Team Members :

1. Anupam Ghosh (MP12011)

2. Jahir Alam Choudhary (MP12026)
3. Debashish Dutta (MP12017)
4. Anshuman Dey (MP12009)
5. Prakash Kumar ( MP12048).

Financial Statement Analysis of Tata Motors

Case Analysis

1 1.Corporate Governance related details:

Corporate governance is about maximizing shareholder value legally, ethically and on a
sustainable basis, while ensuring fairness to every stakeholder - its customers, employees,
investors, vendor-partners, the governments of the countries in which Infosys operate,
and the community. Thus, corporate governance is a reflection of its culture, policies, and
its relationship with stakeholders and its commitment to values.
As part of the Tata group, the Companys philosophy on Corporate Governance is founded
upon a rich legacy of fair, ethical and transparent governance practices, many of which
were in place even before they were mandated by adopting highest standards of
professionalism, honesty, integrity and ethical behavior. As a global organization the
Corporate Governance practices followed by the Company and its subsidiaries are
compatible with international standards and best practices. Through the Governance
mechanism in the Company, the Board along with its Committees undertake its duciary
responsibilities to all its stakeholders by ensuring transparency, fair play and
independence in its decision making. The Corporate Governance philosophy has been
further strengthened with the implementation, a few years ago, by the Company of the
Tata Business Excellence Model as a means to drive excellence, the Balanced Scorecard
methodology for tracking progress on long term strategic objectives and the Tata Code of
Conduct which articulates the values, ethics and business principles and serves as a guide
to the Company, its directors and employees and an appropriate mechanism to report any
concern pertaining to non-adherence to the
said Code and addressing the same is also in place. The Company is in full compliance
with the requirements of Corporate Governance under Clause 49 of the Listing Agreement
with the Indian Stock Exchanges (the Listing Agreement). The Companys Depositary
Programme is listed on the New York Stock Exchange and the Company also complies
with US regulations as applicable to Foreign Private Issuers (non-US listed companies)
which cast upon the Board of Directors and the Audit Committee, onerous responsibilities
to improve the Companys operating efciencies. Risk management and internal control
functions have been geared up to meet the
progressive governance standards. As a good corporate governance practice, the
Company has voluntarily undertaken an Audit by M/s Parikh & Associates,
PracticingCompany Secretaries, of the secretarial records and documents for the period
under review in respect of compliance with the Companies
Act, 1956, listing agreement with the Indian stock exchanges and the applicable
regulations and guidelines issued by Securities and exchange board of India.

1 2.Business Prole
2

Tata Motors Limited is India's largest automobile company, with consolidated revenues of
INR 1,88,818 crores (USD 34.7 billion) in 2012-13. It is the leader in commercial vehicles
in each segment, and among the top in passenger vehicles with winning products in the
compact, midsize car and utility vehicle segments. It is also the world's fourth largest
truck and bus manufacturer.
The Tata Motors Group's over 60,000 employees are guided by the mission "to be
passionate in anticipating and providing the best vehicles and experiences that excite our
customers globally."
Established in 1945, Tata Motors' presence cuts across the length and breadth of India.
Over 7.5 million Tata vehicles ply on Indian roads, since the rst rolled out in 1954. The
company's manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune
(Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand), Sanand (Gujarat) and
Dharwad (Karnataka). Following a strategic alliance with Fiat in 2005, it has set up an
industrial joint venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to
produce both Fiat and Tata cars and Fiat powertrains. The company's dealership, sales,
services and spare parts network comprises over 3,500 touch points.
Tata Motors, also listed in the New York Stock Exchange (September 2004), has emerged
as an international automobile company. Through subsidiaries and associate companies,
Tata Motors has operations in the UK, South Korea, Thailand, Spain, South Africa and
Indonesia. Among them is Jaguar Land Rover, acquired in 2008. In 2004, it acquired the
Daewoo Commercial Vehicles Company, South Korea's second largest truck maker. The
rechristened Tata Daewoo Commercial Vehicles Company has launched several new
products in the Korean market, while also exporting these products to several
international markets. Today two-thirds of heavy commercial vehicle exports out of South
Korea are from Tata Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano
Carrocera, a reputed Spanish bus and coach manufacturer, and subsequently the
remaining stake in 2009. Hispano's presence is being expanded in other markets. In 2006,
Tata Motors formed a 51:49 joint venture with the Brazil-based, Marcopolo, a global
leader in body-building for buses and coaches to manufacture fully-built buses and
coaches for India - the plant is located in Dharwad. In 2006, Tata Motors entered into joint
venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture
and market the company's pickup vehicles in Thailand, and entered the market in 2008.
Tata Motors (SA) (Proprietary) Ltd., Tata Motors' joint venture with Tata Africa Holding
(Pty) Ltd. set up in 2011, has an assembly plant in Rosslyn, north of Pretoria. The plant
can assemble, semi knocked down (SKD) kits, light, medium and heavy commercial
vehicles ranging from 4 tonnes to 50 tonnes.
Tata Motors is also expanding its international footprint, established through exports
since 1961. The company's commercial and passenger vehicles are already being
marketed in several countries in Europe, Africa, the Middle East, South East Asia, South
Asia, South America, CIS and Russia. It has franchisee/joint venture assembly operations
in Bangladesh, Ukraine, and Senegal.
The foundation of the company's growth over the last 68 years is a deep understanding of
economic stimuli and customer needs, and the ability to translate them into customerdesired offerings through leading edge R&D. With over 4,500 engineers, scientists and
technicians the company's Engineering Research Centre, established in 1966, has enabled
pioneering technologies and products. The company today has R&D centres in Pune,
Jamshedpur, Lucknow, Dharwad in India, and in South Korea, Spain, and the UK.
It was Tata Motors, which launched the rst indigenously developed Light Commercial
Vehicle in 1986. In 2005, Tata Motors created a new segment by launching the Tata Ace,
India's rst indigenously developed mini-truck. In 2009, the company launched its globally
benchmarked Prima range of trucks and in 2012 the Ultra range of international standard
light commercial vehicles. In their power, speed, carrying capacity, operating economy
and trims, they will introduce new benchmarks in India and match the best in the world in
performance at a lower life-cycle cost.

Tata Motors also introduced India's rst Sports Utility Vehicle in 1991 and, in 1998, the
Tata Indica, India's rst fully indigenous passenger car.
In January 2008, Tata Motors unveiled its People's Car, the Tata Nano. The Tata Nano has
been subsequently launched, as planned, in India in March 2009, and subsequently in
2011 in Nepal and Sri Lanka. A development, which signies a rst for the global
automobile industry, the Nano brings the joy of a car within the reach of thousands of
families.
Tata Motors is equally focussed on environment-friendly technologies in emissions and
alternative fuels. It has developed electric and hybrid vehicles both for personal and
public transportation. It has also been implementing several environment-friendly
technologies in manufacturing processes, signicantly enhancing resource conservation.
Through its subsidiaries, the company is engaged in engineering and automotive
solutions, automotive vehicle components manufacturing and supply chain activities,
vehicle nancing, and machine tools and factory automation solutions.
Tata Motors is committed to improving the quality of life of communities by working on
four thrust areas - employability, education, health and environment. The activities touch
the lives of more than a million citizens. The company's support on education and
employability is focused on youth and women. They range from schools to technical
education institutes to actual facilitation of income generation. In health, the company's
intervention is in both preventive and curative health care. The goal of environment
protection is achieved through tree plantation, conserving water and creating new water
bodies and, last but not the least, by introducing appropriate technologies in vehicles and
operations for constantly enhancing environment care.
With the foundation of its rich heritage, Tata Motors today is etching a refulgent future.

3 3.Industry Vs Firm Business Prole

1 4.& 5 both Quality of Accounting Disclosure

Name of the Company Items Of Disclosure

Annexure to Auditors Report
Annexure to Directors Report
Auditors Certificate on Corporate Governance

TM
L
Y
Y
Y
Y

Ashok
Ley
Y
Y
Y
Y

Auditors report on Consolidated Financial Statements

Auditors Report to Members

Balance Sheet-Part I of Sch.VI
Balance Sheet Abstract and Companys General Business
Profile(Part IV)
Consolidated Financial statement with Indian GAAP

Y
Y
Y

Y
Y
Y

Corporate Governance Report

Directors Report including disclosures required u/s217(1)
(e),217(2A) and 217(2AA)
MD&A
Profit & Loss A/C(Part II)

Y
Y

Y
Y

Y
Y

Y
Y

Related Party Disclosures

Risk Management Report
Schedules to Financial Statements
Shareholder Information/Reference
Statement of Significant Accounting Policies and Notes to
Accounts
Code of Business Conduct and Ethics
Directors Resume/Profile
EVA

