable days and by increasing
account payment period.
Steven Lifland (2011)studied on working capital efficiencies on the enterprise value of the
energy sector. This study shows inverse relationship between net working capital efficiencies
and value of the firm. He also found that working capital cycle and cashflows have negative
relationship in both cases- large capital firms and average capital firms.Acc. to investor
acquirer, the acquisition cost of company is positively related and it also shows that why they
need to pay attention as to how well firms simultaneously turnover their inventories, collect
on trade receivables and service their trade creditors. So he suggested that firm should pay
attention towards inventory and payable collection period.
R Saravanan et.al (2017) examined on working capital management of Ambuja cements
limited through ratio analysis. Researchers found the current ratio of the firm is more than the
optimum level which is good for short term payments. Researchers suggested that firm should

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 Wesleyan Journal of Research, Vol. 13 No. 2
increase it. The liquid ratio of Ambuja cements limited is higher than the optimum level
which will affect the short term solvency and it should be decreased for higher results.
Mansavi Gumber and Surender Kumar (2012) examine the significant importance of
management of working capital in fertilizer industry. In her research, she made comparison
between fertilizer industry and cooperative Sector. She found that co-operative sector invested
more working capital than the public sector which was double of the public sector. Currents
assets of co-operative sector are 1.5 times of public sector. It was also discloses that
inventories and debtors were very high in case of the public sector but loans and advances
were soaring in comparison of co-operative sector. The Public sector is more efficient in the
receivable management than the receivable management of co-operative sector. The results of
study conclude that the co-operative sector performance was better than the Public sector in
respect of liquidity and payment to creditors and management of working capital.
Famil samiloglu and Ali Ihsan Akgun (2016) investigated on relationship between working
Capital Management and profitability of Turkey firms.Resercher found an inverse relationship
between accountant receivable period, accountant payable period, cash conversion cycle and
net profit margin and positive Relationship between inventory conversion period and net
profit margin. Researcher shows that there is an important positive relationship between
firm size and profitability but significant negative relationship between firm leverage and
profitability. They suggested that firm should reduce its accountant receivable period,
accountant payable period, cash conversion cycle for creating value for shareholders.
Sumita Sinku (2015) examined the impact of liquidity management on profitability
performance of Steel Authority of India Limited. She has taken three ratios-current ratio,
liquidity ratio, and cash ratio for measuring the profitability of the firm. Her study found
positive relationship between return on capital employed and current ratio. Study also shows
the positive relationship between ROCE and liquid ratio and significant effect of cash ratio on
profitability.Acc.to results, current ratio mostly affected the profitability so the researcher
suggested that firm should focus on managing the current ratio efficiently to meet the short-
term liability.
Need for the study
This research paper will be helpful for the software companies for future study.it will also
give the contribution to the economy directly or indirectly after study of TCS.

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 Wesleyan Journal of Research, Vol. 13 No. 2
Scope of the study
This Research Paper has taken the data for the five year (2015 to 2019) of TCSCompany.
Objectives of the study
I) TO study the working capital Management and Working capital efficiency of company.
ii) To study the liquidity position of the company.
iii) To study the profitability of the company
iv) To study the current working position of the company.
v) To study the impact of working capital management on liquidity and profitability of
company.
HYPOTHESIS OF THE STUDY
H0 There is a significant relationship between WCM and Profitability of company.
H1 There is no significant relationship between WCM and Profitability of company.
H0 There is a significant relationship between WCMand liquidity of company.
H1 There is no significant relationship between WCM and liquidity of company.
RESEARCH METHODOLOGY
Sample design:This Research paper has used theJudgmental sampling for research.
Source of Data: This Research paper has used the secondary data for the study purpose. Data
has collected from the Annual Report of the Company.
Types of Research Data: For the data collection the Secondary Data used.
Duration of Data: Research paper used the five annual periods 2015-16to 2018-19 of
company.
Statistical Tool: For the analysis, the researcher has used the ratio analysis.it measures the
liquidity ratio and profitability ratios.
RESULT AND ANALYSIS
Table 1-Table showing Ratio Analysis

Ratio/year 2015 2016 2017 2018 2019

Current 2.46 4.72 6.40 4.85 4.18
ratio
Quick ratio 2.45 4.72 6.39 4.85 4.18
Proprietary 42.4 35.4 30.3 33.2 38.10

