International Journal of Advanced Research in Management (IJARM) Volume 7, Issue 3, Sep–Dec (2016), pp. 63–70, Article ID: IJARM_07_03_007 Available online at http://iaeme.com/Home/issue/IJARM?Volume=7&Issue=3 Journal Impact Factor (2016): 6.9172 (Calculated by GISI) www.jifactor.com ISSN Print: 0976 - 6324 and ISSN Online: 0976 - 6332 © IAEME Publication
ANALYSING PROFITABILITY OF INDIAN I.T. GIANTS: A CASE STUDY OF TCS AND WIPRO
Dr. Vineet Singh Assistant Professor, Department of Commerce, Guru Ghasidas Vishwavidyalaya, Bilaspur, Chhattisgarh, India
ABSTRACT The present study is conducted with the objective of analysing return on equity and return on investment offered by two leading I.T. companies of India i.e. Tata Consultancy Services (TCS) and Wipro within a span of 10 years (March-2007 to March-2016). Return on investment and return on equity are two significant profitability ratios which helps an investor in making investment decisions in any company. A company with higher ROE and ROI can be lucrative for investors and vice-versa. This paper is a modest attempt to study the ROE and ROI positions of TCS and Wipro. Key words: TCS, Wipro, ROE, ROI
Cite this Article: Dr. Vineet Singh, Analysing Profitability of Indian I.T. Giants: A Case Study of TCS and Wipro. International Journal of Advanced Research in Management, 7(3), 2016, pp. 63– 70. http://iaeme.com/Home/issue/IJARM?Volume=7&Issue=3
1. INTRODUCTION Tata Consultancy Services is a part of Tata group engaged in offering I.T. and I.T. enabled services with the assistance of its Global Network Delivery Model. TCS was established in 1968 as a division of Tata Sons Limited and corporatized into a separate company from 1-04-2004. Today, Tata Consultancy Services has over 353000 I.T. consultants in 45 countries. The services offered by TCS includes application development and maintenance, assurance services, business process services, consulting, enterprise security and risk management, connected marketing, social computing, banking, financial services, insurance, media and information services, healthcare and so on. Another giant in Indian I.T. sector Wipro is also engaged in providing wide range of I.T. services like technology infrastructure services, R&D services, system integration, consulting etc. Today, Wipro has more than 17000 workforces which successfully serve its clients in more than 175 cities across 6 continents. Return on Equity (ROE) and Return on Investment (ROI) are two important profitability ratios which helps to gauge a company’s profitability by taking into account the funds of equity shareholders and total capital employed in the company. Return on equity helps equity shareholders in knowing the earning capacity of their funds in the business whereas return on investment helps in analysing overall profitability of the business.
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1.1. Formula ROE = Net Profit after Interest, Tax and Preference Dividend/Equity Shareholder’s Fund ROI = Profit before Interest, Tax and Dividend/Capital Employed
1.2. Objectives of the Study • To calculate Return on Equity of TCS and Wipro. • To make a comparative analysis of ROE of TCS and Wipro. • To calculate Return on Investment of TCS and Wipro. • To make a comparative study of ROI of TCS and Wipro.
1.3. Hypothesis of the Study
H0(1) There is no significant difference between ROE of TCS and Wipro.
Ha(1) There is a significant difference between ROE of TCS and Wipro.
H0(2) There is no significant difference between ROI of TCS and Wipro.
Ha(2) There is a significant difference between ROI of TCS and Wipro. The above hypotheses have been tested through t-test.
2. RESEARCH METHODOLOGY In order to estimate “return on equity” and “return on investment” of TCS and Wipro, secondary data has been used and appropriate data in this aspect has been assembled from annual reports of TCS and Wipro, websites, journals etc. Further, the collected data has been infused in tables and figures and appropriate statistical tools have been applied in order to give a meaningful conclusion to the study.