Y
Y
Y
Y
Y

Y
Y
Y
Y
Y

Y
Y
Y

Y
Y
N

Significant accounting policies

(a) Basis of preparation
The nancial statements are prepared under the historical cost convention on an accrual
basis of accounting in accordance withthe generally accepted accounting principles,
Accounting Standards notied under Section 211 (3C) of the Companies Act, 1956and the
relevant provisions thereof.
(b) Use of estimates
The preparation of nancial statements requires management to make judgments,
estimates and assumptions, that affect theapplication of accounting policies and the
reported amounts of assets and liabilities and disclosures of contingent liabilities at
thedate of these nancial statements and the reported amounts of revenues and expenses
for the years presented. Actual results maydiffer from these estimates. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised and future periods
affected.
(c) Revenue recognition
The Company recognises revenue on the sale of products, net of discounts, when the
products are delivered to the dealer / customeror when delivered to the carrier for export
sales, which is when risks and rewards of ownership pass to the dealer / customer.Sales
include income from services, and exchange fluctuations relating to export receivables.
Sales include export and other recurring and non-recurring incentives from the
Government at the national and state levels. Sale of products is presented gross of excise
duty where applicable, and net of other indirect taxes.
Revenues are recognised when collectibility of the resulting receivables is reasonably
assured.
Dividend from investments is recognized when the right to receive the payment is
established and when no signicant
uncertainty as to measurability or collectability exists.
Interest income is recognized on the time basis determined by the amount outstanding
and the rate applicable and where nosignicant uncertainty as to measurability or
collectability exists.
(d) Depreciation and amortization
(i) Depreciation is provided on Straight Line Method (SLM), at the rates and in the
manner prescribed in Schedule
XIV to the Companies Act, 1956 except in the case of :
Leasehold land amortised over the period of the lease
Technical know-how at 16.67% (SLM)

Laptops at 23.75% (SLM)

Cars at 23.75% (SLM)
Assets acquired prior to April 1, 1975 on Written Down Value basis at rates
specied in Schedule XIV to the Companies Act, 1956.
Software in excess of `25,000 is amortised over a period of 60 months or on the
basis of estimated
useful life whichever is lower.
Assets taken on lease are amortised over the period of lease.

(ii) Product development cost are amortised over a period of 36 months to 120 months or
on the basis of actual
production to planned production volume over such period.
(iii) In respect of assets whose useful life has been revised, the unamortised depreciable
amount has been charged
over the revised remaining useful life.
(iv) Depreciation is not recorded on capital work-in-progress until construction and
installation are complete and
asset is ready for its intended use.
(e) Fixed assets
(i) Fixed assets are stated at cost of acquisition or construction less accumulated
depreciation / amortization.
(ii) The product development cost incurred on new vehicle platform, engines, transmission
and new products are recognised as xed assets, when feasibility has been established,
the Company has committed technical, nancial and other resources to complete the
development and it is probable that asset will generate probable future benets.
(iii) Cost includes purchase price, taxes and duties, labour cost and directly attributable
costs for self constructed assets andother direct costs incurred upto the date the asset is
ready for its intended use. Borrowing cost incurred for qualifying assetsis capitalised up
to the date the asset is ready for intended use, based on borrowings incurred specically
for nancing the asset or the weighted average rate of all other borrowings, if no specic
borrowings have been incurred for the asset. The cost of acquisition is further adjusted
for exchange differences relating to long term foreign currency borrowings attributable to
the acquisition of depreciable asset w.e.f. April 1, 2007.
(iv) Software not exceeding `25,000 and product development costs relating to minor
product enhancements, facelifts and upgrades are charged off to the Prot and Loss
Statement as and when incurred.
(f ) Impairment
At each Balance Sheet date, the Company assesses whether there is any indication that
the xed assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the
impairment, if any. Where it is not possible to estimate the recoverable amount of
individual asset, the Company estimates the recoverable amount of the cash-generating
unit to which the asset belongs.
As per the assessment conducted by the Company at March 31, 2012, there were no
indications that the xed assets have suffered an impairment loss.

7. Red Flags
The red flags of nancial statement fraud are distinctly different from those of asset
misappropriation. Common general red flags of nancial statement fraud:
1
2
3
4
5

Accounting anomalies.
Unusually rapid revenue and/or prot growth.
Readily noticeable internal control weaknesses.
Noticeably aggressive nancial actions by senior management.
Personality or character flaws of the CEO and/or other C-level executives.

PERSONALITY ALERT
Of these general indicators, top management personality and character are by far the
most compelling with regard to nancial statement fraud. Typically, a senior executive
who is inclined to cook the books possesses low ethical standards, though this trait may
often be difficult to detect prior to the commission of a crime. However, most executives
with ethical weaknesses also exhibit very noticeable signs of aggressiveness in almost
everything they doincluding making critical nancial decisions. Examples:
Overly domineering, disrespectful or abusive management style vis--vis
subordinates.
Actively steering internal and external auditors away from nancial reports that
could reveal the fraud.
Secretive or distinctly evasive attitude regarding critical nancial information.
Detection methods for general nancial statement frauds:
Internal audit is consistently engaged in substantive anti-fraud activities.
Auditors aggressively apply standards.
Frequent and thorough fraud-oriented ratio analysisfocusing in particular on longterm trends and on comparisons between business units.
Surprise audits and/or cash counts.
Implementation of an anonymous, user-friendly tip hotline for use by employees,
vendors and customers.

 Data mining using one of the common auditing software applications such as ACL or
IDEA.
SPECIFIC RED FLAGS
As with asset misappropriation, there are also specic red flags of nancial statement
fraud that are present in many of the common varieties of such accounting violations.
Examples:
Complex or unstable organizational structure.
Unusually intricate or confusing nancial transactions with third-party entities.
Sudden or gradual increase in gross margin compared with the companys prior
performance, and with industry averages.
Cash flows that are negative for the rst three quarters and suddenly positive for the
fourth quarternot by just a little, but by more than all losses to date. (This scenario is
exactly what happened at Enron. It is why Sherron Watkins said, after the companys
demise, that if anyone had been paying attention to the cash flows they would have known
that Enron's statements were suspicious and/or fraudulent.)
Signicant sales to companies or individuals whose identity and business track record
are questionable.
Sudden above-average prots for specic quarters.
Executives or board members have direct personal dependence on the companys
performance.
Conspicuously lax board oversight of top management.
FRAUD CATEGORIES
Also similar to asset misappropriation, nancial statement fraud has distinct categories.
Each has its unique red flags and detection methods. Examples
Revenue recognition or timing schemesalso known as improper treatment of sales.
This fraud category is possibly the most common form of nancial statement fraud
usually employed when management seeks to conceal the real numbers for a weak
quarter or two. Red flags:
If a sale is legitimate, but is posted prematurely, the red flag would be a GAAP violation
by early recording of the sale. Similarly, channel stuffingwhere sales are recorded
before theyve actually been madewould be indicated by an excessive number of
subsequent period returns of merchandise, accompanied by an unusual jump in credits.
Fictitious revenue. One of the oldest nancial statement schemes around this
involves posting sales that simply never occurred. Red flags:
-- Unusual increase in assetsthe other side of the entry to mask ctitious revenues.
-- Customer records are missing key data such as physical address and phone
number.
-- Unusual changes in ratio patterns such as a spike in revenues with no
commensurate increase in accounts receivable.
Concealed liabilities. (Improper or under-reporting of expenses and other liabilities).
By shifting expenses from one entity to another or reclassifying liabilities as assets, which
is what got WorldCom into trouble when it improperly reported $3.8 billion in expenses as
capital expenditures, management can make the companys nancial condition appear
much rosier than it is. Red flags:
-- Use of different audit rms for different subsidiaries or business entities.
-- Recurring negative cash flows from operations or an inability to generate cash flows
from operations while reporting earnings growth.
-- Invoices and other liabilities go unrecorded in the companys nancial records.
-- Writing off loans to executives or other parties.
-- Failure to record warranty-related liabilities.

 Inadequate disclosures. This tactic is used after a nancial statement fraud has
occurredin an attempt to cover it up. Red flags:
-- Disclosure notes are so complex that it is impossible to determine the actual nature
of the event or transaction.
-- Discovery of undisclosed legal contingencies.
Improper asset valuation. Fraudulently inflating asset valuations is a common form of
prot manipulation. Red flags:
-- Unusual or unexplained increases in the book value of assets such as inventory,
receivables, long term assets, etc.
-- Odd patterns in relationships of assets to other components of the nancial report,
such as sudden changes in the ratio of receivables to revenues.
-- GAAP violations in recording expenses as assets.
DETECTION METHODS
To reduce the risk of having these frauds occuror continue undetected auditors
should use such practices as
Horizontally and vertically analyzing all nancial reports.
Conducting frequent ratio analysis, including assessment of trends over periods of
several years.
Using Beneischs Ratios which pinpoint anomalies in year-to-year measures of gross
margins, sales growth, receivables levels and other key accounting ratios

1
2
3
4
5

6 8.Vertical Common Size

If we look at the sheet for Prot and Loss of Tata Motors(standalone), following are the
observations that can be made
Income Statement Analysis with reference base as total sales
1 Total income has risen considerably by 16%
2 Expenses have increased considerably by 19.6%
3 Prot Before tax has decreased by 38% which shows the impact rising expenses
4
Balance Sheet
1 Current Liabilities have increased over a period of ve years
2 Depreciation has more than doubled in the last ve years
3 Sundry debtors have also increased over a period of 5 years vis--vis total assets
4 There is a sizeable reduction in Loans and Advances over a period of 5 years.

