19500613 Financial Risk Management of IT Companies

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A Report

Of

Financial Risk Management

Submitted by:

Syed noorulbasher Shah,

Rashid Khan,

M.Arif Khan,


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ACKNOWLEDGEMENT:

We feel a deep sense of gratitude in thanking all those who helped us to carry out

the assignment to its eventual fruition.

We also extend my gratitude to our parents, well-wishers and all those who have

helped me in some way or the other in the completion of this project.

Syed Noorulbashar Shah,

Rashid Khan,

M.Arif Khan.


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Table of Contents

ACKNOWLEDGEMENT: ...................................................................................................................... 3

DECLARATION........................................................................................ Error! Bookmark not defined.

Summary ................................................................................................................................................. 7

Introduction: ........................................................................................................................................... 8

Brief idea of the sector: ........................................................................................................................ 8

Analysis of Research Papers: ................................................................................................................. 10

Paper 1: Financial Risk Management in volatile global market ........................................................... 10

Paper 2: Place of Risk Management in financial institutions ............................................................... 11

Paper 3: Enterprise Risk Management ................................................................................................ 14

Paper 4: Risk Management Challenges in Rural Financial Market -- Blending Risk Management

Innovation with Rural Finance ........................................................................................................... 17

Paper 5: Corporation Risk Management ............................................................................................. 18

Paper 6: Risk in Financial Reporting .................................................................................................. 20

Paper 7: Risk Management in Agriculture Sector of U.S. ................................................................... 22

Paper 8: OECD Tax Intermediaries Study .......................................................................................... 25

Risk Management .............................................................................................................................. 25

Paper 9: Risk management in the age of structured products: Lessons learned for improving risk

intelligence ........................................................................................................................................ 27

Paper 10: The Big and The Small ....................................................................................................... 30

Quarterly Analysis of TCS:................................................................................................................ 33

Q4 2006-07........................................................................................................................................ 33

Q1 2007-08........................................................................................................................................ 34Analysis of Q2 2008: ......................................................................................................................... 36

Analysis of Q3 2007-08 ..................................................................................................................... 38

Analysis of Quarter 4 2007-08 ........................................................................................................... 39

Analysis of the Q1 of 2008-09 ........................................................................................................... 41

Analysis of Quarter 2 of FY 2008-09 ................................................................................................. 43


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Analysis of Q3 2008-09 ..................................................................................................................... 46

Quarterly analysis of Patni Computers: .................................................................................................. 48Analysis of Q1 (Jan-March) ............................................................................................................... 48

Analysis of Q2 2007 (April-June) ...................................................................................................... 49

Analysis of Q3 2007(July-September)................................................................................................ 51

Analysis of Q4 2007 (October-November) ......................................................................................... 53

Analysis of Q1 2008 (Jan-March) ...................................................................................................... 54

Analysis of Q2 2008 (April-June) ...................................................................................................... 56

Analysis of Q3 2008 (July-Sep) ......................................................................................................... 57

Analysis of Q4 2008 (Oct-Dec) .......................................................................................................... 59

Quarterly Analysis of Wipro: ................................................................................................................. 61

Analysis of Q4 FY 2007: ................................................................................................................... 61

Analysis of Q1 FY 2008 .................................................................................................................... 62

Analysis of Q2 FY 08 ........................................................................................................................ 63

Analysis of Q3 of FY 2008 ................................................................................................................ 64

Analysis of Q4 FY 2008 .................................................................................................................... 65

Analysis of Q1 FY 2009 .................................................................................................................... 66

Analysis of Q2 FY 2009 .................................................................................................................... 67

Analysis of Q3 of FY 2008-09 ........................................................................................................... 68

Quarterly Analysis of Infosys: ............................................................................................................... 69

Quarterly Analysis of Emarkia ............................................................................................................... 71

Quarterly Analysis of I2C ...................................................................................................................... 73

Conclusion: ........................................................................................................................................... 75

Merger and acquisition: ......................................................................................................................... 77

Merger of Akbar Group of Aviation and Apvision: ............................................................................ 77

Merger of Ford and Jaguar: ................................................................................................................ 79

References:............................................................................................................................................ 81


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Summary

In this report analysis of 10 research papers on risk management has

been done to get an idea about the different kind of risks faced by the

various companies and the different ways they took to mitigate the risk.

In this report analysis of eight quarters of the companies has also been

done. Analysis has been done on the basis of revenue, cost of revenue,

gross profit, selling marketing and administrative expenses, operating

income, profit before tax, profit after tax and net income.

In this analysis changes in factor on quarter on quarter basis and year on

year basis has been shown and all the factors are also compared with

revenue of the respective quarter. On the basis of this financial risk faced

by companies has been evaluated and the different process and steps of

companies has been shown in this report.

Analysis of two mergers and acquisition is also done in this report, to

see which kind of strategies a company should have used and what

should be avoided.

Thus, this report gives an insight of risk faced by companies at different

point of time and ways to mitigate the same.


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Introduction:

Brief idea of the sector:

The Pakistan software export board have grown in spectacular fashion. Its success has, for the

most part, been a combination of resource endowments, a mixture of benign neglect and active

encouragement from a normally intrusive government, and good timing. The bulk of the Pakistan

software exports have consisted of fairly mundane services such as low level programming and

maintenance. The marked reliance on access to low cost human capital has prompted

considerable skepticism about the ability of the Pakistan software industry to sustain its

performance, given the rapid growth in the demand for engineers and the relatively inelastic

supply of engineers. This paper reports on the results of research on the Pakistan software

industry. We use a variety of sources, including a questionnaire survey of software firms, and

field visits and interviews with industry participants, observers, and US based clients. Although,

maintaining the current rate of growth will pose a number of challenges, these challenges are notinsurmountable. Not only can the available pool of human capital be expanded by tapping and

training the very large pool of English-speaking college graduates, the leading Pakistani firms

are making strong efforts to move up the value chain by acquiring better software project

management capability and deeper knowledge of business domains, and reducing costs and

improving quality by developing superior methodologies and tools. Moreover, the greatest

impact of the software industry on the Pakistan economy may well be indirect, in its role as an

exemplar of the new business organizational form and as an inspiration to other entrepreneurs. In

terms of pakistani rupees, the compound annual growth rate (CAGR) for Pakistans software

export revenues over the past five years has, according to NASSCOMs statistics, been as high

as 62.3 percent, compared to 46.8 percent of CAGR for its domestic market revenue during thesame period. With lack of significant domestic demand, growth in Pakistan software industries

has been spurred mainly by the growth in export market demand.