2.1. Time Period ROE and ROI of TCS and Wipro has been calculated from March 2007 to March 2016.
3. ANALYSIS AND INTERPRETATION With the objective of calculating return on equity and return on investment of TCS and Wipro, a number of tables and figures have been constructed which are demonstrated as below:
Table 1 TCS (Return on Equity) (Rs. in Crores)
Years Net Profit Equity Shareholders Fund Return On Equity Mar-07 3757.29 8058.99 46.62 Mar-08 4508.68 10904.8 41.35 Mar-09 4689.21 13346.3 35.14 Mar-10 5601.51 15016.6 37.30 Mar-11 7558.99 19479.5 38.80 Mar-12 10953.98 24756.6 44.25 Mar-13 12767.34 32462.3 39.33 Mar-14 18446.16 44051.9 41.87 Mar-15 19256.96 45416.4 42.40 Mar-16 22882.7 58866.9 38.87 Source: moneycontrol.com
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TCS (Return on Equity) 50.00 40.00 30.00 20.00 10.00 0.00
Return on Equity
X Axis: Years, Y Axis: Return on Equity in %
Figure 1 TCS (Return on Equity) Return on Equity of TCS ranges from 35.14 crores to 46.62 crores during the study period. The lowest figures of ROE were observed in 2009 where as highest figures of ROE were observed in 2007.
Table 2 WIPRO (Return on Equity) (Rs. in Crores)
Years Net Profit Equity Shareholders Fund Return On Equity Mar-07 2842.10 9316.9 30.50 Mar-08 3063.30 11552.7 26.52 Mar-09 2973.80 12513.5 23.76 Mar-10 4898.00 17690.4 27.69 Mar-11 4843.70 21320.2 22.72 Mar-12 4685.10 24352.5 19.24 Mar-13 5650.20 24229.5 23.32 Mar-14 7387.40 29355.9 25.16 Mar-15 8193.10 34621.6 23.66 Mar-16 8099.00 40905.2 19.80 Source: moneycontrol.com
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WIPRO (Return on Equity) 40.00 30.00 20.00 10.00 0.00
Return on Equity
X Axis: Years, Y Axis: Return on Equity in %
Figure 2 WIPRO (Return on Equity) Table 2 and figure 2 demonstrates ROE of Wipro which ranges from 19.24 crores in 2011-12 to 30.50 crores in 2006-07.
Table 3 Return on Equity (TCS v/s WIPRO) Years TCS (Return on Equity) Wipro (Return on Equity) Mar-07 46.62 30.50 Mar-08 41.35 26.52 Mar-09 35.14 23.76 Mar-10 37.30 27.69 Mar-11 38.80 22.72 Mar-12 44.25 19.24 Mar-13 39.33 23.32 Mar-14 41.87 25.16 Mar-15 42.40 23.66 Mar-16 38.87 19.80
Return on Equity (TCS v/s WIPRO) 50.00 40.00 30.00 20.00 10.00 0.00
TCS (Return on Equity) Wipro (Return on Equity)
X Axis: Years, Y Axis: Return on Equity in %
Figure 3 Return on Equity (TCS v/s WIPRO)
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Above table and figure clearly reveals the fact that TCS enjoys an edge over Wipro in giving returns to its equity shareholders.
Table 4 TCS (Return on Investment) (Rs. in Crores)
Years EBIT Capital Employed Return on Investment Mar-07 4174.11 8067.97 51.74 Mar-08 5007.28 11013.8 45.46 Mar-09 5147.13 13485.2 38.17 Mar-10 6379.92 15152.4 42.11 Mar-11 8720.44 19615.8 44.46 Mar-12 13382.73 24952.9 53.63 Mar-13 15733.8 32645.4 48.20 Mar-14 23567.88 44141.6 53.39 Mar-15 24101.16 45481.2 52.99 Mar-16 29130.22 58916.9 49.44 Source: moneycontrol.com
Figure 4 TCS (Return on Investment)
TCS (Return on Investment) 60.00 50.00 40.00 30.00 20.00 10.00 0.00
Return on Investment
X Axis: Years, Y Axis: Return on Investment in % Table 4 and figure 4 reveals ROI of TCS from 2006-07 to 2015-16 which stood highest in 2011-12 and lowest in the year 2008-09.