7 9. Horizontal analysis
Tata Motors:

Ashok Leyland:

1 10.Ratio Analysis
Quick ratio or acid test ratio has been decreasing constantly
which is a concern for meeting short term liabilities.
Debt to equity has improved over ve years and is well within
standards and reflects companys sound position.
Prot margins has decreased consistently over ve years.

2
3
4 Tata Motors
5 .Key Ratios

TATA MOTORS

Mar '12

Mar '11

Mar '10

Mar '09

Mar '08

Face Value

10

10

10

10

Dividend Per Share

20

15

15

Investment Valuation Ratios

Operating Profit Per Share (Rs)

13.16

74.15

70.68

33.52

78.61

170.84

755.69

619.98

499.23

746.24

Free Reserves Per Share (Rs)

55.25

287.53

229.67

217.77

182.38

Bonus in Equity Capital

17.53

17.53

19.5

21.64

28.86

7.7

9.81

11.4

6.71

10.53

Profit Before Interest And Tax Margin(%)

4.69

6.91

8.38

3.2

8.16

Gross Profit Margin(%)

4.74

6.97

8.47

3.3

8.26

Cash Profit Margin(%)

6.26

6.94

7.26

6.97

8.13

Adjusted Cash Margin(%)

6.26

6.94

7.26

6.97

8.13

Net Profit Margin(%)

2.26

3.74

6.26

3.77

6.96

Adjusted Net Profit Margin(%)

2.26

3.74

6.26

3.77

6.96

Net Operating Profit Per Share (Rs)

Profitability Ratios
Operating Profit Margin(%)

Return On Capital Employed(%)

10.36

10.19

10.37

6.41

18.96

Return On Net Worth(%)

6.42

9.06

15.15

8.09

25.98

Adjusted Return on Net Worth(%)

9.44

9.46

9.61

7.45

21.18

Return on Assets Excluding Revaluations

60.95

314.93

259.03

240.6

202.54

Return on Assets Including Revaluations

61.03

315.31

259.46

241.09

203.2

Return on Long Term Funds(%)

11.49

12.01

12.26

8.89

22.85

0.51

0.53

0.44

0.44

0.64

0.4

0.54

0.44

0.58

0.66

Debt Equity Ratio

0.57

0.8

1.12

1.06

0.8

Long Term Debt Equity Ratio

0.41

0.52

0.8

0.49

0.5

3.7

2.64

2.61

2.43

6.28

0.57

0.8

1.12

1.06

0.8

3.9

3.7

3.56

3.64

7.19

3.34

3.37

3.74

3.73

6.82

Inventory Turnover Ratio

13.37

13.86

13.5

13.47

14.44

Debtors Turnover Ratio

20.42

19.2

17.92

19.11

30.08

Investments Turnover Ratio

13.37

13.86

13.5

13.47

14.44

Fixed Assets Turnover Ratio

2.65

2.22

1.95

1.88

2.69

Total Assets Turnover Ratio

2.29

1.35

1.14

1.02

2.06

Asset Turnover Ratio

1.64

1.42

1.24

1.29

2.69

Liquidity And Solvency Ratios

Current Ratio
Quick Ratio

Debt Coverage Ratios

Interest Cover
Total Debt to Owners Fund
Financial Charges Coverage Ratio
Financial Charges Coverage Ratio Post
Tax
Management Efficiency Ratios

Ashok Leyland ratios

Key ratios
Mar '12

Mar '11

Mar '10

Mar '09

Face Value

Dividend Per Share

1.5

Operating Profit Per Share (Rs)

4.72

9.15

5.72

3.56

Net Operating Profit Per Share

(Rs)

50.02

85.75

55.9

46.37

Free Reserves Per Share (Rs)

9.51

18.25

16.1

14.43

52.34

4.68

4.68

4.68

Operating Profit Margin(%)

9.43

10.67

10.23

7.66

Profit Before Interest And Tax

Margin(%)

6.76

8.3

7.45

4.72

Gross Profit Margin(%)

6.78

8.32

7.49

4.77

Cash Profit Margin(%)

6.84

7.83

7.69

5.77

Adjusted Cash Margin(%)

6.84

7.83

7.69

5.77

Net Profit Margin(%)

4.24

5.51

5.66

3.04

Adjusted Net Profit Margin(%)

4.24

5.51

5.66

3.04

Return On Capital Employed(%)

17.76

18.6

12.89

8.78

Return On Net Worth(%)

Adjusted Return on Net
Worth(%)
Return on Assets Excluding
Revaluations

19.57

23.8

18.27

9.05

19.41

23.72

15.99

8.65

10.87

19.94

17.42

15.78

15.8

29.76

27.45

26.04

18.11

18.6

12.89

8.78

Investment Valuation Ratios

Bonus in Equity Capital

Profitability Ratios

Return on Assets Including

Revaluations
Return on Long Term Funds(%)

Liquidity And Solvency Ratios

Current Ratio

0.88

1.09

1.22

1.29

Quick Ratio

0.48

0.53

0.72

0.72

Debt Equity Ratio

0.83

0.98

0.93

0.8

0.98

0.93

Interest Cover

3.68

5.23

5.83

2.27

Total Debt to Owners Fund

0.83

0.98

0.93

Financial Charges Coverage

Ratio

5.07

6.65

7.83

3.41

Financial Charges Coverage

Ratio Post Tax

4.6

5.76

7.16

3.34

Long Term Debt Equity Ratio

Debt Coverage Ratios

Management Efficiency Ratios

Inventory Turnover Ratio

6.63

5.86

5.11

5.36

11.02

10.34

7.51

9.25

Investments Turnover Ratio

6.63

5.86

5.11

5.36

Fixed Assets Turnover Ratio

1.98

1.73

1.25

1.26

Total Assets Turnover Ratio

2.75

2.19

1.65

1.54

Asset Turnover Ratio

2.01

1.73

1.31

1.46

Average Raw Material Holding

31.17

42.33

40.15

44.36

Average Finished Goods Held

35.74

32.96

36.3

41.55

-14.56

11.53

35.64

42.04

72.89

73.69

74.42

73.82

Imported Composition of Raw

Materials Consumed

6.79

7.04

7.65

5.37

Selling Distribution Cost

Composition

6.55

6.67

7.68

6.98

12.36

10.31

8.66

15.93

Dividend Payout Ratio Net Profit

Dividend Payout Ratio Cash
Profit
Earning Retention Ratio

54.63

48.98

54.92

81.91

33.65

34.4

37.06

42.24

44.9

50.87

37.24

14.36

Cash Earning Retention Ratio

66.17

65.52

59.53

56.79

2.62

2.96

3.97

5.45

Debtors Turnover Ratio

Number of Days In Working

Capital
Profit & Loss Account Ratios
Material Cost Composition

Expenses as Composition of
Total Sales
Cash Flow Indicator Ratios

AdjustedCash Flow Times

12.DU-PONT Analysis
Profit Margin * Asset Turnover * Equity Multiplier

dupont
PBIDT/Sales(%)
Sales/Net Assets
PBDIT/Net Assets
PAT/PBIDT(%)
Net Assets/Net Worth
R O E (%)

121110987Mar
Mar
Mar
Mar
Mar
Mar
7.04
9.65
13.52
9.61 11.11 11.16
1.55
1.3
1.2
1.11
2.33
2.91
0.11
0.13
0.16
0.11
0.26
0.32
29.82
36.67
43.84 37.09 55.52 54.24
1.95
1.97
2.11
2.08
1.81
1.59
8.27
10.37
11.32
5.34 23.91 30.98

13. Leverage Analysis Operating, Financial, and combined.

Capital Gearing Ratio: Tata Motors

2008
2009
2010

2011

2012

Average

SD

1.87

0.939

0.9

1.3298

0.439

Debt Equity Ratio: Tata Motors

2008
2009
2010

2011

2012

Average

SD

0.53

1.06

1.11

0.818

0.26414

Interest Coverage Ratio: Tata Motors

2008
2009
2010

2011

2012

Average

SD

7.62

2.43

2.77

5.258

2.4770

1.7

0.59

7.19

1.24

0.8

6.28

The long term financial stability of the firm may be considered as dependent upon its ability to meet
all the liabilities, including those not currently payable. According to the revelation of the study it is
found that Tata
Motors is not having protected ratio. It has to maintain it financial strength in order to avoid
difficulties. If not then it

will be in trouble during recession and if it continued for a long run then it will hamper the
ordinary shareholder base and company also have to face difficulty while raising new funds
for its futuristic development and growth

1 14. Cash Flow Analysis:

2

The net change in financing activity was outflow of `4,235.59 crores against inflow of `1,648.42 crores for last
year. The Company had raised equity through raising of equity through QIP last year `3,249.80 crores. Further
there
has been an outflow of dividends and interest of `2,944.63 crores (last year `2,197.14 crores). There has

been a net decrease on account of borrowings of `1,290.98 crores as compared to inflow of `592.17 crores in
last year.