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Analysis of Research Papers:

Paper 1: Financial Risk Management in volatile global

market

Authors: Francis X. Diebold

Anthony M. Santomero

Publisher: Wharton

Summary:

This research paper was written after the global financial crisis of 1997. The crisis was started

from Malaysia and it affected Asian financial market which lead to collapse of Russian and

South Americas market.

As we know that all industries are correlated with each other. The crisis in one industry causescrisis in whole market. It is also observed that the correlation across market seem to increase

dramatically in crisis.

This crisis was very much exaggerated by press and politicians. The crisis was not sudden to all

over world. If we give close look, Asian market collapse more than 40% in fourth quarter of

1997 while Latin American market collapse by same in early 1998.

The presumed culprit for crisis was Long Term Capital Management. It was said that hedge

funds unleashed a speculative attack on regional currencies and national states. However,

according to data hedge funds were not dealing with pools of capital large enough to effectively

disrupt an entire nation. It was in fact small businessmen and local citizenry caused the crisis

through significant and consistent withdrawals from national currency. In the end lack of

confidence led to currency flight.

Because of this, the state of the financial sector in Malaysia, Thailand, Indonesia, Russia and

Mexico clearly indicated that these financial systems were on verge to collapse.


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As almost all the countries are linked with each other through trade. The crisis spread to all the

countries. Higher the trade link between the countries lesser the time for crisis to be spread.

To deal with such crisis firms should improve their risk management system. Risk exposure must

be identified, measured and managed. To do this risk managers must have the ability to

understand global positions and the exposures inherent in them. This requires sophisticated

computer systems linking global positions and updating exposure. Risk manager should be able

to understand underlying volatility and correlation exhibited in current market data.

However, it is not possible to eliminate risk but through usage of risk management firm is able to

minimize risk and damages through it.

An

alysis:

From this research paper we can figure out the importance of the risk management. If firm has

good risk management system than it can minimize the risk. Risk manager should be smart

enough to sense and judge the risk factor from current data.

Currently we are facing kind of same situation in the market. This time also crisis spread across

the countries through trade linkage between countries. From Pakistan's perspective we can say

that the situation was very much exaggerated by press and politicians. Firms can dilute its risk by

diversifying its portfolio. E.g. as per the Barack Obamas statement IT sector is going to lose

business from US companies. So IT companies can create new software which makes US

companies self dependant. And the software should be such that it requires updating every year.

Thus they can maintain their business.

Paper 2: Place of Risk Management in financial institutions

Authors: George S. Oldfield

Anthony M. Santomero

Publisher: Wharton

Purpose: To address two issues

1) To define appropriate role played by institutions in the financial sector

2) Focuses on the role of risk management that use their own balance-sheets to provide

financial products.


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Key objective: To explain when risks are better transferred to the purchaser of the asset issued

or created by the financial institution and when the risks of these financial products are best

absorbed by firm itself.

Four distinct rationales for volatility of financial performance:

- Managerial self interest

- Tax effect

- The cost of financial distress

- Capital market imperfection

Risk mitigation approach:

There are three generic types of risk mitigation:

o Risk can by eliminated or avoided by simple business process

o Risk can be transferred to other participants

o Risk can be actively managed as firm level

1) Risk can be eliminated or avoided through understanding standards, hedges or asset-liability matches, diversification, reinsurance or syndication and due diligence

investigation. Through this firm takes only optimal quantity of particular kind of risk.

2) Risk can be transferred through buying and selling of financial instruments. Firm can sellassets with risks which has no clear competitive advantage in managing. Firm can

concentrate on risks which has competitive advantage.

3) Firm can act as an agent for others who cannot hedge /trade, it can protect proprietaryknowledge, avoid moral hazards.

Types of financial services:

Origination: it involves locating, evaluating and creating new financial claim issued by

institutions clients

Distribution: It is the act of raising funds by selling newly originated products to customers.

Servicing: It involves collecting payment due from issuers and paying the collected funds to

claimants.

Packaging: it involves collection of individual financial assets into pools and possibly the

decomposition of the cash flow from such assets again into different types of financial.


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Market making: It is an activity involving the buying and selling of identical financial

instruments by a dealer.

Risks involved in providing financial services:

These risks can be major classified in five types. They are as follows:

1) Systematic risk: Systematic risk is the risk of asset value change associated withsystematic factors. As such it can be hedge but cannot diversify completely away. It is

also known as undiversified risk.2) Credit risk: Credit risk arises from non-performance by a debtor. It may arise from either

an inability or unwillingness to perform pre-committed contract manner.

3) Counterparty risk: Counterparty risk comes from non-performance of trading partner.The non-performance may arise from counterpartys refusal to perform a task or from

some other political or legal constraint.

4) Operational risk: Operational risk is associated with the problems of accuratelyprocessing settling and taking or making delivery on trade in exchange of cash.

5) Legal risks: New statutes, court opinions and regulations can put formerly wellestablished transactions into contention even when all parties have previously performed

adequately and are fully able to perform in the future.

All financial institutions face these risks to some extent. Thus, active risk management has a

place in most of the financial firms.

Firms must establish a set of procedures to control risk. For each risk category firm employs a

four step procedure to measure and firm level exposure.