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 Wesleyan Journal of Research, Vol. 13 No. 2
ratio 0 9 1 7
Net Profit 26.1 26.8 25.5 25.9 24.40
ratio 7 7 1 2
Inventory 5962 9540 4413 3894 12317
Turnover .57 .44 .95 .24 .00
ratio
Debt to 0.01 0.00 0.00 0.00 0.00
Equity ratio

Figure 1:

RATIO ANALYSIS
Series1 Series2 Series3
Series4 Series5
100%
80%
60%
40%
20%
0%

Data source: Annual Report of TCS

Current Ratio:
Acc. to observed table, the highest current ratio was 6.40(2017) and the lowest at
2.46(2015).As per general standard ratio of current ratio is 2:1, current ratio of period of the
study is favorable but it starts falling form 2017-2018.The company should emphasis on
maintain the sound ratio by efficient decision making..
Quick ratio:
Form above data the highest quick ratio at 6.39 in 2017 and lowest at 2.45 in 2015. But if look
into the year wise data, it shows that the quick ratio is above than standard ratio 1:1.It reveals
that the liquidity position of the company is satisfactory. The company should manage its
liquid assets to continuing the good liquidity position in future.
Inventory Turnover Ratio

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 Wesleyan Journal of Research, Vol. 13 No. 2
Inventory turnover ratio shows that how much time it will take in conversion of inventory into
sales. Inventory ratio is highest at 12317.00 in 2019 and lowest at 3894.24 in 2018.By
analyzing the above data, Inventory Turnover ratio is keeps fluctuating. The company should
take the efficient decision making regarding the sound inventory management system to get
the better results.
Proprietary ratio:
This ratio indicates the long-term/ future solvency position of the company.by analyzing of
table data, it reveals that proprietary ratio is not satisfactory.it is declining over the five
years.so that the company should improve its financial position and its solvency capability by
maintain sound ratio.
Debt to Equity ratio
Debt to equity ratio indicate that how the company depend on the borrowing.acc. to abovefive
year data, the company does not have any long- term borrowings. It will good for the
company.
Net Profit ratio
Net profit ratio indicate the earning capacity of the company. Acc. to above data, the ratio is
highest at 26.87 in 2016 and lowest at 24.40 in 2019.it reveals that the ratio is mostly stable
during the study periods. The company should take action for higher earnings.
NET WORKING CAPITAL TURNOVER RATIO OF TCS
Net Working capital is the difference between the total current assets and the total current
liability. Working capital turnover ratio indicates the velocity of the utilization of Net working
capital.
NET WORKING CAPITAL TURNOVER RATIO = Net working capital/Net sales *100
TCS Company having the satisfactory ratio during 2015 to 2019.Net working capital ratio is
positive during the study period, it reveals the sound solvency short position of the company.
Table 2-table showing Net sales and net working capital of 2015 to 2019
Data source: Annual Report of TCS

Year Net sales Net working capital Ratio

2015 73578.06 23966.5 3.07

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 Wesleyan Journal of Research, Vol. 13 No. 2
2016 85864.00 42068 2.04
2017 92693.00 57741 1.60
2018 97356.00 54164 1.79
2019 123170.00 60136 2.04

Figure2: showing the cash flow statement of TCS

Cash flow statement

100%

50%

0%
operating activities

Cash flow (used in)

-50%
investing activities

Cash flow (used in)

financing activities
Cash flow from

cash equivalents (a +…
(decrease) in cash and

equivalents as at April
01, (opening balance)

Exchange fluctuation
on foreign currency
-100%

equivalents as at March
Net increase/

Cash and cash

31, (closing balance)

bank balances

Cash and cash

a b c d e f g
Year ended March 31, 2019 Year ended March 31, 2018

www.tatamotors.com
This above figure shows the cash inflow and cash out flows from the operating, investing and
financing activists of TCS.
TABLE 3-table showing statement of change in working capital (2017 to 2019)

Particulars 2019 2018 2017 Increas Decreas Increas Decreas

e e e e
(2018 (2018-2019) (2017- (2017-
- 2018) 2018)
2019)
CURRENT
LIABILITI
ES
Short Term 0.00 181.00 181 19
Borrowings 200.00

