Analyzing Common-size Income Statement
The common-size income statement of one firm can be compared with income statements of other firms belonging to the same industry for cross-sectional analysis. Let us take an analysis of the common-size income statement of Infosys Technologies and compare it with that of Satyam Computer Services and TCS to understand the cross-sectional analysis.
Cross-sectional Analysis Using Common-size Income Statement
(For the period 2006-07)
(Rs. in crore)
|
Particulars
|
TCS
|
INFOSYS
|
SATYAM
|
|
|
Rs.
|
%
|
Rs.
|
%
|
Rs.
|
%
|
|
Income
|
|
|
|
|
|
|
|
Income from sales and services
|
14,939.97
|
100.00
|
13,149.00
|
100.00
|
6,228.47
|
100.00
|
|
Other incomes
|
216.55
|
1.45
|
373.00
|
2.84
|
181.61
|
2.92
|
|
|
15,156.52
|
101.45
|
13,522.00
|
102.84
|
6,410.08
|
102.92
|
|
Expenditure
|
|
|
|
|
|
|
|
Employee costs
|
7,401.12
|
49.54
|
7,114.00
|
54.10
|
3,706.04
|
59.50
|
|
Operation and other expenses
|
3,237.88
|
21.67
|
1,810.00
|
13.78
|
993.31
|
15.95
|
|
|
10,639.00
|
71.21
|
8,924.00
|
67.87
|
4,699.35
|
75.45
|
|
PBDIT
|
4,517.52
|
30.24
|
4,598.00
|
34.97
|
1,710.73
|
27.47
|
|
Interest
|
3.43
|
0.02
|
-
|
0.00
|
7.61
|
0.12
|
|
Depreciation
|
343.41
|
2.30
|
469.00
|
3.57
|
129.89
|
2.09
|
|
Profit before tax
|
4,170.68
|
27.92
|
4,129.00
|
31.40
|
1,573.23
|
25.26
|
|
Provision for tax
|
395.64
|
2.65
|
352.00
|
2.68
|
137.94
|
2.21
|
|
Net Profit after tax
|
3,775.04
|
25.27
|
3,777.00
|
28.72
|
1,435.29
|
23.05
|
Note: While making the common-size statement, for comparison purposes the provision for fringe benefit tax has not been considered.
Interpretation
-
Infosys appears to have a marginal advantage over the other two companies in view of its profit margin which is 28.72% of sales.
-
Infosys has the lowest ratio of operating cost to sales at 67.87%, while TCS and Satyam have a ratio of 71.21% and 75.45% respectively.
-
At the same time, Infosys has a higher depreciation charge than TCS or Satyam.
-
TCS and Satyam have a higher volume of employee costs and lower volume of operation expenses. This could be because of variations in classification of expenses by each of them. For instance, employee costs of Infosys have been computed as salaries and bonus to overseas staff including staff expenses, overseas group health insurance, contribution to provident fund and staff welfare expenses. On the other hand, in case of TCS, the employee costs do not include training expenses.
-
Because of the lower operating expenses, Infosys is able to generate a higher margin than the other two firms.
-
The other income of Satyam is comparatively more than TCS and Infosys. The other income of Satyam primarily comprises interest on deposits, gain on sale of long-term investments, and gain or loss on exchange fluctuations.
Email based Accounting assignment help - homework help at Expertsmind
Are you searching Accounting expert for help with Analyzing Common-size Income Statement questions? Analyzing Common-size Income Statement topic is not easier to learn without external help? We at www.expertsmind.com offer finest service of Accounting assignment help and Accounting homework help. Live tutors are available for 24x7 hours helping students in their Analyzing Common-size Income Statement related problems. We provide step by step Analyzing Common-size Income Statement question's answers with 100% plagiarism free content. We prepare quality content and notes for Analyzing Common-size Income Statement topic under Accounting theory and study material. These are avail for subscribed users and they can get advantages anytime.
Why Expertsmind for assignment help
- Higher degree holder and experienced experts network
- Punctuality and responsibility of work
- Quality solution with 100% plagiarism free answers
- Time on Delivery
- Privacy of information and details
- Excellence in solving Accounting questions in excels and word format.
- Best tutoring assistance 24x7 hours