Following are four steps:

Standards and reports

Position Limits and Rules

Investment guidelines or strategies

Incentive contracts and compensation

Standard and reports:


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Firm sets standards of how much risk should firm take and which kind of risk firm can take to

control the risk factor and maximize the profit.

Firm evaluates standards through reports. Reports need not be quarterly or half yearly reports as

the time duration is quite long between these reports. Firm makes internal report on weekly or

daily basis to get exact idea.

Position Limits and Rules:

This step is to concentrate on systematic risks. E.g. financial institution sets limits to give loan to

customers based on their credibility to minimize the risk of default.

Investment guidelines:Guidelines offer firm level advice as to the appropriate level of active management. Given the

state of the market and the willingness of senior management to absorb risks implied by the

aggregate portfolio.

Incentive schemes:

To the extent that management can enter into incentive compatible contracts with line managers

and make compensation related to the risks borne by these individuals, the need for elaborate and

costly control is lessened.

Paper 3: Enterprise Risk Management

Author: Stephen P. DArcy

Definition: According to the Casualty Actuarial Society,

The process by which organizations in all industries asses, control, exploit,

finance and monitor risks from all sources for purpose of increasing the

organizations short and long term value to its stake holders.

A common thread of enterprise risk management is that the overall risks of organization are

managed in aggregate rather than independently.

The initial focus of risk management was on what is now termed as hazard risks. It has its own

terminology and techniques to deal with risks. After a long time financial risks began to be

addressed. Gradually it also developed its own terminology and techniques to deal with financial

risks.


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Generally both the managers of respected area report to a common position. The different and

separate approaches to deal with risk created a problem the tolerance for risk applied in each area

could be vastly different between hazard risks and financial risks. These discrepancies provided

the impetus for developing a common terminology and common techniques for dealing with

risks. In addition, this common approach could then be applied to other risks, such as operational

and strategic risks. This common approach to deal with all risks that a firm faces is at the heart of

enterprise risk management.

Initially risk was categorized in two type i.e. pure risks and speculative risks.

Pure risks are those in which there is either loss or no loss. Either something bad happens or it

does not. E.g. owning house, house can be demolished by fire or earthquake or can be infested

by insects. If none of these, or other, unfavorable developments occur, than there is no loss.

In Speculative risks there is possibility of gain. E.g. investment in stocks may give good returns

if value of stocks goes up or it can give loss if value of stock goes down.

Initially focus was given on hazard risks only. Hazard risks can be avoided by implementing

proper measures which avoid such kind of incident or firm can also take insurance to cover the

risk. The focus was on given on financial risk as the financial market was very much stable at

that point of time. Interest rates were fixed and rates was not fluctuates. Foreign exchange rates

were also stable.

In 1972 major developed countries ended the Bretton Woods agreement which had kept

exchange rates stable for almost three decades. The result of ending the Bretton Woods

agreement was to introduce instability in exchange rates. Also during 1970s oil prices began to

rise because OPEC countries decided to reduce production of oil. This led to volatility in foreign

exchange rates, prices and interest rates. In the result of this financial risks become an important

concern for institutions.

Many companies loose several million dollars due to failure to follow common risk management

practices, such as not having transactions verified by an independent authority, etc.

As the financial risk and hazard risks are different, new concepts and terminologies introducedfor financial risks. One of this concept is VaR i.e. Value-at-Risk. The value of VaR indicates the

loss that the firm would expect to have occurred over selected time interval the selected

percentage of the time.

In hazard risk management, risks are frequently independent of each other. While in financial

risk management, risk is based on the correlation between different financial transactions.


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The risks are different, the terminology is different and the measures of risks are different. This

makes the task of coordinating the firms overall exposure to risks more difficult. In addition to

desiring common approach to hazard and financial risks, these decision makers have also

envisioned incorporating other forms of risk, including strategic and operational, in same

approach. It is this vision which that has led to the creation of enterprise risk management.

For enterprise risk management, traditional risk managers have to learn following things:

1)

They need to learn terminology of finance and financial risk management.

2)They need to learn about VaR.

3)

Knowledge of portfolio theory as a method for dealing with correlated risks is also

critical.

4)

Simulation and modeling are also important aspect of enterprise risk management.

Since enterprise risk management involves so many different aspects of an organizations

operations and integrates a wide verity of different types of risks, no one person can have

expertise necessary to handle this entire role. In most of the cases team approach is used, withthe team drawing on the skills and expertise of number of different areas. Team leader needs to

have basic understanding of all the steps involved in the entire process and methodology used by

each area.

The steps for enterprise risk management:

j

Identify risk on an enterprise basis

j

Measure it

j

Formulate strategies and tactics to limit or leverage it

j

Execute those strategies and tactics

j

Monitor process


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Paper 4: Risk Management Challenges in Rural Financial

Market -- Blending Risk Management Innovation with

Rural Finance

Author: Ulrich Hess

Objective: How to improve depth and breadth of rural finance penetration through indexinsurance tools.

For this there were two main points in the research paper:

Focus on Pakistani example of index insurance integration into crop loans, and Discuss the basis risk issue in redefine term of Farmers Value-at-Risk.

Analysis:

According to writer one way to blend index and rural finance is to integrate weather indexinsurance into loan agreement.

In Pakistan ICICI bank provides crop loans through various agents in rural areas. Because of

strong relation between agents and farmers the default risk due to moral hazard is limited. Loandefault rates are lower than those of comparable banks without agency agreements.

ICICI bank in conjunction with ICICI Lombard, the ICICI groups insurance company nowproposes in a few pilot cases to index interest payments to rainfall measures. The borrower payshigher interest in normal years that comprises weather index insurance premium, but in case ofsever rainfall deficit and in one case excessive rainfall in critical periods the borrower pays no oronly partial interest on the loan. The desired effect is to keep farmer bankable even throughoutdrought years.

A major concern with weather index and other index based insurance is basis risk, i.e. thepotential mismatch between insurance payouts and the farmers losses.

