Name – Devashree Thanekar Roll No-17041823099

MBA Executive Batch First 2023-25

Financial and Cost Analysis

Tata Communication Limited

a) Write a brief note on assigned industry and company before staring the analysis.

Tata Communications Limited is a global telecommunications and digital infrastructure services

company. It is part of the Tata Group, one of the largest and oldest conglomerates in India. Tata
Communications operates in various segments of the telecommunications industry, providing a range
of services to businesses and consumers worldwide.

Industry Overview:

Tata Communications operates in the telecommunications industry, which is a broad sector

encompassing the transmission of voice, data, text, and video over long distances. The industry
includes services such as telephony, internet, satellite communication, and other data
communication services.

Company Overview:

Tata Communications Limited, formerly known as VSNL (Videsh Sanchar Nigam Limited), was
established in 1986. The company has evolved into a global telecommunications and digital
infrastructure service provider. Tata Communications offers a wide array of services, including:

Global Network Services: Providing connectivity solutions, including voice, data, and video, to
enterprises, service providers, and carriers across the globe.

Internet Services: Offering internet services, including broadband and enterprise solutions.

Data Center and Cloud Services: Providing data hosting, cloud computing, and managed services to
businesses.

Unified Communications and Collaboration: Offering communication and collaboration solutions to

enhance business productivity.

Security Services: Providing network security solutions to protect against cyber threats.

IoT (Internet of Things) Services: Offering solutions for connecting and managing devices in the
Internet of Things ecosystem.

Tata Communications has a significant global presence with a vast network infrastructure that spans
multiple continents. The company serves various industries, including telecommunications, media
and entertainment, manufacturing, healthcare, and finance.
Name – Devashree Thanekar Roll No-17041823099

Excel Calculations and Annual Report =

b) After looking at the balance sheet and income statement of your assigned company,
calculate the current ratio and acid test ratio. Comment on the liquidity of the firm.

Current Ratio:

The current ratio is calculated by dividing a company's current assets by its current liabilities. The
formula is as follows:

Current Ratio= Current Assets/ Current Liabilities

As on March, 2022-

Current Ratio = 47175/84261

Current Ratio = 0.56

As on March, 2023

Current Ratio = 55546/97859

Current Ratio = ~0.57

Current Ratio
2022 2023
Current Ratio
Current assets (a) 47175 55546
Current Liabilities (b) 84261 97859
(a)/(b) 0.56 0.57

The company's current ratio improved. The current ratio is approximately 0.56 for both the year end
which is less than 1. This suggests that the firm may have some challenges meeting its short-term
obligations with its current assets alone. Generally, a current ratio below 1 may indicate a liquidity
concern. However, the interpretation should consider the industry norms and specific business
circumstances. It's crucial to analyse trends over time and compare with industry benchmarks for a
more comprehensive assessment of liquidity.

Acid Test Ratio –

Acid Test Ratio = Current Assets – Inventory/Current Liabilities

As on March, 2022

Acid Test Ratio = (47175-3788)/84261

Name – Devashree Thanekar Roll No-17041823099

Acid Test Ratio = 0.515

As on March, 2023

Acid Test Ratio = (55546-1600)/97859

Acid Test Ratio = 0.5513

Acid Test Ratio

2022 2023
Current Assets 47175 55546
Inventories (a) 3788 1600
Current Liabilities (b) 84261 97859
Acid Test Ratio (a)-(b)/C 0.51 0.55

So, the acid test ratio is approximately 0.551 as on 2023 and 0.515 as on 2022. This ratio measures
the company's ability to meet its short-term liabilities using its most liquid assets (excluding
inventory). A ratio above 1 indicates that the company has enough liquid assets to cover its current
liabilities, and a ratio below 1 may suggest potential liquidity challenges. In this case, the acid test
ratio of 0.551 indicates that the company may face some liquidity concerns, as it has less than one
rupee in liquid assets (excluding inventory) for every rupee of current liabilities.

c) Refer the financial statement of your assigned company and calculate debt equity ratio
and interest coverage ratio. Comment on the long-term solvency of the firm.

The debt-to-equity ratio measures the proportion of a company's financing that comes from debt
relative to equity. The formula is:

Debt-to-Equity Ratio = Total Debt/Shareholders’ Equity

Total Debt: This includes all forms of debt, both short-term and long-term, that the company owes.

Shareholders' Equity: This is the value of the shareholders' interest in the company, often
represented by the sum of common stock, retained earnings, and additional paid-in capital.

A higher debt equity ratio indicates higher financial leverage, which means the company relies more
on debt to finance its operations.

Debt to Equity Ratio

2022 2023
Long-term Debt (a) 59909 50086
Networth (b) 9276 15183
Debt to Equity Ratio (a)/(b) 6.46 3.30

As on March 2023

Total Debt = Long Term Debt

Name – Devashree Thanekar Roll No-17041823099

Total Debt = 50,086

Equity = Equity Share capital + other Equity

Equity = 2,850 + 12,333 = 15,183

Debt to Equity Ratio = 50086/15183

Debt to Equity Ratio = 3.3

A Debt to Equity Ratio of 3.3 indicates a high level of financial leverage, with the company having 3.3
rupees in debt for every rupee of equity. This poses both opportunities and risks. While higher
leverage can amplify returns, it also increases financial risk, especially in covering substantial interest
payments. Investors should closely monitor the company's ability to manage debt and consider
industry benchmarks for context.

