PROJECT REPORT

ON

Analyzing the impact of Capital

Submitted By: - Submitted To: -

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 Acknowledgement
We want to express our heartfelt gratitude to the following individual and resources for their
valuable support and assistance in the completion of this economics project:

1. Dr. Vibhuti Vasishth: - We extend our sincere appreciation to our professor for her
guidance and encouragement throughout this project. Her expertise has been
instrumental in shaping this work.
2. Online Resources: - Online resources, especially Google Scholar and Google, played
a significant role in providing access to various academic articles, books, and data.
These resources were essential for conducting thorough research.
3. Online Communities: - I acknowledge the various online economics forums and
communities that answered my queries and helped me overcome challenges I
encountered during the research and analysis phases.
4. Previous Research: - I am indebted to the researchers and scholars whose previous
works and publications served as a foundation for this project. Their pioneering
efforts have been influential in shaping the direction of my research.

Aniket Gaurav & Pranav

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 Executive Summary
This project report examines the intricate relationship between a firm's capital structure
policy, and dividend policy, and their subsequent impact on profitability (Profit After Tax,
PAT) and stock price. In today's dynamic business environment, understanding how these
financial policies influence key performance metrics is crucial for informed decision-making
by stakeholders.

Through comprehensive analysis and statistical modeling, this report delves into the various
factors that contribute to the formulation and execution of capital structure and dividend
policies. It scrutinizes how these policies affect the firm's ability to generate profits and create
shareholder value.

Key findings reveal that a firm's capital structure, comprising the mix of debt and equity
financing, significantly influences its profitability and stock price. Optimal capital structure
decisions can enhance profitability by leveraging financial leverage to maximize returns
while minimizing financial risk. Conversely, excessive reliance on debt may lead to financial
distress and adversely affect profitability and stock performance.

Moreover, the dividend policy adopted by the firm plays a pivotal role in shaping investor
perceptions and expectations. A consistent dividend policy that aligns with the firm's financial
objectives can attract investors seeking stable returns and contribute to stock price
appreciation. However, the impact of dividend policy on profitability may vary depending on
factors such as industry dynamics, market conditions, and firm-specific characteristics.

Furthermore, the interplay between capital structure and dividend policy underscores the
importance of strategic financial management. By optimizing the balance between debt and
equity financing and aligning dividend distributions with the firm's growth prospects and
cash flow requirements, companies can enhance both profitability and shareholder value over
the long term.

In conclusion, this project report provides valuable insights into the complex relationship
between capital structure policy, dividend policy, profitability, and stock price. By
understanding the implications of these financial decisions, firms can formulate robust
strategies to maximize financial performance and create sustainable value for stakeholders in
today's competitive marketplace.

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 Table of Contents
S. No. Particulars Page
No.

1. Acknowledgement 2

2. Executive Summary 3

3. Findings and Conclusions 5-14

4. References 15

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 Findings and Conclusions

Debt to Equity Ratio: -

Source: - TCS Annual Financial Report

A financial indicator called the debt-to-equity ratio shows how much of a company's
activities are financed by debt (loans) as opposed to equity held by shareholders. A
corporation that has a smaller debt-to-equity ratio is likely to be more financially prudent,
whereas a larger ratio may indicate that the company plans to use more debt to finance its
expansion.

The graph indicates that TCS has a very low debt-to-equity ratio. Over the past ten years, the
ratio has varied slightly, but it has never been higher than 0.6. The ratio has often hovered
around 0.3 in the most recent years. Depending on the industry, there are several optimum
debt-to-equity ratios, but generally speaking, a ratio under 0.67 is good

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As you can see, during the whole period displayed on the graph, TCS's debt-to-equity ratio is
consistently far lower than 1. This implies that TCS is a prudently financed business that uses
very little debt to fund its activities. Given that the company is less likely to default on its
loans in the event of financial difficulties, this could be an indication of strong financial
standing.

In general, the graph indicates that TCS has a very low debt-to-equity ratio and is a
financially conservative business. For investors, this is encouraging since it shows that there
is little chance of the company defaulting on its debt.

Debt to Asset Ratio: -

Source: - TCS Annual Financial Report

An indicator of a company's financial health that shows how much of its activities are
financed by debt (loans) relative to its total assets is the debt-to-asset ratio. A corporation
may employ more debt to finance its expansion if its debt-to-asset ratio is higher. Conversely,
a lower ratio indicates a more cautious financial approach.