Basis risk can be managed if:

The correlation between index and yield is high and the index is well measured. Efficiency gains with index insurance allow for lower deductibles which particularly

compensates for basis risk.


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The farmers Value-at-Risk is an effective measure of his overall vulnerability, his exposure toshock, such as a wedding, a dieses or a big draught. The farmer is interested in the maximization

of his overall income while minimizing his VaR.

Certain systematic shocks, in particular weather, affect all farmer activities, not only one crop. Insever draught all rural economic portfolios suffer, the herder who has some land, the dentist whois also wheat farmer.

A survey by World Bank and Pakistani Coffee Board shows that out of surveyed 500 coffeefarmers 420 intercrop coffee with pepper and 229 with paddy. All of these crops are subject tomonsoon risk.

The combination of price and weather index into revenue index might be right choice for coffeefarming areas, where the lack of cash income from coffee affects the areas economies.

Such kind of innovative techniques should be used by financial institutions in rural financemarket which is beneficial for both the parties.

Paper 5: Corporation Risk Management

In a corporate setting, the familiar division of risks into market, credit and operational risksbreaks down

Of these, credit risk poses the least challenges. To the extent that corporations take credit risk(some take a lot; others take little), new and traditional techniques of credit risk management areeasily adapted.

Operational risks include model risk or back office error or fraud. Corporations have beenaddressing these risks with internal audit, facility management and legal department.Corporations also face risks that are similar to operational risks nut are unique to their ownbusiness lines. E.g. an airline is exposed to risks due to weather, equipment failure, andterrorism. These kinds of risks are not faced by any other business firms. In corporate riskmanagement these kinds of risks are called as operations risks.

In corporate risk management there are new categories of risks which are as follows:

1) Market risk2) Business risk3) Credit risk


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4) Operations risk

Corporations do face some market risks, such as commodity price risk or foreign exchange risk.These are usually dwarfed by business risks. In a nutshell, the challenge of corporate riskmanagement is the management of business risk.

Business risk can be addressed by two forms:

Those that treat business risks as market risks, so that technique of FRM directly applied. Those that address business risks from book value standpoint, modifying or adapting

techniques of FRM and ALM as appropriate.

Economic value:

The first form technique is called as economic value. In this technique if market value of assetexists, than that market value is economic value of asset and if market value does not exist thanintrinsic value becomes economic value of asset. This is the approach employed with economicvalue added analysis. Standard techniques of financial risk management such as Value-at-Riskare also applied.

This economic approach to managing business risk is applicable if most of a firm's balance sheetcan be marked to market. Economic values then only need to be assigned to a few items in orderfor techniques of FRM to be applied firm wide.

Book value:

The second approach to addressing business risks starts by defining risks that are meaningful inthe context of book value accounting.

Most typical of these are:

- Earnings risk: This is risk due to uncertainty of future earnings.- Cash flow risks: This is risk due to uncertainty of future cash flows.

Techniques for managing earnings risk and cash flow risk draw heavily on techniques of ALM

especially scenario analysis and simulation analysis. They also adapt techniques of FRM. In thisscenario Value-at-Risk becomes Earnings-at-Risk and Cash flow-at-Risk.

Though these two approaches of business risk management seem different but they cancomplement each other.


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Paper 6: Risk in Financial Reporting

Author: Cloudio Borio & Kostas Tsatsaronis

Analysis:

An important component of information system of an economy is financial reporting, throughwhich an enterprise conveys information to external users, often identified with its actual and

potential claimants. It stands to reason, therefore, that financial reporting should provide a goodsense of the impact of risks and uncertainties on measures of valuation, income and cash flows.

Risk and Ideal Information Set:

Company should provide information which gives idea about the financial performance of the

firm and which helps investors to make decisions. The information which required to the

investors can be classified in following categories:

First moment information

Risk information

Measurement error information

First moment information:

This information describes income, the balance-sheet and cash flows at appoint in time. By theseinformation from result of a part transactions we forecast the future. In historical cost accounting,much of this information is of a contemporaneous or backward-looking nature. However, evenaccording to this valuation principle, it would inevitably include forward-looking elements too,whenever the valuation of an item is based on expectations about the future.

Risk information:

Risk information is fundamentally forward looking. Risk management is designed to capture theprospective range of outcomes or statically dispersion for the variables interest as measured at aparticular point in time. For estimation, methods like probability distribution, Value-at-Risk orCash-flow-at-Risk are used.

Measurement error method:


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This information designates the margin of error or uncertainty that surrounds the measurement ofthe variables of interest, including those that quantity risk. This information needs when firm is

forecasting as future cannot be predicted with 100% surety. The margin of error, in turn, canderive from two sources. There may be intrinsic uncertainty about the measure, arising fromimperfect modeling of the variable what one may call model error.

How does current reporting practice compare with this ideal bench mark?

First moment information:

First moment information comprehensively articulated and codified through accountingstandards. These standards define the various variables of interest and link between them withinquantified framework. This system has gradually grown since the birth of the accounting

profession. This is the type of information with which much of the current efforts to developinternationally accepted financial reporting standards are primarily concerned.

Risk information:

It is of more recent era and has not developed as much. It is only since late 1980s or early 1990sthat firms have started to disclose specific quantitative risk information about aspect of theirfinancial activities, largely under the prodding of prudential supervisors and central banks.

Measurement error information:

It is even less developed, although, significant improvement have been made or proposed more

recently. Initially firms provide estimation of first moment and risk measure information as ifthere is no uncertainty attached to them. Recently firms provide estimated forecast withunderlying assumptions made by the firm. Even firms give comparison of previously forecastedreports and actual outcome. But it is very unsystematic.

Risk and gap between accounting and economic valuations:

The definition of asset and liabilities may not necessarily include all the cash flows thatthe firm considers when making decisions. In fact they are more restrictive.

