FINANCIAL ANALYSIS HCL TECHNOLOGIES LTD

BY:-

RAVIPAL SINGH (44)

KNOW THE COMPANY

• INDUSTRY IT SERVICES

• FOUNDED 1976

• HEADQUATERS NOIDA, INDIA

• CHAIRMAN SHIV NADAR

• CEO VINEET NAYAR

• REVENUE US $2.6 BILLION (in 2010)

• EMPLOYEES 72000

SERVICES OFFERED

• Engineering and R&D quality Services(ERS)

• Enterprise Transformation Services(ETS)

• Business Processing Outsourcing(BPO)

• Custom Application Services

• Enterprise Application Services(EAS)

• IT Infrastructure Management

INDUSTRIES SERVED

• FINANCIAL SERVICES• EDUCATION • TELECOM • RETAIL• TRAVEL• MANUFACTURING• MEDIA & ENTERTAINMENT• TRANSPORTATION & LOGISTICS• ENERGY & UTILITIES

WHY ANALYZE?

The goal of Financial Analysis is to provide Economic Decision makers with useful information.

RATIO ANALYSIS

Calculations between different sets of data on the Annual report to determine the short-term Financial health and long-term Financial health of the firm.

LIQUIDITY RATIOS

A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.  

TYPES OF LIQUIDITY RATIOS

• CURRENT RATIO – The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months

• QUICK/ACID RATIO -The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

• CASH RATIO - The ratio of a company's total cash and cash equivalents to its current liabilities. It can therefore determine if, and how quickly, the company can repay its short-term debt

CURRENT RATIO

YEAR 2005 2006 2007 2008 2009

CURRENT RATIO

.81 .99 1.41 1.12 1.59

QUICK / ACID RATIO

YEAR 2005 2006 2007 2008 2009

QUICK RATIO

0.8 0.98 1.39 1.06 1.71

CASH RATIO

YEAR 2005 2006 2007 2008 2009

CASH RATIO

0.12 0.09 0.27 0.26 0.52

LEVERAGE RATIOS

Leverage ratios provide an indication of the long term solvency of the firm. Leverage ratios measure the extent to which the firm is using long term debt .

TYPES OF LEVERAGE RATIOS

• DEBT EQUITY RATIO:-A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets

• LONG TERM DEBT EQUITY RATIO:- is another leverage ratio that compares a company's long term liabilities to its total shareholders equity

• INTERSEST COVERAGE RATIO:-A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period .

DEBT EQUITY RATIO

YEAR 2005 2006 2007 2008 2009

CASH RATIO

0.03 0.01 0.01 0.01 0.15

LONG TERM DEBT EQUITY RATIO

YEAR 2005 2006 2007 2008 2009

RATIO 0.03 0.01 0.01 0.01 0.04

INTEREST COVERAGE RATIO

YEAR 2005 2006 2007 2008 2009

RATIO 61.43 62.16 68.58 62.07 51.14

TURNOVER RATIOS

A measure of the number of times a company's inventory is replaced during a given time period. Turnover ratio is calculated as cost of goods sold divided by average inventory during the time period. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly.

TURNOVER RATIOS

• TOTAL ASSESTS TURNOVER RATIO:-The total asset turnover represents the amount of revenue generated by a company as a result of its assets on hand.

• SHORT TERM ASSETS TURNOVER RATIO: represents the amount of revenue generated by a company as a result of its short term assets on hand.

• WORKING CAPITAL TURNOVER RATIO:-A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales

• DEBTORS TURNOVER RATIO:-in simple words its the average time which debtors take to pay .

TOTAL ASSET TURNOVER RATIO

YEAR 2005 2006 2007 2008 2009

RATIO 0.5 1.22 1.13 1.51 1.25

SHORT TERM ASSET RATIO

YEAR 2005 2006 2007 2008 2009

RATIO 2.53 3.31 3.13 3.27 2.73

WORKING CAPITALTURNOVER RATIO

YEAR 2005 2006 2007 2008 2009

RATIO -31.86 -0.77 56.75 23.28 166.69

DEBTORS TURNOVER RATIO

YEAR 2005 2006 2007 2008 2009

RATIO 6.09 6.37 5.55 5.45 3.79

PROFITABILITY RATIOS

A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

TYPES OF PROFITABILITY RATIOS• RETURN ON CAPITAL EMPLOYED RATIO:- is a measure

of the returns a company derives from its capital. It is calculated as profit before interest and taxes divided by tangible capital employed.

• RETURN ON TOTAL ASSETS RATIO:- The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid.

• GROSS PROFIT MARGIN RATIO:- The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold

• OPERATING PROFIT MARGIN RATIO:-Operating profit margin indicates how effective a company is at controlling the costs and expenses associated with their normal business operations.

RETURN ON CAPITAL EMPLOYED RATIO

YEAR 2005 2006 2007 2008 2009

ROCE(%) 10.63 26.15 22.35 33.08 32.39

RETURN ON TOTAL ASSETS RATIO

YEAR 2005 2006 2007 2008 2009

ROTA(%) 89.59 79.64 51.61 48.22 52.04

GROSS PROFIT MARGIN RATIO

YEAR 2005 2006 2007 2008 2009

GPM(%) 19.97 22.12 24.88 21.86 24.33

OPERATING PROFIT MARGIN RATIO

YEAR 2005 2006 2007 2008 2009

OPM(%) 24.63 26.69 24.86 26.58 29.72

NET PROFIT MARGIN RATIO

YEAR 2005 2006 2007 2008 2009

NPM(%) 22.36 21 29.11 16.68 20.63

MARKET VALUATION RATIOS

Market Value Ratios relate an observable market value, the stock price, to book values obtained from the firm's financial statements.

TYPES OF MARKET VALUATION RATIOS

• EARNING PER SHARE RATIO:- It tells how much profit was generated on a per share basis.

• PRICE EARNING RATIO:-A valuation ratio of a company's current share price compared to its per share earnings. High P/E suggests that investors are expecting higher earnings growth in the future to a lower P/E.-share earnings.

• DIVIDENT PER SHARE RATIO:-. Dividend per share (DPS) is the total dividends paid out over an entire year divided by the number of outstanding ordinary shares issued.

• DIVIDENT PAYOUT RATIO:-The percentage of earnings paid to shareholders in dividends

EARNING PER SHARE RATIO

YEAR 2005 2006 2007 2008 2009

EPS 10.31 19.74 16.6 11.72 14.88

PRICE EARNING RATIO

YEAR 2005 2006 2007 2008 2009

P/E 18.29 25.14 27.50 26.08 29.43

DIVIDEND PER SHARE RATIO

YEAR 2005 2006 2007 2008 2009

DPS 16 16 8 9 7

DIVIDENT PAYOUT RATIO

YEAR 2005 2006 2007 2008 2009

DPOR 1.55 0.81 0.48 0.77 0.47

RECOMMENDATION• After examining the annual reports of

HCLT of previous five years, we can say that HCLT has grown year by year and has improved it business. Even qualitative analysis suggests that HCLT has bagged several new projects viz in New Zealand and in Europe and also bagged some domestic projects and they are planning to expand their business. So it will be a wise decision to invest in HCLT.

• As HCLT is looking good in its IT business and it also looked strong in recession so it is advisable to invest in HCLT to get good returns and safety in investments.

THANK YOU