3
4
5
6 15.Working Capital Analysis
2

Working Capital is a measure of a company's short term liquidity or its ability to cover short term liabilities. Working capital is defined as the difference between a company's
current assets and current liabilities. That is,

3
4

Working Capital = Current Assets - Current Liabilities.

Analysts use working capital to determine how easily a company can meet its liabilities over a short time horizon. It is also used when calculating other financial metrics like free
cash flow. When management uses working capital as a basis for business decisions their goal is to make sure the company is able to continue its operations in the short term
while covering any near-term debt as well as operating expenses.

16. Corporate growth Analysis- assess the factors leading to

higher growth

The revenue (net of excise duty) increased to `54,306.56 crores in FY 2011-12, as compared to
`47,088.44 crores, representing an increase of 15.3%.
The total number of vehicles sold during the year increased by 10.7% to 926,353 vehicles
from 836,629 vehicles. The domestic volumes increased by 10.9% to 863,248 vehicles from 778,540
vehicles in
FY 2010-11, while export volumes showed an improvement of 8.6% to 63,105 vehicles from 58,089
vehicles I
n FY 2010-11.

Gross revenue from sale of vehicles, including export and other incentives, increased 16.0% to
`54,154.01 crores from `46,692.88 crores in FY 2010-11. Sale of spare parts for vehicles
increased by 8.2% to `2,910.61 crores from `2,689.85 crores in FY 2010-11.
The operating margin decreased mainly due to increase in raw material cost and xed marketing
expenses. The Prot after tax of `1,242.23 crores was lower by 31.4% compared to `1,811.82 crores in
FY 2010-11. The analysis of performance is given below:-

Employee Cost increased by 17.3% to `2,691.45 crores from `2,294.02 crores in FY 2010-11. The
increase is mainly attributable to normal yearly increases, promotions, wage agreements (where
applicable) and increase in head count. In terms of % to net revenue, the employee cost has
marginally increased from 4.9% to 5.0%. The Company continues to focus on measures to manage
employee cost on a long term basis.
Manufacturing and Other Expenses were `8,405.51 crores (`6,738.35 crores for FY 2010-11) and were
15.5% of net revenue in FY 2011-12 compared to 14.3% in FY 2010-11. The increase is primarily due
to inflation, volumes, and freight cost and publicity expenses to promote the new products / variants.
Prot before exceptional Item, Depreciation, Interest and Tax was `4,985.88 crores in FY 2011-12, as
compared to
5,229.34 crores in FY 2010-11. The decrease is mainly due to lower other income and lower operating

margin.
Depreciation and amortization (including product development / engineering expenses written off )
increased by 22.6% to `1,840.99 crores from `1,502.00 crores in FY 2010-11. The increase reflects,
impact on account of additions to xed assets towards plant and facilities for expansion and new
products introduction. Further, there has been an increase in amortization relating to capitalization of
product development cost for products launched in the year.
Finance costs decreased to `1,218.62 crores from `1,383.70 crores in FY 2010-11. The Company has
achieved a reduction in the weighted average borrowing cost and discounting charges.
Exceptional Items:
a) During FY 2011-12, the Company provided `130 crores for the loan given to a subsidiary,
consequent to impairment at the subsidiary triggered by continuous underperformance, mainly

attributed by challenging market conditions in which the subsidiary operates.

b) There was an adverse exchange fluctuation of INR versus all major currencies. After
accounting for deferral and amortization as permitted by the Accounting Standard AS-11, a net
exchange loss including on revaluation of foreign currency borrowings, deposits and loans, was
`455.24 crores for the year (last years 147.12 crores represents amortization).
Prot before Tax (PBT) of `1,341.03 crores represented 2.5% of net revenue in FY 2011-12 as
compared to PBT of `2,196.52 crores representing 4.7% of net revenue in FY 2010-11. The reduction
of PBT was mainly attributable to lower operating margin, reduction in other income, increase in
depreciation and amortization, and exceptional items as explained above. Tax expenses decreased to
`98.80 crores from `384.70 crores in
FY 2010-11. The effective tax rate for FY 2011-12 is 7.4% of PBT as compared to 17.5% for FY 201011. The reduction in effective tax rate is due to impact of tax treatment of exchange differences and
higher proportion of tax benets as compared to PBT.
Prot after Tax (PAT) of the Company decreased by 31.4% to `1,242.23 crores from `1,811.82 crores
in FY 2010-11.
Basic Earnings Per Share (EPS) decreased to `3.90 as compared to
`6.06 in the previous year for Ordinary Shares and `4.00 as compared to `6.16 for A Ordinary Shares
in the previous year. The lower EPS reflects the lower PAT over a higher equity base in FY 2011-12 as
compared to FY 2010-11.
The long term borrowings include external commercial borrowings during the year of US$ 500 million
(`2,544.13 crores) at floating rates. The borrowings on account of foreign currency convertible notes
increased by `367.51 crores mainly due to exchange fluctuation. The net repayment of xed deposits
from public and shareholders (unsecured) was `1,231.09 crores. The short term borrowing by way of
commercial paper was `131.27 crores as at March 31, 2012 as compared to `1,519.82 crores as at
March 31, 2011. Current maturities of Long term borrowings as at March 31, 2012 include `2,406.74
crores as at March 31, 2012 on account of Convertible Alternative Reference Securities (CARS), which
will be due for redemption on July 11, 2012.

17.Dividends Declared by Tata Motor since last 2008

Year
Dividen
Dividend(
DivYield(%
End
d
%)
)
2012
1280.7
200
1.45
2011 1274.23
200
8.02
2010
859.05
150
9.92
2009
311.61
60
16.64
2008

578.43

150

12.42

Bonus history

Year
1995
1982
1979
1977
1967

Book Value(Unit
EPS(Unit
Ratio
Curr)
Curr)
3:05
68.3
14.2
2:05
37.69
8.27
2:05
34.98
5.53
1:05
0
0
1:06
0
0

Splits Summary
Tata Motors had last split the face value of its shares from Rs 10 to Rs 2 in 2011.The share has been quoting on
an ex-split basis from September 12, 2011.

Splits History (Tata Motors)

Announcement Date

Old FV

New FV

Ex-Split Date

26-05-2011

10

12-09-2011

03-01-1996

100

10

00-00-0000

18 & 19.CONCLUSION BASED ON EVA &MVA ANALYSIS

Maximizing shareholders value is fast becoming the new corporate standard in India. Economic Value
Added (EVA) and Market Value Added (MVA) are appropriate measures which evaluates the manner in
which managerial actions affect shareholders value. These are tools for identifying whether the
management of the company has created wealth or destroyed it.
The basic objective of every organization is to create value for its owners. It must strive to at least
provide dividend in the form of returns to those who have invested their money and expected a reward
for such investment. If the companies are successful in generating value, then not only are the
investors but the whole society at large is benetted. It is the pursuit of value that directs the
resources to be utilized optimally and productively. To assess the companys worth, not only the
resource utilization but also the external performance of a company needs to be looked at. This is
often faced by the outdated performance systems. A district economic evaluation methodology is to be
applied to the different operations of the company. A few such innovations are Economic Value Added
(EVA) and Market Value Added (MVA).*

The above mentioned gure depicts the methodology followed by companies for the purpose of
calculating EVA, information is required regarding the prots, capital, cost of capital, etc.., which are
based on the mission and objectives of an organization. The EVA, in turn, is linked with various plans
formed for each particular action and denes the measures to be applied for achieving the value
creation objective. The measures are dened for each activity: prots, cost, capital and cost of capital.
EVA analysis of the companies:
Economic Value Added (EVA) is a nancial performance method to calculate the true economic prot
of a corporation. EVA can be calculated as net operating after taxes prot minus a charge for the
opportunity cost of the capital invested. EVA is an estimate of the amount by which earnings exceed or
fall short of the required minimum rate of return for shareholders or lenders at comparable risk.
Unlike market based measures, such as MVA, EVA can be calculated at divisional (strategic business
unit) level. Unlike stock measures, EVA is a flow and can be used for performance evaluation over

time. Unlike accounting prot, such as EBIT, Net Income and EPS, EVA is economic and is based on
the idea that a business must cover both the operating costs and capital costs.
EVA=Net Operating Profit After Tax-Weighted Average Cost of Capital.

For calculation of EVA, beta is the one of the most important component to be calculated and for
calculating beta, return is to be calculated on the basis of stock price which is taken from BSE and
correlation between the two returns i.e. return from stock price of the companies and bench mark
return. Then the deviation of both the security and market is calculated for nding the beta. Beta is
calculated by multiplying correlation with standard deviation of the security and dividing it by
standard deviation of market.
Risk free rate of return is obtained from the economic report of the union budget of the last ve years.
Then the cost of capital employed is obtained by the use of above calculated component.