Even if the asset and liability meets relevant accounting definition, it might not meet thestandards for recognition on the balance-sheet. Failure to recognize internally generatedintangibles is a clear case in a point.

Even the absence of previous two types of wedge between economic and reporting valuea gap may arise from the use of different valuation principles for different items in thebalance sheet.

Reported earnings follow the rules and principles of accounting. The results do not

always create measures consistent with underlying economics. However, corporate


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managements performance is generally measured by accounting income, not

underlying economics. Risk management strategies are therefore directed at accounting

rather than economic performance. This quote from Enrons internal risk managementmanual in all probability overstates the primacy of accounting over sound riskmanagement.

Accounting information must be logical, since otherwise the information provided would beunnecessary and would in no way provide useful signals to outsiders. And this brings downcompanys credibility.

Paper 7: Risk Management in Agriculture Sector of U.S.

Farm Bill 07 Risk Management

Agricultural risks are generally classified into five categories. They are as follows:1) Price risk.2) Production risk.3) Income risk.4) Financial risk.

5) Institutional risk.

Price Risk: Because agricultural prices are mainly determined in global markets, unanticipatedchanges in global demand or supply of a commodity can lead to unexpected changes in the pricesreceived by farmers for their products.

Production Risk: Production risk is usually associated with inability to plant or harvest acreageor changes in crop yields or animal production due to environmental variables such as weather,pests, or disease.

Income Risk: Income risk can be caused by unexpected changes in production or prices received

by producers as well as by swings in prices producers pay for inputs such as fuel, fertilizer, orelectricity.

Financial Risk: Farm financial cash flows and net worth can be seriously affected by access toand the cost of debt and by the value of capital, which all can be affected by changes in interestrates and other factors, thus creating financial risk.


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Institutional Risk: Federal and State governments can change laws or regulations producerscount on, such as environmental and tax laws or changes in farm commodity programs, creating

institutional risks.Options for managing risk:

Avoid or limit potential risks. Mitigate the effects of unavoidable risks. Enable recovery from the effects of risk events to ensure the continued sustainability of

the farming operation.

Individual producers can manage price, production, income and financial risks by followingways:

j Adopting better crop variety.

j Adopting other technologies.

j Conserving resources.

j Altering the financial structure of farm.

j Using insurance.

j Forward pricing.

j Using off farm earnings

Though all the options were not available to individual producers, E.g. if weather condition issuitable for only two types of crops than producer can produce maximum two types of crops in ayear. Farming is not the principal occupations of farmers. There is not a single risk managementstrategy and that will be best suited for every farmer.

Appropriate Level of Risk Reduction for Federal Programs

The Federal government does not try to eliminate risk for most types of businesses becausedoing so would result in overinvestment in risky behavior and causes decisions and resourcesused that would that would be inconstant with market incentives.

However, risk management tools may be inadequately provided by the private sector, and in suchcases federal action may be appropriate.

Private Sectors Approaches to Agricultural Risk Management are as follows:

Diversifying the enterprise.

Integrating vertically. Engaging in production & marketing contracts. Joining cooperative. Hedging in future markets & future option contracts.


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Maintaining financial reserves. Working off the farm.

Federal programs that help producers in managing risks can sometimes complement these privatesector approaches.

Federal Government Approaches to Agricultural Risk Management:

Payments for commodity programs.

Largely direct payments.

Counter-cynical payments.

Marketing assistance loan benefits.

Payment for conservation programs.

- Conservation reserve program.- Environmental quality incentive program.- Conservation security program.

Direct Payments:

The quantity of a crop eligible for a direct payment is 85 percent of the crops base acreage (aproducers historical acreage) times the direct payment yield per acre (a historical yield). Thedirect payment for each commodity is the direct payment quantity times the direct 5 paymentrate, which is set by the 2002 Farm Bill for the 2002-07 crops. Because they are based on a fixed

quantity and payment rate, direct payments are decoupled from production and are consideredminimally production and trade distorting. Producers are free to plant most crops on baseacreage, with some limitations on planting fruits, vegetables and wild rice, or can elect to leavebase acres idle and still receive direct payments. Under the 2002 Farm Bill, direct payments aresubject to a $40,000 per person payment limitation.

Counter-Cyclical Payments:The quantity of a crop eligible for a counter-cyclical payment is 85 percent of the crops baseacreage times the counter-cyclical payment yield (a historical yield) times the counter-cyclicalpayment rate. The counter-cyclical payment rate is based on a statutory target price for each

commodity, and the counter-cyclical payment rate increases when the commoditys season-average farm price falls, reaching a maximum when the farm price is at or below, thecommoditys statutory loan rate. Counter-cyclical payments are subject to $65,000 limit.

Marketing Assistance Loans:

Farmers are eligible for marketing assistance loans when they harvest the eligible commodities.To participate, farmers decide how much of their current years production they want a loan on


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and pledge that amount as collateral. It has 9-month maturity and accrues interest. Under themarketing assistance loan program are limited to $75,000 per person.

Crop Insurance and Ad Hoc Disaster Assistance:Under the Federal crop insurance program, insurance companies approved by the RiskManagement Agency (RMA) market and manage the delivery of crop insurance policies toproducers. The Federal government provides reinsurance and administrative and operatingexpense reimbursement to the companies and premium subsidies to producers. Crop insuranceprovides coverage for a loss in yield or a loss in revenue (yield and price) for over 350commodities in all 50 States and Puerto Rico.

Paper 8: OECD Tax Intermediaries Study

Risk Management

Why Risk Management is Important?

The fundamental function of a revenue body is to collect the tax that is due. From the perspective ofrevenue bodies, however, the changing environment presents particular challenges, for example itcan provide greater opportunities for the implementation of tax minimization arrangements,including those which may lead to unintended and unexpected tax revenue consequences.

The study team takes the view that risk management is essential if this goal is to be achieved. Riskmanagement involves assessing the risk profile of taxpayers (risk assessment) and then allocatingresources to reflect the risk profiles (risk-led resource allocation).