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Table 5 WIPRO (Return on Investment) (Rs. in Crores)
Years EBIT Capital Employed Return on Investment Mar-07 3183.40 9554.90 33.32 Mar-08 3586.50 15375.10 23.33 Mar-09 3744.70 12623.90 29.66 Mar-10 5788.60 17780.70 32.56 Mar-11 5841.50 23255.60 25.12 Mar-12 6524.30 26554.70 24.57 Mar-13 7557.50 24288.50 31.12 Mar-14 9982.90 30362.00 32.88 Mar-15 10919.90 35684.80 30.60 Mar-16 11009.90 42051.70 26.18 Source: moneycontrol.com
Figure 5 WIPRO (Return on Investment)
WIPRO (Return on Investment) 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00
Return on Investment
X Axis: Years, Y Axis: Return on Investment in % Table 5 and figure 5 reveals ROI of Wipro from 2006-07 to 2015-16 which stood highest in 2006-07 and lowest in the year 2007-08.
Table 6 Return on Investment (TCS v/s Wipro) Years TCS (Return on Investment) WIPRO (Return on Investment) Mar-07 51.74 33.32 Mar-08 45.46 23.33 Mar-09 38.17 29.66 Mar-10 42.11 32.56 Mar-11 44.46 25.12 Mar-12 53.63 24.57 Mar-13 48.20 31.12 Mar-14 53.39 32.88
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Mar-15 52.99 30.60 Mar-16 49.44 26.18 Figure 6: Return on Investment (TCS v/s Wipro)
Return on Investment (TCS v/s WIPRO) 60.00 50.00 40.00 30.00 20.00 10.00 0.00
TCS (Return on Investment) WIPRO (Return on Investment)
X Axis: Years, Y Axis: Return on Investment in % The above table and figure clearly reveals that ROI of TCS is better as compared to Wipro.
3.1. Hypothesis Testing
H0(1) There is no significant difference between ROE of TCS and Wipro.
Ha(1) There is a significant difference between ROE of TCS and Wipro.
H0(2) There is no significant difference between ROI of TCS and Wipro.
Ha(2) There is a significant difference between ROI of TCS and Wipro. The above hypotheses have been tested through t-test.
t-Test: Two-Sample Assuming Unequal Variances ROE (TCS) ROE (Wipro) Mean 40.59330983 24.23788509 Variance 11.50578755 11.73517765 Observations 10 10 Hypothesized Mean Difference 0 df 18 t Stat 10.72839479 P(T<=t) one-tail 1.49745E-09 t Critical one-tail 1.734063592 P(T<=t) two-tail 2.99491E-09 t Critical two-tail 2.100922037
Since the calculated value of t is more than table value of t at two tail, hence H0(1) is rejected and Ha(1) is accepted. Therefore it can be concluded that, there is a significant difference between ROE of TCS and Wipro.
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t-Test: Two-Sample Assuming Equal Variances ROI (TCS) ROI (Wipro) Mean 47.95848208 28.93286172 Variance 28.01827919 14.28749279 Observations 10 10 Pooled Variance 21.15288599 Hypothesized Mean Difference 0 df 18 t Stat 9.249942102 P(T<=t) one-tail 1.46187E-08 t Critical one-tail 1.734063592 P(T<=t) two-tail 2.92375E-08 t Critical two-tail 2.100922037
Since the calculated value of t is more than table value of t at two tail, hence H0(2) is rejected and Ha(2) is accepted. Therefore it can be concluded that, there is a significant difference between ROI of TCS and Wipro.
4. CONCLUSION On the basis of above study the following conclusions can be drawn: • Return on equity of TCS is better than return on equity of Wipro. • Return on investment of TCS is better than return on investment of Wipro. • There is a significant difference between ROE of TCS and Wipro. • There is a significant difference between ROI of TCS and Wipro.
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