The graph indicates that TCS's debt-to-asset ratio is quite low. For the ten years, the ratio has
slightly changed, but it has never been above 0.4. The ratio has typically been 0.1 or less in
recent years. Industry-specific factors might influence the optimal debt-to-asset ratio,
however, a ratio of less than 0.5 is typically seen as favourable.

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As you can see, TCS has a debt-to-asset ratio that is consistently considerably below 0.5 for
the course of the graph. This implies that TCS is a prudently financed business that uses very
little debt to fund its activities. Given that the company is less likely to default on its loans in
the event of financial difficulties, this could be an indication of strong financial standing.

In general, the graph indicates that TCS has a very low debt-to-asset ratio and is a financially
conservative business. For investors, this is encouraging since it shows that there is little
chance of the company defaulting on its debt.

Interest Coverage Ratio: -

Source: - TCS Annual Financial Report

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A financial indicator called the interest coverage ratio indicates the number of times a
company's profits before interest and taxes (EBIT) can pay for its interest costs. An increased
capacity to meet debt commitments is indicated by a higher interest coverage ratio.

The graph shows that during the previous eleven years, TCS's interest coverage ratio has
varied dramatically, from a low of 41.8 in March 2020 to a high of 189.2 in March 2019. The
ratio was 73.85 in the most recent fiscal year (2024). A ratio of less than three is seen as
weak, whereas one of more than five is generally regarded as good.

As you can see, during most of the time displayed on the graph, TCS's interest coverage ratio
has been significantly higher than the suggested minimum of 5. The noteworthy decline
observed in TCS's earnings or interest expenses for the fiscal year 2020 (ending in March
2020) could potentially be attributed to transient factors.

Based on its interest coverage ratio, the graph generally indicates that TCS has a strong
ability to service its debt commitments. To obtain a more thorough picture of TCS's financial
health, investors would wish to take into account additional financial metrics, as indicated by
the ratio's notable fluctuations over time in the last 10 financial years for the company TCS.

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Due to its intentional capital structure policy, which aims to minimize financial risk, TCS has
been reported to be a financially conservative corporation with low debt-to-equity and debt-
to-asset ratios and a good ability to fulfil debt commitments. There are probably a few things
driving this strategy:

 Risk management: Given the volatility of the IT sector and the swings in
international markets, TCS may place a higher priority on preserving a cautious
capital structure to reduce financial risk.

 Stable Cash Flows: The long-term contracts and regular revenue streams that define
TCS's business model probably provide a stable cash flow, which lessens the need for
significant borrowing.

 Market Confidence: TCS can boost its credibility and possibly reduce borrowing
costs by maintaining low debt levels and regularly meeting its debt obligations. This
will reassure creditors and investors.

 Tax Considerations: Since high debt can reduce tax advantages and raise financial
responsibilities, TCS may also be concerned about the tax ramifications of debt
financing.

The impact of TCS's capital structure policy on its profitability can be analyzed in several
ways:

 Cost of Capital: Because less interest is paid, a conservative capital structure policy
with low debt levels usually has a lower cost of capital. This can raise net income,
which will have a beneficial effect on profitability.
 Financial Flexibility: TCS has more financial flexibility because of a low debt-to-
equity ratio. This allows it to engage in R&D, take advantage of growth opportunities,
and weather economic downturns without having to worry about heavy debt
repayments.
 Market Perception: By preserving a cautious capital structure, investors may feel
more confident, which might raise the price of TCS's shares and boost overall
profitability by increasing shareholder value.
 Competitive advantage: TCS's prudent financial practices may set it apart from
rivals with greater debt loads, giving it a stronger position in terms of risk
management and financial stability. Over time, this could result in long-term
profitability.

By balancing financial risk, cost of capital, and market perception, TCS's capital structure
strategy ultimately shapes its profitability and contributes to its long-term success in the IT
sector.

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Dividend Per Share:-

Source:- TCS Annual Financial Report.

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A financial statistic called dividend per share indicates how much money a business
distributes to its shareholders for each share of common stock. If a business decides to give
shareholders a bigger share of its profits or if its profits rise over time, the dividend per share
of the business may also rise.

As the graph illustrates, TCS's dividend per share has increased during the displayed time.
This implies that TCS has been distributing larger sums of money to shareholders annually.
This may be encouraging for investors searching for stocks that generate a consistent income
stream.

Dividend Pay-out Ratio: -

Source:- TCS Annual Financial Report.

