Financial Risk Management

Liquidity, Solvency and Profitability of TCS: An Empirical Analysis

Article Details

Pub. Date	: Sep, 2023
Product Name	: The IUP Journal of Financial Risk Management
Product Type	: Article
Product Code	: IJFRM020923
Author Name	: Ruby Mittal and N P Singh
Availability	: YES
Subject/Domain	: Finance Management
Download Format	: PDF Format
No. of Pages	: 31

Price

Download

Abstract

This paper analyzes the financial position of Tata Consultancy Services Limited (TCS) in terms of liquidity, profitability and solvency for the period 2004-2021, using Motaal test and Altman Z-test. The data is also subjected to correlation and regression analyses. Based on the analysis, it is inferred that TCS is above the benchmark value. Motaal test results indicate that the liquidity position of TCS was best in 2020, and had been improving during the study period. As per Altman Z-score test, the company's financial performance was good during the study period, except in 2004. Hence, it is concluded that the financial position of TCS during the study period was more than satisfactory.

Introduction

Liquidity management is the backbone of a company (Madushanka and Jathurika, 2018). The term 'liquidity' is defined as the ability of a business to meet its financial obligations. Every investor analyzes the financial statements of a company to find out its capacity to settle its immediate financial debt. Investors will be dissatisfied if the company fails to meet its short-term obligations, and the repayment of its long-term debt will be difficult. Cash in hand is more likely to have an impact on a company's profitability. Liquidity management is a continuous process that ensures the firm has a plan in place to pay its short-term liabilities without taking any risk. For the smooth operations of an organization, balancing these two extreme conditions requires flexible and efficient liquidity management (Alshatti, 2015). A company's stability and profitability are in jeopardy if it does not have enough cash in hand. A high degree of liquidity may be favorable to a low-risk business or investor, but it reduces their profitability. The two most prevalent ratios used to evaluate a company's liquidity are quick ratio and current ratio (Elangkumaran and Karthika, 2013).