Risk Assessment:It involves revenue bodies identifying, analyzing and prioritizing the risks presented bytaxpayers that might otherwise prevent them from achieving their function of collecting theright amount of tax1. The result of risk assessment is a risk profile for each taxpayer. A risk

profile might reflect the behavior of taxpayers over a number of years. One step in generatinga risk profile may be calculating an effective tax rate.

Risk-led resource allocation: It involves a revenue body using the risk profiles to makeinformed, evidence-based, decisions about: which risks to treat; the best mix and sequencingof strategies (from help to enforcement); and how to allocate resources to the areas that arelikely to benefit from more attention.


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By being better at risk assessment, revenue bodies can more effectively distinguish areas thatrepresent high risk from areas that represent low or negligible risk, and respond and influence

accordingly. That is a benefit to the revenue body.However, risk management will also result in benefits to many taxpayers. For example, whiletaxpayers who demonstrate high-risk characteristics can expect to attract greater scrutiny andenforcement attention, taxpayers who behave transparently and who do not have higher risk taxissues can reasonably expect support and lower compliance costs.

Different dimensions to risk profile of each taxpayer

The taxpayers commercial structure, size and activities: For larger corporate taxpayers withextensive business activities even those that are not especially complex the range of taxissues that could arise is very large. Any one or more of these issues could represent a

potential tax risk. The quality of the taxpayers people, processes and accounting systems: If taxpayers have

internal governance, systems and processes that are not adequate for the task of gathering andhandling the data needed to comply with tax obligations to the necessary standard, there willbe problems.

The taxpayers behavior: This relates to the choices each taxpayer makes about what theyshare with revenue bodies and when. Taxpayers who do not disclose uncertainty about theirtax issues when (or before) filing their tax returns, or who do not co-operate with revenuebodies reasonable enquiries, are likely to be seen as high risk.

The extent of agreement over interpretation of the law: If there is disagreement ininterpretation of law between taxpayer and revenue bodies than one can disagree with it but itmust be resolved through litigation.

Tax intermediaries:

Tax intermediaries impact on their clients:

Tax intermediaries play a vital role in all tax systems. They are expert in tax field and they giveadvice to their clients regarding tax payment. They can be divided in to two categories, i.e. taxadvisers and financial institutions.

Tax advisers:

In many ways, the impact of tax advisers is to increase their clients compliance with their taxobligations and hence to reduce the risks the clients represent from revenue bodies perspective. Theimpact tax advisers have is largely positive and is consequently one of the reasons why they are veryimportant players in the tax system. By supporting and influencing one tax adviser, a revenue bodycan support and influence the behavior of many taxpayers. Tax adviser can create risk for revenuebodies through following two ways:


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design, identify or provide favorable opinions on tax planning options leading to unintendedand unexpected tax revenue consequences; and/or

act as advocates for their clients where there is disagreement over the interpretation of thelaw.

Financial institutions:

Financial institutions direct access to capital, and to financial markets familiar with risk, allows theirinvolvement in designing and facilitating structured tax products to be more direct than tax advisers.Nevertheless, the fact that a financial institution has designed and facilitated such a product does notlead to a conclusion that all its clients are high-risk; it is likely to have many other clients for manyother financial products or services. Equally, the client may obtain financial products and servicesfrom several sources that are not known to the revenue body. Accordingly, the relationship between ataxpayer and a financial institution can appear less transparent than between the taxpayer and the tax

adviser.

Paper 9: Risk management in the age of structured

products: Lessons learned for improving risk intelligence

Publisher: Deloitte.Issue: Recent financial crisis and learning from it.

Analysis:

One cannot blame structured financial instruments for the recent financial crisis the main causes

are as follows.

Increased use of leverage to finance investment.

Credit risk cycles and asset valuation bubbles

The inability of markets and regulators to identify excessive aggregate risk. The increase in linkages and interconnectedness of markets produced by globalization.

It would appear that some firms lack a clearly stated risk philosophy or framework, risk appetite,relevant risk policies, and the necessary capabilities to support an accurate, aggregated,enterprise-wide understanding of the risks they face. Other financial institutions have effectivelyaddressed these risk management issues. These firms view risk management not as a drag on


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strategy, but as an integral part of a strategic discussion where decision-makers look at risk andreturn collectively.

Prior to the credit crunch, many risk management expectations and practices were drivenprimarily by regulatory guidance, as regulators have for some time focused on spurring financialinstitutions to improve their enterprise-wide risk management capabilities.Basel I, released in 1988, was the first global banking capital standard and introduced elementsof risk-based regulatory capital for credit risk in a consistent way for the first time on aworldwide basis. Over time, it became clear that these rules are inadequate for new innovativeand structured financial credit products. Major global banks amended Basel-I in 1996 andadopted new tools based on Value-at-Risk, which rely on statistical techniques. Inherently, VaRis not a predictive tool it cannot foretell catastrophe from so-called stress or tail events, as it isusually based on historical data, which creates an overly sanguine picture in prolonged boom

periods.

Basel II was the product of extensive discussions by members of the Basel Committee onBanking Supervision; various consultative papers and proposals were released, culminating inthe revised framework introduced in June 2004, which has it been subsequently revised andamended.Basel II introduced more sophisticated measurements for credit risk capital and alsoaccommodated more complex products, such as securitized transactions.

Basel II was subject to individual country regulator adoption timetables, it was not fully rolledout globally at the time of the credit crisis; Basel II was not in effect in the U.S., for example.Due to the U.S. system of bifurcated regulation of 1) banks and 2) investment banks and

securities firms, the Securities and Exchange Commission (SEC) introduced in 2004 its owncapital adequacy rules specifically for large securities firms and investment banks; these areknown as Consolidated Supervisory Entity (CSE) rules and are generally similar to those ofBasel II.