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 Wesleyan Journal of Research, Vol. 13 No. 2
Trade 7,692.00 4,775.00 4,190.00 2917 585
Payables
Other Current 11,030.0 8,931.00 6,245.00 2099 2686
Liabilities 0
Short Term 174.00 171.00 66.00 3 105
Provisions
TOTAL 18,896.0 14,058.0 10,701.0 4838 3357
CURRENT 0 0 0
LIABILITI
ES

CURRENT
ASSETS
Current 28,280.0 35,073.0 40,729.0 6793 5656
Investments 0 0 0
Inventories 10.00 25.00 21.00 15 4

Trade 24,029.0 18,882.0 16,582.0 5147 2300

Receivables 0 0 0
Cash And 8,900.00 3,487.00 1,316.00 5413 2171
Cash
Equivalents
Short Term 7,018.00 2,793.00 2,704.00 4225 89
Loans And
Advances
Other Current 10,795.0 7,962.00 7,090.00 2833 872
Assets 0
TOTAL 79,032.0 68,222.0 68,442.0 10810 220
CURRENT 0 0 0
ASSETS
Data source: Annual Report of TCS

Table-4 table showing statement of change in working capital (2015 to 2017)

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 Wesleyan Journal of Research, Vol. 13 No. 2
Increa Decrea Increa Decrea
Particulars 2017 2016 2015 se se se se
(16- (16-17) (15-16) (15-16)
17)
CURRENT
LIABILITI
ES
Short Term 200.00 113.00 185.56 87 72.56
Borrowings
Trade 4,190.0 5,370.0 6,767.2 1180 1397.2
Payables 0 0 5 5
Other 6,245.0 5,711.0 2,491.4 534 3219.5
Current 0 0 7 3
Liabilities
Short Term 66.00 115.00 7,019.3 49 6904.3
Provisions 5 5
TOTAL 10,701. 11,309. 16,463. 608 5154.6
CURRENT 00 00 63 3
LIABILITI
ES
CURRENT
ASSETS
Current 40,729. 21,930. 747.47 18799 21182.
Investments 00 00 53
Inventories 21.00 9.00 12.34 12 3.34

Trade 16,582. 19,058. 17,036. 2476 2021.2

Receivables 00 00 76 4
Cash And 1,316.0 4,806.0 16,502. 3490 11696.
Cash 0 0 50 5
Equivalents
Short Term 2,704.0 2,523.0 3,352.1 181 829.18
Loans And 0 0 8
Advances
Other 7,090.0 5,051.0 2,778.8 2039 2273
Current 0 0 9
Assets

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 Wesleyan Journal of Research, Vol. 13 No. 2
TOTAL 68,442. 53,377. 40,430. 15065 12946.
CURRENT 00 00 14 86
ASSETS
Data source: Annual Report of TCS
STATEMENT OF CHANGE IN WORKING CAPITAL (2015 TO 2017)
By summarizing both the table, it disclose the variation in current assets and current liabilities
Position of the TCS Company. The research Paper reveals that current liabilities are highest at
18,896 in 2019 and lowest at 11,309 in 2015. It indicates the company increasing their short
term borrowing which are not good for the company. The company should take the vital
action for its sound short term position. On the other hand ,the current assets also highest at
79032 in 2019 and lowest at 40430.14 in 2015. It is showing the increasing trend in current
assets which are good for the company.Acc. to above result, it the satisfactory for the
company. During the study period (2015 to 2019), the highest working capital is 60136
(2019) and the lowest working capital is 23966.5(2015).
Conclusions & Recommendations
A company can be profitable only if it convert the cash from operations with in the same
operating cycle. If it is not possible, then the company may need to borrow to support to
continue working capital needs. By analyzing the five year data, the overall performance of
TCS Company is satisfactory. But researcher recommend that company should forecast their
sales and hold sufficient cash according toStandardsales level, so that they are able to take
advantage of the bargaining position while making cash purchases, so it leads to cut in cost.
By observing the above data, it is clear that efficient management of working capital and
liquidity has a positive effect on the firm’s profitability. This study indicates that TCS
Company have sufficient scope to improve their profitability by managing their working
capital in more alternative efficient ways. The sound inventory management make a
significant positive impact on profitability of the firm. Thisstudy found sufficient result that
a company take advantage of higher profitability if it manages its working capital with better
efficiency .The Company should also emphasis on inventory and cash position with greater
more care. To conclude the study, this study helpin improve their overall performance in the
management of working capital with efficient management of working capital.
Bibliography

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 Wesleyan Journal of Research, Vol. 13 No. 2
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