Market Value Added:

As per the concept of EVA, the value of a company increases if it earns more rate of return as
compared to the cost of capital and the value of a company decreases when the earnings are less than
the cost of capital. Another measure that has recently gained momentum is Market Value Added
(MVA). This concept measures the creation of wealth by a company since its inception. If the market
value is more than the capital invested, it implies that the company has created value and in case the
company has not created value, then the opposite holds. MVA is considered as an extended form of
EVA. Market Value Added is considered as stock markets assessments of EVA.
MVA is dened as the variation between the market value of the company and the capital contributed
by shareholders and debenture holders. In other words, MVA is the total of capital claims held against
the company, including the market value of the debt and equity. MVA of the company indicates that a
company has created a signicant amount of wealth for its shareholders. It serves as a measure of
companys external performance. It reflects the view of the market on companys performance in
terms of the market value of both debt and equity as compared to the capital invested in it. To know
whether a company has been successful in creating wealth for its investors or not, the calculation of
MVA can be calculated as:
MVA = Market Capitalization - Net Worth
Beliefs behind MVA:

The primary objective of a company should be to maximize shareholders wealth.

A company should earn more than the cost of capital.

Question 20:FINANCIAL DISTRESS ANALYSIS

Z-Score model is an accurate forecaster of failure up to two years prior to distress. It can
be considered the assessment of the distress of industrial corporations.
Altman Z-Score is calculated with this formula:
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
where
X1
X2
X3
X4
X5

=
=
=
=
=

working capital/total assets,

retained earnings/total assets,
earnings before interest and taxes/total assets,
market value equity/book value of total liabilities,
sales/total assets.

The zones of discrimination were as such:

Distress Zones - 1.81< Grey Zones< 2.99 - Safe Zones
Study by Altman found that companies that are in Distress Zone have more than 80% of
chances of bankruptcy in two years.
X1: The working capital/Total Assets ratio is a measure of the net liquid assets of the rm
relative to the total capitalization. Working capital is dened as the difference between
current assets and current liabilities.
X2: Retained Earnings/Total Assets: the RE/TA ratio measures the leverage of a rm.
Those rms with high RE, relative to TA, have nanced their assets through retention of

prots and have not utilized as much debt.

X3, Earnings Before Interest and Taxes/Total Assets (EBIT/TA): This ratio is a measure of
the true productivity of the rms assets, independent of any tax or leverage factors.
X4, Market Value of Equity/Book Value of Total Liabilities (MVE/TL): The measure shows
how much the rms assets can decline in value (measured by market value of equity plus
debt) before the liabilities exceed the assets and the rm becomes insolvent.
X5, Revenue/Total Assets (S/TA): The capital-turnover ratio is a standard nancial ratio
illustrating the sales generating ability of the rms assets.

The Altman Z-Score is meant to be applied only to manufacturing rms that are
near bankruptcy. It was not based on a sample including non-manufacturing rms
(service rms, banks, etc.). Use it at your own risk with those companies, but
beware those bankruptcy probabilities may be misstated.
The Altman Z-Score helps investors to gauge the probability of a company going
bankrupt. Generally, rms with a score above 3.00 have a low probability of
bankruptcy, and those with a Z-Score of less than 1.81 have a relatively high
probability of bankruptcy.
Note that this is a probabilistic model, so it will not classify perfectly.
The score was rst published in a 1968 paper by Edward Altman titled "Financial
Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy."
Altman re-tested the model in a 2000 paper titled "Predicting nancial distress of
companies: Revisiting the Z-score and Zeta models". The paper showed that the
model still had utility for looking at manufacturers, though the number of
misclassications did increase over time.
Z Score

Tat
a

=
S5
u
mF
a
2.19
Oc=
9
ft
o
r
s

First Factor
= 1.2 * (
Working Capital
/
Total Assets )
Second Factor
= 1.4 * (
Retained Earnings
/
Total Assets )
Third Factor
=
3.3 * (
EBITAD
/
Total Assets )
Fourth Factor = 0.6 * (
Market Value of Equity
/
Total Liabilities )
Fifth Factor
=
0.99 * (
Revenue
/
Total Assets )
To calculate Z-Score one would need to know current working capital of the
company, its total assets and liabilities, amount of latest retained earnings as well

as earnings before interest and tax. Z-Score can be used to compare the odds of
bankruptcy of companies in similar line of business or rms operating in the same
industry. Companies with Z-Scores above 3.1 are generally considered to be stable
and healthy with low probability of bankruptcy. Scores that fall between 1.8 and
3.1 lie in a so-called 'grey area' with scores of less than 1 indicating the high
probability of distress. Z Score is used widely by nancial auditors, accountants,
money managers, loan processers, wealth advisers, as well as day traders. In the
last 25 years many nancial models that utilize z score has been proved to be
successful as a predictor of corporate bankruptcy.

Question 21:
Subsidiaries

Question 23 and Question 24 Consolidated

Principles of Valuation of Assets and Liability in IT Services industry
Assets and Liabilities are the two aspects of a Balance Sheet. The Components have been
described below:
Fixed Assets
This section contains the assets held by the business where economic benets of using the
assets will be derived over more than one nancial year.

Current Assets, and Current Liabilities

This part of a balance sheet is also known as the working capital section of the balance
sheet, and represents all the funds tied up by the business in day to day operations. In
larger companies, considerable management time and effort is spent on reducing the
amount of working capital used, as this has a funding cost.
Long Term Liabilities
Usually contains the long term nancing arrangements of a business, where there is an
obligation beyond the reported nancial year.
Typical examples include lease nancing, bank term loans, and property mortgages.
The amount of debt that a business carries, and its ability to service that debt is an
important consideration when thinking about the nancial robustness of a business. The
amount of debt as a portion of total assets is known as gearing.
Owners Funds / Equity
In most small businesses, this is the section where the owner has their capital invested. In
a company quoted on the stock market, this section is often called equity. It represents the
capital initially invested, subsequently raised, and accumulated from prots of trading
since the start of the business.
Provision: Provision is a balance sheet item representing funds set aside by a company to
pay for losses that are anticipated to occur in the future. The actual losses for the
earmarked funds have not yet occurred, but the general provisions account is counted as
an asset on the balance sheet.
Depreciation rates
Difference in methods of depreciation
Certain Companies like Wipro etc. are following just one method of depreciation i.e.
straight line method. But companies like TCS are following multiple methods of
depreciation. Their method is varying from asset to asset. Eg: Vehicles, Office equipment,
Freehold Building, Electrical installations are depreciated based on the Written Down
Value Method while other assets like Factory Buildings, Plant and Machinery etc. is
depreciated on straight line basis.
Difference in policy for depreciation:
While all other companies have a policy of fully depreciating the assets which are less
than INR 5000 in the year of acquisition, L&T Infotech has not mentioned any such policy.
Hence we are unaware whether they are depreciating at the rate of 100% or not for the
above mentioned assets.
Investments:
This is not a liability as this is owners fund. Only in exceptional cases like preference
shares buyback etc. it is refundable. Otherwise, it is only returnable at the time of
liquidation.
Reduction if Value of assets
There are four ways by which value of an asset can be reduced.
Depreciation: Depreciation is a non-cash expense that reduces the value of an asset over
time. Assets depreciate for two reasons:
1 Wear and tear. For example, an auto will decrease in value because of the
mileage, wear on tires, and other factors related to the use of the vehicle.
2 Obsolescence. Assets also decrease in value as they are replaced by newer
models. Last year's car model is less valuable because there is a newer model in the
marketplace.
Amortization: Amortization is concerned with intangible assets. The assets which we
cant see or touch but we can feel like patents and copy rights come under intangible
assets. It is the part of capitalized expenditure and preliminary expenditure which is
usually distributed over the number of years. Basically, in amortization the intangible
assets are written off over the number of years.
Impairment: Impairment of Assets seeks to ensure that an entity's assets are not carried

at more than their recoverable amount (i.e. the higher of fair value less costs to sell and
value in use). With the exception of goodwill and certain intangible assets for which an
annual impairment test is required, entities are required to conduct impairment tests
where there is an indication of impairment of an asset, and the test may be conducted for
a 'cash-generating unit' where an asset does not generate cash inflows that are largely
independent of those from other assets.
Basis of valuation of Current and Non-Current Investments
All companies have classied their assets as current and non-current investments but the
basis of classication is not described, except in case of Patni, Mahindra Satyam and L&T
Infotech. Even in these cases the classication premise is different. While Patni and L&T
Infotech has a rule of classifying all assets which are for less than 1 year are classied as
Current Investments, Mahindra Satyam classies based on their nature / holding
period /Managements intent etc.
Employee Benefits :
External Statutory fund vs. In-house fund
Provident Fund: We noted that while companies like Wipro, Infosys and are managing
their In-house fund for the purpose of contribution to provident fund, companies like are
investing in external statutory funds for management of funds. The valuation of employee
benets may differ due to this. Infosys has its own fund for Provident fund and Gratuity
called Infosys employee benet trust but Wipro has its own trust only for Provident Fund.
Gratuity is managed externally by HDFC, ICICI etc. Mindtree has outsourced its fund
management completely. It does not have any in house fund.
Cash and Cash Equivalents:
While companies like TCS, Mahindra Satyam and Patni have dened Cash and Cash
equivalents to include only investments which are less than 3 months, L&T Infotech and
Mindtree have not specied any such stipulation. Hence it may be assumed that Mindtree
and L&T Infotech have included investments more than maturity period of 3 months while
valuing cash and cash equivalents. However, only L&T Infotech has mentioned that
Short term and liquid investments being not free from more than insignicant risk of
change in value, are not included as part of cash and cash equivalents
Goodwill:
Amortisation vs. Impairment
We found two ways of valuing goodwill across companies which are mentioned below:
1. Amortize Goodwill using a rate over a span of time
2. Test for impairment at each year end and impair Goodwill.
TCS and Mastek are amortizing goodwill over its estimated life. However goodwill for TCS
is amortised over 12 years while Mastek amortizes it over 3 years.
Other Companies like Wipro, Infosys, Cognizant etc. assesses at each balance sheet date
whether there is any indication that a non-nancial asset including goodwill may be
impaired.
Assets and Liabilities
WIPRO
Goodwill
The goodwill arising on acquisition of a group of assets is not amortized and is tested for
impairment if indicators of impairment exist.
Tangible assets, intangible assets and Capital work-in-progress - Fixed assets are stated at
historical cost less accumulated depreciation. Costs include expenditure directly
attributable to the acquisition of the asset. Borrowing costs directly attributable to the
construction or production of qualifying assets are capitalized as part of the cost.
Intangible assets are stated at the consideration paid for acquisition less accumulated
amortization.
Cost of xed assets not ready for use before the balance sheet date is disclosed capital
work-in-progress. Advances paid towards the acquisition of xed assets outstanding as of