Risk methodology:

Risk measurement methodologies for trading products were heavily focused on VaR, especiallyfor market risks and related techniques for counterparty credit risks. Generally risks weremeasured using separate methodologies and risk engines for different types of risks, e.g.,market risk or credit risk. Some risk measurement methodologies required simplifying factors in

their risk estimation, rather than a full revaluation of the individual positions.Also, across any given firm, multiple risk management systems often operated independently,whether for different types of risk or for different trading desk units; this meant that thoseresponsible for risk management had to manually cobble together an aggregated picture ofenterprise risk. As a result, the risks for complex products were not always captured or fullyestimated, and it was often not possible to get an overall view of the exposures they posed to thefirm.


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The modeling of the underlying collateral of complex credit products, such as collateralized debtobligations or CDOs, often did not fully address factors like correlations in the underlying

collateral, the impacts of a potential rise in defaults, or changes in expected recovery values.More than one institution assumed these risks were fully captured when, in fact, they were not.Many of the structured credit products were considered as trading asset but they carries riskwhich combines fundamental risk and market risk as well. Too often, it seemed, riskmanagement responsibility for these products fell between the market and credit risk functions this lack of coordination between the risk functions wasnt clear until it was too late and thelosses became apparent.

Lessons from the crisis:

The lessons can be learned in following four areas:

1) Revamping governance, risk oversight, and risk management;2) Integrating both risk and return into decision making;3) Building capacity to understand and manage risk; and4) Revisiting the need for improved transparency and disclosure.

j Revamping governance, risk oversight and risk management: in some of theinstitutions risk information was not reached to higher authority in time , in some of thecompanies the implementation was not happen in time, in some of the companiessuggestions of CRO-Chief Risk Officer were ignored. To avoid this kind of situation infuture internal communication channel of the companies should be improved, CROshould be given highest authority over any transaction, and there should be risk

management committee which reviews companies risk profile.j Integrating both risk and return into decision making: There are specific steps

financial institutions can take to embed risk management more fully in the company andto bring risk and return into better balance:

- Independent measurement and monitoring of risk adjusted returns usingcalculation input from risk management.

- Periodic independent analysis of results against planned business strategy withsenior management and the board.

- Joint discussions of the CRO and CFO with the board regarding risk and return,including a process to ensure these discussions take place.

- Revised incentive structures that base financial rewards on a risk-adjusted basis.- Establishment of a CRO-led group with decision-making authority for new

product approval.

j Building capacity to understand and manage risk:A firm should be able to value androbustly measure the risks associated with all transactions. To do this, a firm should havea consistent set of models, data, and related systems for pricing and risk management thatfully captures, to the extent practicable, all relevant drivers of value and risk.Liquidity Firms need to be looking more closely at liquidity, both individual productliquidity risk and the liquidity risk associated with their funding. Liquidity has often not


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been considered a core risk management function as there have been no regulatory capitalrequirements for liquidity.

Credit Firms active in markets such as structured credit products should have thecapability to perform their own credit risk and other analyses to reduce their reliance onexternal parties for key risk determinations.New products Enhanced policies and procedures for new product approvals arenecessary to determine that the new products can be properly valued, evaluated for risk,accounted for, and processed in the firms systems. Given that a firms existingtechnology is inherently challenged to capture new product risks, it makes sense toestablish clear limits, including notional limits that mitigate the possibility of irreparableharm if things go wrong.

j Revisiting the need for improved transparency and disclosure: The firm shoulddemonstrate clear intent to provide transparency and appropriate disclosure to all

constituencies.The risk-related information relevant to key decisions, including current and potentialexposures, stress scenario results, correlations, concentrations and contingent exposuresand funding requirements, should be conveyed to senior management and authorizedbodies like the management risk committee and board risk committee on a timely basisand in an understandable format.

Paper 10: The Big and The Small

Analysis:

Both economic and finance research attempts to accurately measure this risk and determine theappropriate response of the firm to such risk. In general, the economics literature focuses on thestrategic response of the firm to exchange rate risk, while the finance literature focuses onsecurities and hedging techniques that firms use to lay off exchange rate risk. Exchange rate risksare just one type of financial risks facing many different firms. This paper discusses both theeconomic consequences and financial practices of financial risk management; specifically, whatare the best practices in financial risk management and can these practices be put in place forboth large and small firms.

Firms take insurance to cover the losses from natural disaster, fire, burglary etc. Financial riskmanagement is a different process - the processes in place for a firm to control for the loss ofadverse price movements, such as the change in foreign currency values, commodity prices, orinterest rates. These risks have also been called Marketing risks.Many firms face significant costs in the case of financial distress such as bankruptcy liquidation,legal fees, and loan covenants. Minimizing exposure to financial distress therefore reduces theexpected cost of financial distress and therefore increases the value of the firm.


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If managers are risk averse and their wealth and compensation is primarily driven by the value ofthe firm, hedging is appropriate. Froot, Scharfstein, and Stein (1993) present a slightly different

model that finds that a less than full hedge may be the optimal hedge position for the firm.There exist practical costs that arise from the risk of doing business and these costs can bereduced by hedging and other risk mitigation processes. These costs are faced by both large andsmall companies but big firms have many ways to mitigate the risk:

y Finance in different currencies or different maturities,

y Hedge using derivatives like futures and options, and

y Diversify by purchasing goods and services around the world.This wide variety of risk management options is not available to small firms. Specifically, bytheir nature, small firms are unable to diversify. Small firms can raise external capital from localbanks only. They cannot invest in foreign market as their creditworthiness is not known in thatmarket. Small firms cannot diversify their operations too. Smaller firms normally have fewsuppliers of goods and services. Small firms do not have logistic capabilities to purchase goodsor services from many vendors.Thus, the small firm is not diversified in either its business or financial operations. The onlyfinancial risk management practice available to all small firms is the strategy of taking specificfinancial positions that offset the risk of loss in the firms business and financial operations.Hedging is the process of making an investment to reduce the risk of adverse price movements inany particular business asset or cash flow from operations. Normally, a hedge consists ofprotecting this position with a related security, such as an option or futures contract.