As on March 2022

Debt to Equity Ratio = 59909/9276

Debt to Equity Ratio = 6.5

A Debt to Equity Ratio of 6.5 indicates an extremely high reliance on debt, posing significant financial
risk. The company faces challenges in servicing substantial interest payments, and investors should
exercise caution due to heightened volatility and long-term solvency concerns.

Improving from a Debt to Equity Ratio of 6.5 to 3.3 signifies a positive shift. The company has
reduced its reliance on debt, lowering financial risk, improving long-term solvency, and likely
garnering positive investor perception.

Interest Coverage Ratio:

EBIT (Earnings before Interest and Taxes)/Interest Expense

As of March 22

ICR = Profit Before Tax + Finance Cost/Finance Cost

ICR = (19999.80+3602.5)/3602.5

ICR = 5.77

As of March 23

ICR = (20634.60+4324.6)/4324.6

ICR = 6.55

Interest Coverage Ratio

2022 2023
Profit before tax and share of profit of
associates 19999.8 20634.6
Name – Devashree Thanekar Roll No-17041823099

Finance costs 3602.5 4324.6

Interest Coverage Ratio ((a+b)/b) 6.55 5.77

The company's interest coverage ratio deteriorated and stood at 5.77 during FY23, from 6.5 during
FY22. The interest coverage ratio of a company states how easily a company can pay its interest
expense on outstanding debt. A higher ratio is preferable.

d) Refer the financial statement of your assigned company and calculate- Gross profit ratio,
Net profit ratio, return on total assets and return on equity. Comment on the profitability
of the firm.

Gross Profit Ratio = Revenue from operations(Net) – Total Operating Expenses/ Revenue from
operations(Net)

As on March 2022

Gross Profit Ratio = (167247 – 92398)/ 167247*100

Gross Profit Ratio = 44.75

As on March 2023

Gross Profit Ratio = (178382.6– 99729)/ 178382.6 *100

Gross Profit Ratio = 44.09

Gross Profit Ratio

2022 2023
REVENUE FROM OPERATIONS
[NET] 167247.3 178382.6
Total Operating Expenses 92398.3 99729.5
Gross Profit Ratio ((a-b)/b) 44.75 44.09

Net Profit Ratio = PROFIT/LOSS AFTER TAX AND BEFORE EXTRAORDINARY ITEMS / REVENUE FROM
OPERATIONS [NET]

As on March 2022

Net Profit Ratio = 14778/167247*100

Net Profit Ratio = 8.84

As on March 2023

Net Profit Ratio = 17668/178382*100

Net Profit Ratio = 9.90

Net Profit Ratio

2022 2023
Name – Devashree Thanekar Roll No-17041823099

PROFIT/LOSS AFTER TAX AND BEFORE

EXTRAORDINARY ITEMS 14778.5 17668.4
REVENUE FROM OPERATIONS [NET] 167247.3 178382.6
Net Profit Ratio 8.84 9.90

Return On Asset

= Net Income/Average Total Assets *100

As on March 2022

ROA = 14817.60/152652*100

ROA = 9.71

As on March 2023

ROA = 17959.60/147204*100

ROA = 12.200

Return on Total Asset Ratio

2022 2023
CONSOLIDATED PROFIT/LOSS AFTER MI AND
ASSOCIATES (a) 14817.6 17959.6
Total Assets 152652.8 147204.4
Return on Total Asset 9.71 12.20

Return on Equity Ratio

= Profit-Loss for the period/Total Equity

As on March 2022

= 14778.50/9276*100

=159.32%

As on March 2023

= 17668.40/15183*100

= 116.37%

Return on Equity (ROE):

2022 2023
Profit \Loss for the Period 14778.5 17668.4
Total Equity (Equity Share capital + Other
Equity) 9276 15183
Return on Equity (ROE): 159.32 116.37
Name – Devashree Thanekar Roll No-17041823099

The company's financial performance reflects a stable Gross Profit Ratio, indicating consistent
management of production costs. Notably, the Net Profit Ratio increased from 8.84% to 9.90%,
signaling improved overall profitability after considering operating expenses and taxes. The Return on
Asset Ratio rose from 9.71% to 12.20%, suggesting enhanced efficiency in utilizing assets for profit
generation. However, the Return on Equity (ROE) declined from 159.32% to 116.37%, requiring
further examination to understand potential shifts in the company's capital structure. Overall, the
company exhibits positive trends in operational efficiency and asset utilization, contributing to
improved profitability.

e) Debtors Turnover Ratio, Inventory Turnover Ratio, and Total Assets Turnover Ratio using
the provided information from the financial statements.