each balance sheet date is disclosed under long term loans and advances.
Depreciation and amortization
The Company has provided for depreciation using straight line method, at the rates
specied in Schedule XIV to the Companies Act, 1956, except in cases of the following
assets, which are depreciated, based on estimated useful life, which is higher than the
rates specied in Schedule XIV.
Class of Asset Estimated useful life
Buildings 30 - 60 years
Computer equipment and Software (included under plant and machinery) 2 - 7 years
Furniture and xtures 5 - 6 years
Electrical installations (included under plant and machinery) 5 years
Office equipment 5 years
Vehicles 4 years
Fixed assets individually costing Rupees ve thousand or less are depreciated at 100%
over a period of one year.
Assets under nance lease are amortised over their estimated useful life or the lease
term, whichever is lower.
Intangible assets are amortized over their estimated useful life on a straight line basis.
For various brands acquired by the Company, estimated useful life has been determined
ranging between 20 to 25 years. The Company believes this based on number of factors
including the competitive environment, market share, brand history, product life cycles,
operating plan, no restrictions on title and the macroeconomic environment of the
countries in which the brands operate. Accordingly, such intangible assets are being
amortised over the determined useful life.
Payments for leasehold land are amortised over the period of lease.
Impairment of assets
Financial assets:
The Company assesses at each balance sheet date whether there is any objective evidence
that a nancial asset or group of nancial assets is impaired. If any such indication exists,
the Company estimates the amount of impairment loss. The amount of loss for short-term
receivables is measured as the difference between the assets carrying amount and
undiscounted amount of future cash flows.
Reduction, if any, is recognised in the statement of prot and loss. If at the balance sheet
date there is any indication that if a previously assessed impairment loss no longer exists,
the recognised impairment loss is reversed, subject to maximum of initial carrying amount
of the short-term receivable.
Other than financial assets:
The Company assesses at each balance sheet date whether there is any indication that a
non-nancial asset including goodwill may be impaired. If any such indication exists, the
Company estimates the recoverable amount of the asset. If such recoverable amount of
the asset or the recoverable amount of the cash generating unit to which the asset
belongs to is less than its carrying amount, the carrying amount is reduced to its
recoverable amount. The reduction is treated as an impairment loss and is recognised in
the statement of prot and loss. If at the balance sheet date there is an indication that a
previously assessed impairment loss no longer exists, the recoverable amount is
reassessed and the asset is reflected at the recoverable amount subject to a maximum of
depreciated historical cost. In respect of goodwill, the impairment loss will be reversed
only when it was caused by specic external events of an exceptional nature that is not
expected to recur and their effects have been reversed by subsequent external events.
Employee benefits
Provident fund:
Employees receive benets from a provident fund. The employee and employer each make

monthly contributions to the plan. A portion of the contribution is made to the

Provident fund trust managed by the Company, while the remainder of the contribution is
made to the Governments provident fund. The Company is generally liable for any
shortfall in the fund assets based on the government specied minimum rate of return.
Compensated absences:
The employees of the Company are entitled to compensated absence. The employees can
carry-forward a portion of the unutilized accumulating compensated absence and utilize it
in future periods or receive cash compensation at retirement or termination of
employment. The Company records an obligation for compensated absences in the period
in which the employee renders the services that increases this entitlement. The Company
measures the expected cost of compensated absence as the additional amount that the
Company expects to pay as a result of the unused entitlement that has accumulated at the
balance sheet date. The Company recognizes accumulated compensated absences based
on actuarial valuation. Non-accumulating compensated absences are recognized in the
period in which the absences occur. The Company recognizes actuarial gains losses
immediately in the statement of prot and loss.
Gratuity: In accordance with the Payment of Gratuity Act, 1972, the Company provides for
a lump sum payment to eligible employees, at retirement or termination of employment
based on the last drawn salary and years of employment with the Company. The gratuity
fund is managed by the Life Insurance Corporation of India (LIC), HDFC Standard Life,
TATA AIG and Birla Sun-life. The Companys obligation in respect of the gratuity plan,
which is a dened benet plan, is provided for based on actuarial valuation carried out by
an independent actuary using the projected unit credit method. The Company recognizes
actuarial gains and losses immediately in the statement of prot and loss.
Superannuation:
Superannuation plan, a dened contribution scheme, is administered by the LIC and ICICI
Prudential Insurance company Limited. The Company makes annual contributions based
on a specied percentage of each covered employees salary.
From annexure to auditors report :
The Company has maintained proper records showing full particulars including
quantitative details and situation of xed assets.
(b) The Company has a regular programme of physical verication of its xed assets by
which all xed assets are veried in a phased manner over a period of three years. In our
opinion, this periodicity of physical verication is reasonable having regard to the size of
the Company and the nature of its assets. As informed to us, no material discrepancies
were noticed on such verication.
(c) Fixed assets disposed off during the year were not substantial, and therefore, do not
affect the going concern assumption.
The Company has not accepted any deposits from the public.
TCS
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation / amortisation. Costs
include all expenses incurred to bring the assets to its present location and condition.
Fixed assets exclude computers and other assets individually costing ` 50,000 or less
which are not capitalised except when they are part of a larger capital investment
programme
Depreciation / Amortisation
Depreciation / amortisation on xed assets other than on freehold land and capital workin-progress is charged so as to write-off the cost of the assets, on the following basis:

Type of asset
Leasehold land and buildings
Freehold buildings
Factory buildings
Leasehold improvements
Plant and machinery
Computer equipment
Vehicles
Office equipment
Electrical installations
Furniture and xtures
Goodwill
Acquired contract rights
Intellectual property / distribution rights
Software licenses
Rights under licensing agreement

Method
Straight line
Written down
Straight line
Straight line
Straight line
Straight line
Straight line
Written down
Straight line
Written down
Straight line
Written down
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line

value

value
value
value

Rate/Period
Lease period
5.00%
1.63% - 2.50%
10.00%
Lease period
33.33%
10% - 50%
25.89%
9.50% - 33.33%
13.91%
4.75% - 33.33%
13.91%
6.63% - 33.33%
6.63% - 100%
12 years
12 years
24 - 60 months
License period
20% - 50%
License Period

Fixed assets purchased for specific projects are depreciated over the
period of the project.
Leases
Where the Group, as a lessor, leases assets under nance leases such amounts are
recognised as receivables at an amount equal to the net investment in the lease
and the nance income is based on a constant rate of return on the outstanding
net investment.
Assets leased by the Group in its capacity as lessee, where the Group has
substantially all the risks and rewards of ownership are classied as nance lease.
Such leases are capitalised at the inception of the lease at lower of the fair value
or the present value of the minimum lease payments and a liability is recognised
for an equivalent amount. Each lease rental paid is allocated between the liability
and the interest cost so as to obtain a constant periodic rate of interest on the
outstanding
liability for each year.
Lease arrangements where the risks and rewards incidental to ownership of an
asset substantially vests with the lessor, are recognised as operating lease. Lease
rentals under operating lease are recognised in the statement of prot and loss on
a straight-line basis.
Impairment
At each balance sheet date, the management reviews the carrying amounts of its
assets included in each cash generating unit to determine whether there is any
indication that those assets were impaired. If any such indication exists, the
recoverable amount of the assets is estimated in order to determine the extent of
impairment loss. Recoverable amount is the higher of an assets net selling price
and value in use. In assessing value in use, the estimated future cash flows

