Financial Ratio Analysis

By SYNDICATE NO. - 5

INTRODUCTION
‡ Tech Mahindra is part of the US $7.1 billion Mahindra Group, in partnership with British Telecommunications plc (BT), one of the world s leading communications service providers. ‡ Tech Mahindra was incorporated as a joint venture between Mahindra & Mahindra and British Telecom plc in 1986 under the name of Mahindra British Telecom .

LIQUIDITY RATIO
Fig. in Million

LIQUIDITY RATIOS
Current Ratio
Total Current Assets/ Total Current Liabilities

2008
14865 / 8925 1.67 (14865-0) / (8925362) 1.73

2009
16386/ 8708 1.88 (16386-13)/ (8708-4) 1.88

2010
17855 / 8349 2.14 (17855-14) / (8349-144) 2.17

Quick Ratio

Total Current AssetsInventory/Total Current Liabilities-Overdraft

814/ 8925

4961/ 8708 0.57

1380/ 8349 0.17

Cash Ratio

Cash and Cash Equivalents / Total Current Liabilities

0.09

COMMENTS ‡ Current Ratio Fair value of foreign exchange forward and currency option contracts [2,797 Million] (refer note 1 (k) (b) of schedule XIII) ‡ Change in Deposits in 2009 and 2010

LEVERAGE RATIOS
LEVERAGE RATIOS
T t l Debt / Net W rth

Fig. in Million

2008
(950+3477)/12284

2009
2867/18810

2010
(7500+6172 +6531) /28667

Debt Eq ity

ti

T t l Debt = All Debts i cl di g sh rt d l g term s, b rr wi gs, i.e. l debent res ,etc. Net w rth = Sh reh lders F nds = Eq ity sh re c pit l + Preference Sh re c pit l + eserves nd S rpl s 0.36 0.15 0.70

COMMENTS
Higher the r ti Greater the risk t a credit r

COMMENTS Debt Increase by 100 % - Debent res - 1400 cr. (Sched le D) ‡2010 Introduction of unsecured loans - Fr m Bank ± 50 cr.
‡N te :L ans(Sec red and Unsec red) taken int acc nt

‡Considered short term loans in total debt Infratel deal (50000 cr. ) called ff ± 6 Sep eliance

LEVERAGE RATIOS
Fig. in Million

LEVERAGE RATIOS
Capital Empl yed / Net w rth

2008
(12284+950)/ 12284

2009
18810/18810

2010
(28667+13672/ 28667

Capital Empl yed t Net w rth ati

Capital Empl yed = St ckh lders eq ity + L ng term and sh rt term l ans

1.07

1.00

1.48

COMMENTS
Iss e f ESOP¶s were nearly d bled 34.8 cr

COMMENTS ‡2010 Introduction of unsecured loans ‡Considered short term loans in total debt

LEVERAGE RATIOS
Fi . i illi

COMMENTS COMMENTS
‡T Current Assets - Other Cur. Assets (2010) ± 43.1cr [Assignment f acc unts receivable (Schedule J)]

‡Strategic investment :T wer purchase 17500 t wers (8500 cr) ‡Net worth = Shareholders Funds ‡Invent ry - St capitalSpares(2010) ± NIL (Schedule G) = Equity share res & + Preference Share capital + eserves and ‡Cash & Cash Equ.± 500 cr (Major contri current accounts) Surplus

COVERAGE RATIOS
Fig. in Million

COVERAGE RATIO[1]
Interest Coverage atio
EBIT/Interest Operating Profit = EBIT =PBIT

2008
(8347+100)/100 84.47

2009
(10905+25)/25 437.20

2010
(8827+1600)/1 600 6.52

COVERAGE RATIO[2]

2008

2009
NIL -

2010
NIL -

PAT/Preference Dividend
Preference Coverage atio

NIL -

COMMENTS COMMENTS ‡No preference share capital
Higher ratio evaluates the companies ability to make interest payments or perhaps take more debt

‡ In year 2010 -> Fixed loans= 1,405

Appraisal of Working Capital Management

Liquidity Ratios
‡ Current Ratio = Total Current Asset/Total Current Liabilities
Year Tech M Wipro

‡ Current Ratio of 2:1 is considered satisfactory ‡ Decline in Cash & Bank Balance is negated by increase in Loans & Advances in 2010 ‡ Increase due to foreign exchange forward and currency option contracts

2008

1.67

2.53

2009

1.88

1.78

2010

2.14

2.34

‡ Quick Ratio = (Current Assets Inventories Prepaid Expense) / (Current Liabilities Bank Overdraft)
Year Tech M Wipro

‡ Quick Ratio of 1:1 considered satisfactory ‡ Infosys 4:1

is

2008

1.74

2009

1.88

1.72

2010

2.17

2.24

Turnover Ratios
‡ Total Asset Turnover Ratio = Net Sales / Total Asset
Year Tech M Wipro

‡ Decline in 2009 due to increase in Cash & Bank Balance by approx 510% ‡ However, Sundry debtors decreased by 19% & Loans & Advances decreased by approx 18%

2008

1.77

1.12

2009

1.72

1.2

2010

1.55

1.08

‡ Working Capital Ratio = Net Sales / Working Capital
Year Tech M Wipro

‡ Higher working capital reflects better utilization of the working capital of the firm ‡ Sales increased by approx. only 3% in the year 2009-10

2008

6.07

2.4

2009

5.68

3.64

2010

4.72

2.42

‡ Capital Turnover Ratio = Net Sales / Capital Employed
Year Tech M Wipro

2008

2.72

1.56

‡ The ratio has decreased due to uptake of debt in the year 2009-10 in the form of privately placed nonconvertible debentures, commercial papers and loans from banks & other sources

2009

2.32

1.55

2010

1.06

1.49

‡ Inventory Turnover Ratio = Cost of Goods Sold / Inventory
Year Tech M Wipro

‡ Inventory is negligible for IT services company

2008

NA

39.03

2009

2396.08

46.79

2010

2430.07

37.76

‡ Debtors Turnover Ratio = Sales / Debtors
Year Tech M Wipro Avg Collection Period

2008 2009 2010

3.41 5.10 4.52

4.84 4.86 4.84

107.07 71.57 80.83

‡ Increase in sales by approx by 21% with decrease in sundry debtors by 19% has lead to an increase in the ratio in 2009

Funding of Working Capital
‡ There is no major deviation in the funding of working capital other than an decrease in the cash and bank balance in 2009-10 with an increase in the loans & advances ‡ Investment in foreign exchange forward and currency option contracts