Debtors Turnover Ratio = Net Credit Sales/Average Accounts Receivable

Net Credit Sales = Revenue From Operations – Other Income

Average Accounts Receivable = Trade Receivables at the Beginning + Trade Receivables at the End/2

As on March 2022

Debtors Turnover Ratio = 1,63,926.40 / 11,328.90

DTR = 14.469754

As on March 2023

Debtors Turnover Ratio = 1,74,751.10/ 11,622.27

DTR = 15.52

Debtors Turnover Ratio:

2022 2023 2021
REVENUE FROM OPERATIONS [NET]
(a) 167247.3 178382.6
Other Income (b) 3320.9 3631.5
Net Credit Sales (a)-(b) 163926.4 174751.1
Trade Receivables 11035.1 11622.7 10898.4
Average receivables 10966.75 11328.9
Debtors Turnover Ratio 14.95 15.43

A Debtors Turnover Ratio of 14 increasing to 15.52 indicates an improvement in the efficiency of the
company in collecting receivables. The ratio measures how quickly a company collects payments
from its customers. An increase from 14 to 15.52 suggests that the company is now collecting
receivables more frequently or at a faster rate. This could be attributed to improved credit
management, more effective collection procedures, or a reduction in the average credit period given
to customers. Overall, a higher Debtors Turnover Ratio is generally considered positive as it reflects
better working capital management and liquidity.
Name – Devashree Thanekar Roll No-17041823099

Inventory Turnover Ratio = COGS / Average Inventory

COGS = Cost of Materials Consumed + Purchases of Stock in Trade + Changes in Inventories

COGS = 0 as per P&L

Average Inventory = Opening Inventory + Closing Inventory / 2

If the Cost of Goods Sold (COGS) is zero, it becomes impossible to calculate the Inventory Turnover
Ratio because division by zero is undefined. The Inventory Turnover Ratio relies on the relationship
between COGS and average inventory to measure how effectively a company is managing its
inventory.

Assets Turnover Ratio =

Total Assets Turnover Ratio = Revenue From Operations Average/ Total Assets

Average Total Assets = Total Assets at the Beginning + Total Assets at the End /2

Assets Turnover Ratio =

As on March 2022

Average Total Assets = 167247/ 147314.85

ATR = 1.14

As on March 2022

Average Total Assets = 178382/ 149928.6

ATR = 1.19

Inventory Turnover Ratio

2022 2023 2021

REVENUE FROM OPERATIONS [NET] 167247.3 178382.6

141976.
Total Assets 152652.8 147204.4 9
Average Assets (Opening + closing /2)
(b) 147314.85 149928.6
1.14 1.19

The increase in Asset Turnover Ratio from 1.14 in 2022 to 1.19 in 2023 indicates improved efficiency
in inventory management. A higher ratio suggests that the company is selling inventory more quickly,
reflecting positive trends in inventory control and sales effectiveness. However, it's crucial to consider
industry benchmarks and other metrics for a comprehensive assessment of overall efficiency.
Name – Devashree Thanekar Roll No-17041823099

a) Refer the financial statement of your assigned company and calculate EPS, Price earnings
ratio (take the MP of 31 March 2023) and comment on market position of company, will
you buy/hold or sell the share.

Earnings Per Share (EPS) = Net Income Diluted / Weighted Average Shares

Earning Per Share

2023 2022
Net Diluted Income 17959600000 14817600000
Weighted Average number of Equity Shares 285000000 285000000
A/B 63.02 51.99

The trailing twelve-month earnings per share (EPS) of the company stands at Rs 62.0, an
improvement from the EPS of Rs 51.9 recorded last year.

The Price-Earnings Ratio (P/E Ratio) is calculated by dividing the market price per share of a
company's stock by its earnings per share (EPS).

= Market Price per share / EPS

The Current market price of this company’s share is 1,230.00

Price Earnings Ratio

2023 2022
Current market price of share 1,230.00
EPS 63.01614035 51.9916
19.52 0.00

The price to earnings (P/E) ratio, at the current price of Rs 1,230.00, stands at 19.52 times its
trailing twelve months earnings.

The company's earnings per share (EPS) have improved from Rs 51.9 to Rs 62.0 in the last year,
indicating positive growth. The current Price-Earnings Ratio (P/E Ratio) is 28.1, calculated by dividing
the market price per share (Rs 1,770.30) by the EPS (Rs 62.0). A higher P/E ratio suggests that
investors are willing to pay a premium for the company's stock, possibly due to positive expectations
for future earnings. However, the decision to buy, hold, or sell depends on various factors, including
the company's financial health, industry trends, and personal investment goals. It's advisable to
conduct a comprehensive analysis and consider the overall market conditions before making an
investment decision.

References

Annual Report of Tata Communications Limited

Name – Devashree Thanekar Roll No-17041823099

Tata Comm Share Price, Tata Comm Stock Price, Tata Communications Ltd. Stock Price, Share Price,
Live BSE/NSE, Tata Communications Ltd. Bids Offers. Buy/Sell Tata Communications Ltd. news & tips,
& F&O Quotes, NSE/BSE Forecast News and Live Quotes (moneycontrol.com)

Ratio Analysis - Definition, Uses, Framework, and More - Glossary by Tickertape

https://www.equitymaster.com/research-it/annual-results-analysis/