expected from the continuing use of the asset and from its disposal are discounted
to their present value using a pre-tax discount rate that reflects the current
market assessments of time value of money and risks specic to the asset.
Reversal of impairment loss is recognised immediately as income in the statement
of prot and loss.
For the purpose of impairment testing, goodwill is allocated to each of the Groups
cash-generating units expected to benet from the synergies of the acquisition.
Cash-generating units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication that the unit
may be impaired. If the recoverable amount of the cash-generating unit is less
than the carrying amount of the unit, the impairment loss is allocated rst to
reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro-rata on the basis of the carrying amount of each asset
in the unit
Investments
Long-term investments and current maturities of long-term investments are stated
at cost, less provision for other than temporary diminution in value. Current
investments, except for current maturities of long term investments, are stated at
the lower of cost and fair value.
Inventories
Raw materials, sub-assemblies and components are carried at the lower of cost
and net realisable value. Cost is determined on a weighted average basis.
Purchased goods-in-transit are carried at cost. Work-in-progress is carried at the
lower of cost and net realisable value. Stores and spare parts are carried at cost,
less provision for obsolescence. Finished goods produced
or purchased by the Group are carried at the lower of cost and net realizable
value. Cost includes direct material and labour
cost and a proportion of manufacturing overheads.
Provisions, Contingent liabilities and Contingent assets
A provision is recognised when the Group has a present obligation as a result of
past event and it is probable that an outflow of resources will be required to settle
the obligation, in respect of which reliable estimate can be made. Provisions
(excluding retirement benets) are not discounted to its present value and are
determined based on best estimate required to settle the obligation at the balance
sheet date. These are reviewed at each balance sheet date and adjusted to reflect
the current best estimates. Contingent liabilities are not recognised in the
nancial statements. A contingent asset is neither recognised nor disclosed in the
nancial statements.
Cash and cash equivalents
The Group considers all highly liquid nancial instruments, which are readily
convertible into cash and have original maturities of three months or less from the
date of purchase, to be cash equivalents
Rights, preferences and restrictions attached to shares
Equity shares
The Company has one class of equity shares having a par value of 1 each. Each
shareholder is eligible for one vote per share held. The dividend proposed by the
Board of Directors is subject to the approval of the shareholders in the ensuing
Annual General Meeting, except in case of interim dividend. In the event of
liquidation, the equity shareholders are eligible to receive the remaining assets of

the Company after distribution of all preferential amounts, in proportion to their

shareholding.
Preference shares
Preference shares would be redeemable at par at the end of six years from the
date of allotment i.e. March 28, 2008, but may be redeemed at any time after 3
years from the date of allotment at the option of the shareholder. These shares
would carry a xed cumulative dividend of 1% per annum and a variable noncumulative dividend of 1% of the difference between the rate of dividend declared
during the year on the equity shares of the Company and the average rate of
dividend declared on the equity shares of the Company for three years preceding
the year of issue of the redeemable preference shares.
Taxation
Current income tax expense comprises taxes on income from operations in India
and in foreign jurisdictions. Income tax payable in India is determined in
accordance with the provisions of the Income Tax Act, 1961. Tax expense relating
to foreign operations is determined in accordance with tax laws applicable in
countries where such operations are domiciled.
Minimum alternative tax (MAT) paid in accordance to the tax laws, which gives
rise to future economic benets in the form of adjustment of future income tax
liability, is considered as an asset if there is convincing evidence that the Company
will pay normal income tax after the tax holiday period. Accordingly, MAT is
recognised as an asset in the balance sheet when it is probable that the future
economic benet associated with it will flow to the Company and the asset can be
measured reliably.
Deferred tax expense or benet is recognised on timing differences being the
difference between taxable income and accounting income that originate in one
period and are capable of reversal in one or more subsequent periods. Deferred
tax assets and liabilities are measured using the tax rates and tax laws that have
been enacted or substantively enacted by the balance sheet date.
In the event of unabsorbed depreciation and carry forward of losses, deferred tax
assets are recognised only to the extent that there is virtual certainty that
sufficient future taxable income will be available to realise such assets. In other
situations, deferred tax assets are recognised only to the extent that there is
reasonable certainty that sufficient future taxable income will be available to
realise these assets.
Advance taxes and provisions for current income taxes are presented in the
balance sheet after off-setting advance taxes paid and income tax provisions
arising in the same tax jurisdiction and where the Company intends to settle the
asset and liability on a net basis.
The Company offsets deferred tax assets and deferred tax liabilities if it has a
legally enforceable right and these relate to taxes on income levied by the same
governing taxation laws.
INFOSYS
Fixed assets, including goodwill, intangible assets and capital work-in-progress
Fixed assets are stated at cost, less accumulated depreciation and impairment, if
any. Direct costs are capitalized until xed assets are ready for use. Capital workin-progress comprises the cost of xed assets that are not yet ready for their
intended use at the reporting date. Intangible assets are recorded at the
consideration paid for acquisition of such assets and are carried at cost less

accumulated amortization and impairment. Goodwill comprises the excess of

purchase consideration over the lair value of the net assets of the acquired
enterprise. Goodwill arising on consolidation or acquisition is not amortized but is
tested for impairment.
Research and development
Research costs are expensed as incurred. Software product development costs are
expensed as incurred unless technical and commercial feasibility of the project is
demonstrated, future economic benets are probable, the Company has an
intention and ability to complete and use or sell the software and the costs can be
measured reliably.
Investments
Trade investments are the investments made to enhance the Groups business
interests. Investments are either classied as current or long-term based on the
Managements intention at the time of purchase. Current investments are carried
at the lower of cost and fair value of each investment individually. Cost for
overseas investments comprises the Indian rupee value of the consideration paid
for the investment translated at the exchange rate prevalent at the date of
investment. Long-term investments are carried at cost less provisions recorded to
recognize any decline, other than temporary in the carrying value of each
investment.
Current Assets - Cash, bank balance, etc.
Cash and cash equivalents
Cash and cash equivalents comprise cash and cash on deposit with banks and
corporations. The Group considers all highly liquid investments with a remaining
maturity at the date of purchase of three months or less and that are readily
convertible to known amounts of cash to be cash equivalents.
Depreciation and amortization
Depreciation on xed assets is provided on the straight-line method over the
useful lives of assets estimated by the Management. Depreciation for assets
purchased / sold during a period is proportionately charged. Individual low cost
assets (acquired for 5,000/- or less) are depreciated over a period of one year from
the date of acquisition. Intangible assets are amortized over their respective
individual estimated useful lives on a straight-line basis, commencing from the
date the asset is available to the Group for its use. Leasehold improvements are
written off over the lower of the remaining primary period of lease or the life of
the asset. The Management estimates the useful lives for the other xed assets as
follows:
Depreciation methods, useful lives and residual values are reviewed at each
reporting date.
Liabilities
Provisions and contingent liabilities
A provision is recognized if, as a result of a past event, the Group has a present
legal obligation that can be estimated reliably, and it is probable that an outflow of
economic benets will be required to settle the obligation. Provisions are
determined by the best estimate of the outflow of economic benets required to
settle the obligation at the reporting date. Where no reliable estimate can be
made, a disclosure is made as contingent liability. A disclosure for a contingent
liability is also made when there is a possible obligation or a present obligation
that may, but probably will not, require an outflow of resources. Where there is a

possible obligation or a present obligation in respect of which the likelihood of

outflow of resources is remote, no provision or disclosure is made.
.Post-sales client support and warranties
The Group provides its clients with a xed-period warranty for corrections of
errors and telephone support on all its xed-price, xed timeframe contracts.
Costs associated with such support services are accrued at the time when related
revenues are recorded and included in cost of sales. The Group estimates such
costs based on historical experience and the estimates are reviewed annually for
any material changes in assumptions.
Onerous contracts
Provisions For onerous contracts are recognized when the expected benets to be
derived by the Group from a contract are lower than the unavoidable costs of
meeting the future obligations under the contract. The provision is measured at
lower of the expected cost of terminating the contract and the expected net cost of
fullling the contract.
Provision for doubtful debts
The Company periodically evaluates all customer dues to the Company for
collectability. The need [or provisions is assessed based on various factors
including collectability of specic dues, risk perceptions of the industry in which
the customer operates, general economic factors, which could affect the
customers ability to settle. The Company normally provides for debtor dues
outstanding for six months or longer from the invoice date, as at the Balance
Sheet date. The Company pursues the recovery of the dues, in part or lull.
Provisions, contingent liabilities and contingent assets
Provisions are recognised for liabilities that can be measured only by using a
substantial degree of estimation, if
a) the Company has a present obligation as a result of a past event
b) a probable outflow of resources is expected to settle the obligation and
c) the amount of the obligation can be reliably estimated.
Reimbursement expected in respect of expenditure required to settle a provision is
recognised only when it is virtually certain that the reimbursement will be
received.
Contingent liability is disclosed in case of
a) a present obligation arising from past events, when it is not probable that an
outflow of resources will be required to settle the obligation
b) a present obligation arising from past events, when no reliable estimate is
possible
c) a possible obligation arising from past events where the probability of outflow of
resources is not remote.
Contingent assets are neither recognised, nor disclosed.
Provisions, contingent liabilities and contingent assets are reviewed at each
Balance Sheet date.