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The percentage of a company's profit that is distributed as dividends to shareholders is known
as the dividend payout ratio. When a firm has a greater dividend payout ratio, it means it is
giving shareholders a bigger share of its earnings, whereas when it has a lower ratio, it means
it is keeping more of its earnings to reinvest in the company.

The graph indicates that TCS's dividend payout ratio has risen gradually over the previous
eleven years. From about 20% in 2013 to more than 80% in 2024, the ratio has grown.

All things considered, the graph indicates that TCS is a business that is increasingly giving its
profits as dividends to its investors. Investors searching for stocks that generate income may
find this appealing. However, it is important to consider other factors before making an
investment decision.

Dividend Yield Ratio: -

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 Source:- TCS Annual Financial Report.

A financial indicator called the dividend yield ratio indicates how much a corporation pays in
dividends per share about the price of its shares. A higher dividend yield ratio means that
long-term investors in the company will see a better return on their capital in the form of
dividend payments.

The graph indicates that during the previous eleven years, TCS's dividend yield ratio has
increased dramatically. From a low of 0.8% in 2013 to a high of 4.2% in 2024, the ratio has
climbed.

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As the graph illustrates, TCS's dividend yield ratio has increased gradually throughout the
indicated period. This implies that TCS is distributing a higher percentage of its earnings as
dividends to its investors. For investors searching for stocks that yield a consistent income
stream, this could be interpreted as a good indicator.

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The observed trend of TCS showing a consistent upward trend in its dividend per share
can be attributed to several factors:

 Profitability: TCS's history of steady profit-making over the years offers a strong
base for raising dividend payments. The corporation produces more earnings as it
grows and expands, which enables it to pay out larger dividends to shareholders.

 Cash Flow: TCS can continue and grow its dividend payments since it most likely
has a strong cash flow situation. A healthy cash flow guarantees that the business will
have enough cash on hand to pay dividends without jeopardizing its expansion plans
or operating requirements.
 Stability and Predictability: TCS's recurring revenue streams and long-term
contracts provide stability and predictability in the company's earnings. This enables
the business to keep a progressive dividend policy, giving investors assurance
regarding the consistency of their TCS stock income.

Expectations from Investors: TCS may take investor preferences and expectations
into account while developing its dividend policy. As part of its capital allocation
strategy to draw in and keep investors, the company may emphasize raising dividends
if shareholders place a high value on steady and growing dividend payments.

The impact of TCS's dividend policy on its profitability (Profit After Tax, or PAT) and
stock price can be analysed as follows:

Profitability (PAT): A steady and expanding dividend policy can have a positive effect on
profitability by expressing confidence in the company's financial stability and management's
capacity to produce long-term returns, even though dividend payments decrease the retained
earnings available for reinvestment in the company. Furthermore, by offering dividends, TCS
may be able to draw in income-seeking investors who are prepared to pay more for the
company's shares, thus raising its total valuation.

Stock Price: A company's valuation and prospects can be influenced by dividend payments
to investors. A steadily rising dividend yield ratio in addition to a constant dividend per share
could draw in additional investors looking for security and income, increasing demand for
TCS's shares and raising the company's stock price.

All things considered, TCS's proactive dividend policy is a reflection of its dedication to
providing value to shareholders and can boost the company's profitability and stock price by
demonstrating stability, strength, and investor-friendly governance. For a thorough
assessment of TCS's potential as an investment, investors must take into account many
elements in addition to dividend trends, such as the company's growth prospects, competitive
positioning, and overall financial health.

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 References
 Login Consent - MoneyControl. (n.d.).
https://www.moneycontrol.com/financials/tataconsultancyservices/balanc
e-sheetVI/TCS
 Yahoo is part of the Yahoo family of brands. (n.d.).
https://finance.yahoo.com/quote/TCS.NS/
 TCS Financial Statements and quarterly results. (n.d.)
https://www.tcs.com/investor-relations/financial-statements

 Hayes, A. (2023, November 2). Leverage ratio: what it is, what it tells
you, how to calculate. Investopedia.
https://www.investopedia.com/terms/l/leverageratio.asp#:~:text=Key
%20Takeaways-,A%20leverage%20ratio%20is%20any%20one%20of
%20several%20financial%20measurements,output%20will%20affect
%20operating%20income.
 Dividend payout ratio. (2023, July 7). BDC.ca.

https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-

business-guides/glossary/dividend-payout-ratio#:~:text=The%20dividend

%20payout%20ratio%20shows,multiplying%20the%20result%20by

%20100.

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