Tata Consultancy Services Limited - Assignment Example

? Finance and Accounting assignment Corporate Analysis Management and Ownership Tata Consultancy Services Limited (TCS) is an MNC in IT services, consultancy and business solutions. TCS has it headquarter in Mumbai and it operates in 44 countries with 199 branches in the world. It is listed in BSE and NSE in India. It is considered as the largest IT services company in India by revenue and market capitalization as of 2013 (Tata Consultancy Services, 2013). There is a separation between management and ownership in TCS. Founder of Tata group was J.R.D Tata and owner is Ratan Tata. In the Board of Directors, Cyrus Mistry is the chairman and N Chandrasekaran is CEO and MD of Tata Consultancy Services. The management is solely responsible to stock holders. In a company where there is a separation between its ownership and management then management is responsible for its decision which will serve the interest of stock holders. Because management takes the decision regarding the operations of the company’s business, financial decisions and other important decisions that may effect on the share price and leads the price to high or low. Thus as a CEO and MD of TCS, Chandrasekaran is responsible to the stockholders for his decisions in TCS. Potential Conflicts of Interest in TCS The Tata code of conduct says that any employee of Tata should not engage himself/herself in any relationship, business or any such activity that might cause conflict of interest in the company or in Tata group. A situation of conflict of interest can arise directly or indirectly if an employee of the company engages in relationship, activity or business with a party who is transacting with Tata Company or if an employee is taking undue advantage of his position by influences decisions in the company or an independent decision or judgement that cannot best for the group or the company. Interaction of TCS with Financial Market Equity share capital of TCS is traded on BSE and NSE. The company has 1957220996 equity shares with value of 195.72crores traded in the exchange. The company publishes its annual report every year which helps the public and financial market participants to know about the company’s financial and profitability position. It also publishes any news regarding the company’s business operation or any legal changes in the company. How does TCS view its social obligations and manage its image in society The CSR program of TCS includes education, environment and health around the world. It has developed many innovative solutions to solve various societal problems by utilizing their IT competencies. It also provides support for natural disaster relief as their corporate social responsibility. It also engages itself in various community development programs organized by its clients. In 2011-12 year it had engaged itself 58362 hours for corporate social responsibilities and provides help to 5790604 beneficiaries. The participants of TCS Summit 2013 attended for build a bike for local charity. They participated in the race to build the ultimate bicycle which is human powered and needs no gasoline in Hilton. It was done to help those who are in need of it. Risk Analysis Risk profile of TCS and the amount of overall risk The company operates in large size global market with comparatively low level of penetration gives it significant room for growth in future. They key risks that are faced by TCS are as follows- risks due to global economic situation, redundancy in business model, integration risk in merger and acquisition, risk in supply side, volatility in currency, risk due to protectionism, Anti bribery and compliance and risk due to pressures of cost. Where is this risk coming from and how is the risk profile changing The risks that are faced by TCS mainly come from global market and currency volatility. It also faces some internal risk like risk due to cost pressure of increasing salaries and operating expenses. It also faces challenges which include cultural, technological and financial risks from other firms after mergers and acquisitions. Thus to beat the risks, the company has set up an ‘Enterprise-wide Risk Management’ (ERM) by the suggestions of the ‘Committee of Sponsoring Organizations’. The chief risk officer prepares risk reports which are reviewed by the BODs at certain intervals. ERM program includes identification of risk, assessment of risk and mitigation of risk planning for various risks such as operational, financial, strategic and compliance risks in various level of the company. The risk management process is reviewed at the end of every year to update it with continuous changing of global risks. Debt Ratios Debt management ratios measure the ability of the company to reduce the risk of financial problems in long run. It shows the extent to which a company uses its borrowed funds to conduct its operations. Debt Management Ratio 2013 2012 Debt Ratio 0.26 0.29 debt Equity Ratio 0.35 0.39 equity multiplier 1.33 1.37 Different Kinds or Types of Financing That TCS Has Used To Raise Funds TCS has used equity capital and long term and short term debt capital to raise its funds. The continuum between debt and equity can be measured from the debt equity ratio of TCS. It defines that the ability of the company in paying debt by its equity capital. The debt equity ratio has decreased in 2013 to 0.35. Thus it indicates the company is depending less on its debt capital to fund its operations. Advantage of using debt capital in TCS is that it increases the financial leverage of the company. An optimal level of leverage is essential for the company. From the debt ratio and equity multiplier of TCS we can see that it has decreased in 2012 which indicates that the company is borrowing less debt capital and the company now has less financial leverage as compared to the year 2012. The disadvantage of using debt capital in TCS is that high financial leverage indicates more dependency on debt capital which can increase the return to shareholders in good period and magnifies their losses during downturn period of the company. Valuation Growth Pattern of TCS and how long growth will last TCS is in its stable 2 stage. This growth stage will last for approx another 5 years and after that the company will reach its maturity stage. According to analyst estimation, nest 5 years growth of TCS will be 19.49% which is higher than projected growth rate of industry which will be 13.48%. Key Variable of This Growth Value Here are some growth drivers which are driving the growth value. 1. Emerging Market. 2. Globalization. 3. Commoditization. 4. More 3 billion customers by 2025. 5. Disruption in traditional revenue sources. 6. Production of Idea vs. physical production. 7. A worldwide shift from product to service (Diana, 2013). References Tata Consultancy Services. (2013). Annual Report 2012-13. Retrieved from http://www.tcs.com/investors/Documents/Annual%20Reports/TCS_Annual_Report_2012-2013.pdf. Diana, F. (2013). A Closer Look at Transformation- Part 1. Retrieved from http://sites.tcs.com/insights/perspectives/a-closer-look-at-transformation-part-1#.Uq6MzdIW280. Read More