Question 25. Managing to reach the Target - Analysis

Factors/Suggestion which can lead to higher growth:
1 Infosys is currently going through a big transition phase and the revenue sources
are also reeling under pressure of the 2008 recession with the Dollar and Euro still
showing little signs of improvement. Consider the case of Tata Consultant Services,
India s number one IT services exporter. In the last ve quarters, the gap in

revenue between TCS and Infosys has been increasing quarter -on-quarter. Now,
lets take note of Cognizant. It was started in the year 1994, a good 13 years after
Infosys in 1981. Growing at a stellar rate, it recently overtook Infosys in terms of
revenue in the June 2012 quarter. A major contributing to this unbelievable feat
was the focus on market share rather than on operating margins. With Infosys
operating on approximately 28% margins, Cognizant merrily operates on
approximately 19% margins. This has led to it cornering a huge chunk of the
market share and in the process it left Infosys behind. Given the current condition,
it is highly unlikely that the situation will improve in the next few quarters. Infosys
should not take this lightly. It should focus on market share and thus be willing to
take a small hit on its above industry average margins, which will surely help it to
regain some lost market share. Thus, its competitors are leaving it far behind in
terms of competition. Further, when the macro economic conditions improve, it can
surely seek to bring its margins back to current levels. However, if it does not act
right now, the lost market share might never be regained later.
Infosys has always been the target of nancial analysts to not make good use of
the huge pile of cash, approximately US$ 4 billion that it is sitting on. Even in the
nancial year 2011-12, it generated around US$ 1 billion of operating cash. Again
comparing to Cognizant, which made 10 acquisitions in the past six years, Infosys
made just three, with the recent one of acquiring of a Switzerland based consulting
rm Lodestone for approximately US$ 350 million. Infosys should pass on a part of
its cash to the Shareholders; a special dividend should denitely help to improve
the sentiment of the investors. Also, Infosys should use its cash reserve to grow
inorganically. This should allow the company to have new avenues of growth in the
challenging circumstances. It should particularly focus on the acquiring rms in
the products and platforms division rather than relying solely on its internal R&D to
come up with new offerings.
Preparing for a top management change. Infosys has always been lead at the top
by one of its co - founders. Though, the skills of Narayana Murthy,
NandanNilekani and the like cannot be discounted, one can doubt on those of
the current management. When S D Shibulal took over as CEO, there was a huge
controversy between Infosys and its most trusted lieutenants Mohandas Pai,
former CFO and director of Infosys Human Resources and Education and Research
at the time of leaving Infosys due to this fallout. Issues of meritocracy being
subordinated to tenure of service were raised, though there were reports of mutual
agreement later on. This did give Infosys a major negative highlight. Still,
considering that Shibulal is doing the best that he can in times of such tumultuous
economic conditions, given that he retires in 2015, Infosys has to make sure that
they have a robust and transparent succession plan in place.

Question 27:

Infosys 3.0 Building Tomorrows Enterprise

In Mid-2011, Infosys changed its Brand positioning and declared that the company is
restructuring itself and wants to compete more effectively with global peers like IBM
and Accenture that have distinct advantages over Indian IT companies. The declaration
stated that the company will be focusing particularly on building its business
transformation and innovation capabilities. The basic idea was to move from a technology
solutions company to a business solutions company and proactively help customers build
the enterprise of tomorrow. The new brand positioning statement was: Building
Tomorrows Enterprise.
The Changes

CEO S.D. Shibulal described: In Infosys 3.0, we want to be at the intersection of the
client's business and technology, and that of global trends, and use this knowledge and
expertise to help them transform and move into new directions.
The major drivers behind the change were the changing global business trends. Infosys
enlisted
7 distinct areas where it wanted to enhance its capabilities. These were:
1. Digital consumer (digital products permeating all aspects of life),
2. New commerce (mobile commerce leading to extremely small transactions),
3. Healthcare economy (healthcare becoming more preventive, affordable and inclusive),
4. Sustainable tomorrow (doing things in an environmentally and socially sustainable
way),
5. Smarter organizations (making organizations more adaptable, less complex),
6. Emerging economies (global growth concentrated in these areas) and
7. Pervasive computing (all devices becoming computing devices)
Other than this, Infosys committed to invest heavily in the areas of Innovation and
research. Thus forming Infosys labs as a global network of research labs and innovation
hubs. As Subrahmanyam Goparaju, Senior Vice President and Head of Infosys Labs puts
it: Working together with clients, technology partners, universities and the larger
innovation ecosystem, Infosys Labs focuses on setting up joint innovation centers and
developing solutions to complex business problems.
A large chunk of Investments were also directed towards enhancing capabilities of
some existing and future products like Finacle, Flypp and iEngage.

The Approach
Infosys dened the three pillars of Infosys 3.0 as:

Fig :Infosys 3.0

(i) Business Transformation:
Infosys intended to develop a world-class business consulting model to ignite technologyled transformation for enterprises. The teams were supposed to be led by senior
consultants with extensive experience in business strategy development. Organized
around business verticals, such as banking, retail and telecom, these consultants and their
teams were expected to ensure that the solutions are enriched with all the advantages
that deep domain expertise brings.
Fig : Business Transformation Capabilities
(ii) Accelerating Innovation
This area focused on aspects of Business Innovation and R&D. Infosys Labs capabilities
were to be exploited across diverse industries and enterprise platforms. The aim was to
co-create, build and customize a solutionsignicantly accelerating its impact and time to
market for customers.

Fig : Accelerating Innovation

(iii) Efficient Operations:
Infosys offered to take complete lifecycle ownership of customers Cloud initiative
providing them with a single point of accountability. Infosys proposed several line-ofbusiness functions such as sales, marketing and human resources along with industry
functions such as banking where it wanted to develop capabilities to host, operate and
manage services on a subscription-based pricing model.
Strategic commitment:
Name Change & merger of Infosys Consulting:
In April 2011 Infosys Technologies Limited was re-christened as Infosys Limited. This
depicted that the company is determined to break away from linear business model where
business growth is proportional to new human resources hiring and is aiming towards
more consulting and business transformation projects.
Change of Mission Statement:
The mission statement was changed to: Strategic Partnerships for Building Tomorrows
Enterprise.
Effect on Employees:
A new Consulting stream was developed within Infosys Limited. High performing
employees from the erstwhile organization were moved into this stream. Infosys
Consulting was a new vertical renamed as Infosys consulting and System Integration and
was headed by Stephen Pratt, the CEO of erstwhile Infosys Consulting Inc. Employees in
the consulting stream were trained in order to develop deep domain understanding and
capabilities. Hiring was very high with more and more consultants joining worldwide from
core-business companies. They were expected to build the knowledge capabilities of the
company and drive the next set of business initiatives.
Competitors:

In its third phase of growth, Infosys ambition was to get counted in the league of IBM and
Accenture. Both these companies have very well integrated Consulting arms as IBM
Global Services and Accenture Management Consulting. On the other hand its other
competitors have also started to move in this space. While TCS & Wipro have started their
consulting arms as TCS Global Practices and Wipro Consulting, the only one to pull it off
smartly has been Cognizant. With a wide range of consulting offerings Cognizant
Business Consulting has become a successful and salient brand.

Brand
Dominance: IBM,
Accenture
ToMA: Deloitte, Capgemini
Recallable: Infosys Ltd., Cognizant Business
Consulting
Recognized brands: TCS Global Consulting Practice, Wipro
Consulting etc.
Unknown Brands

Fig: Infosys and its competitors

Industry Acceptance
Although Infosys has committed a large amount of resources in establishing its new brand

and expects to earn one-third of its revenues from the high-end offerings, the industry as a
whole has not accepted the change. Over the past two years, the newly created Products,
Platforms and solutions business have contributed close to 7% of revenues. There arent
many takers in the market barring a few Telecom companies and a healthcare giant. By
looking at customer responses and market data, it is pretty evident that Infosys is
struggling in recent times. The company gave out an initial guidance of 8-10% for FY 13,
revised this downwards to 5% after their rst quarter results, as it struggled to generate
demand in a volatile environment. It also suspended giving quarterly guidance after the
rst quarter. The 5% guidance is way lower than the Nasscom estimate for the industry,
which is currently the lower end of 11-14%.
In December 2012 Shibulal quoted The dollar revenue guidance of 5% in FY13 could be
under threat due to customer deferrals, ramp downs in a few large projects, delays in
large deal closures and longer than expected client shutdowns due to Hurricane Sandy,
especially in the manufacturing sector. At present, the company thinks that FY13 remains
challenging.
Fig Infosys Stock performance on BSE (Mar-2011 - Feb-2013)
Infosys' struggle also comes at a time when rivals such as TCS and Cognizant have
grown at a fast pace, for the nancial year ending March 31 2012, Infosys grew
revenues by 16% as compared to its closest rival TCS who grew by 31% during the same
period. Although analysts accept the fact that slump in the industrys earning have come
largely due to the slow economy worldwide, in case of Infosys it is more magnied
because of Infosys commitment of not chasing the low-margin business of outsourcing.
The questions that analysts are asking is that is it the right time to adopt a new business
strategy and change in positioning when the world economy is not at all in the favor.