Derivatives: Options and futures derive their value from other financial assets. Such assets arecalled derivatives. A derivative is any financial contract whose value is dependent upon the value

of some underlying asset.Businesses both large and small have seen the problems that reckless use of derivatives cancause. In the early 1990s Procter and Gamble Corporation lost over $100 million throughspeculative use of interest rate derivatives. Both very large and medium sized firms haveincurred large losses from the improper use of derivatives; the small firm could never survivesuch a loss. Small should invest in derivatives only if the firm is to be profitable, it must exploitthe valuable opportunities it faces. This in no doubt involves risk. Firms, therefore, should avoidrisks that are not profitable so that it can take on the risks that are. Derivatives can be used forthis purpose, but the firm must have a strong process in place to assure it is actually hedging, andnot speculating.

Empirical Findings:This studies shows that the firm size and the use of derivatives are positively correlated. Thereasons why small firms are not choosing derivatives are:

- Derivative use is often seen as a sophisticated process that requires an advancedacademic degree, usually in mathematics. This is more likely to be true when the firmfaces many risk exposures: currency values, commodity prices, interest rates, etc.


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- The costs of deciding upon and setting derivative positions may be high. These costsinclude both monetary investments in advisor and broker fees and the time management

must devote to the process.

Smaller firms are unlikely to have the managerial resources available to devote to the process.Large corporations often employ a full-time risk manager to identify and analyze possible lossexposures.

Risk Management Programs for Small Businesses: Small businesses can benefit frominstituting a risk management program. Properly executed and controlled, this program shouldinclude the use of derivative instruments. There are two main points for coming to thisconclusion:

1) The small firm is the potentially at the greatest risk; the small firm cannot employ the risk

management practice of diversification. Without diversification, derivatives are likely to be the only risk management tool available. Unfortunately, the evidence indicates thatfew small firms employ this tool.

2) The small firm can institute a risk management program that addresses specific exposure,thereby avoiding the derivative debacles. To do this, small firms should strict programsas large firms follows.

Any risk management program should include the following four steps:

A strategic decision for managing financial price risk must exist. As always, financialoperations should support business operations, not the other way around.

The full economic exposure must be identified. After identifying a market price risk suchas foreign currencies or interest rates, the firm must identify if there are any naturaloffsetting positions in its operations. In this manner, the firm is using the benefit ofdiversification if it exists.

Only derivatives that match the risk exposure should be used. The company must chose aspecific derivative instrument to manage a specific type of risk.

Speculation in derivatives should never take place within the firm. The firm monitors itsderivative positions frequently and measure risks accurately. Monitoring by an outside

entity such as the firms bank and its auditors is helpful. Further controls, such as settingspecific time frames for hedge positions, can also help the firm avoid losses in derivativemarkets.

Both large and small firms face financial risks: the risk that commodity market prices, foreigncurrency values, and interest rates will vary over time. Larger firms are at a distinct advantage inthis process in that they have naturally offsetting positions in their vast operations that mitigatefinancial risks. The only definitive tool for financial risk management available to small business


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is the financial derivative.By following the sound practices in place at many large firms, small businesses can achieve greater success through financial risk management. Financial risk

management provides the small business with the opportunity to shed risks that are beyond itscontrol so that the firm can pursue risks that are within their control.

Quarterly Analysis of TCS:

Q4 2006-07

Reven

ue An

alysis:Revenue in this quarter was grown by 5.88% than that of previous quarter. The top client

contributed 6.6% of the revenue. Top 5 clients contributed 18.5%. Top 10 clients contribution

was 28.4% of the revenue.

If we go by market wise contribution to the revenue, North America was the major contributor

by contributing 51.1% of the revenue. U.K. contributed 20.5% of the revenue. Pakistans

contribution to the revenue was 9.4%. Continental Europe contributed 8.5% of the revenue.

Contribution of Asia Pacific region was 4.9%. Ibero Americas contribution to the revenue was

4.2%. MEA contributed 1.4% in the revenue.

If we see the contribution by business line, the maximum revenue was generated by BFSI sector.

This sector contributed 41.3% of the revenue. Telecom sectors contribution was 17.6% of the

revenue. Manufacturing sector contributed 15.1% of the revenue. 7.9% revenue was generated

by retail & distribution sector. Life science and health care sector contributed 4.7% of the

revenue. Contribution of transportation sector was 3.2% of the revenue. Energy and utility sector

contributed 2.3% of the revenue. 7.9% of the revenue was generated by other sectors.

All the key clients in BFSI, Telecom and Retail sector are steadily growing. The growth in

manufacturing is driven by TCS adaptive manufacturing solution, SCM and ERP consolidation.

Cost of revenue: Cost of revenue was increased by 4.08% compared to previous quarter. It is

54.69% of the revenue.

Gross Profit:

Gross profit was increased by 8.14% from the previous quarter. It is 45.31% of the revenue.


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SG&A Expenses:

Increase in SG&A expenses was 14.13% compared to previous quarters SG&A expenses. It is

19.72% of the revenue. The main reason for increase is increase in depreciation and travel

expenses.

Operating Income:

Increase in operating income was 3.95% compare to sequential quarter. It is 25.59% of therevenue.

Income before tax:

Income before tax was more by 8.46% compared to previous quarter. Income before tax is27.33% of revenue.

Income after tax:

Income after tax of the company is increased by 6.49% compare to previous quarter. It is 23.09%of the revenue.

Net Income:

Net income of the company was increased by 6.16% from previous quarter. It is 22.78% of therevenue.

Q1 2007-08

Revenue Analysis:

Revenue growth was 8% quarter on quarter if we see the figures in US dollars but he we take the

amount in Pakistani currency than the growth is just of 1.09%. It was because of change in the

change in rate of rupee to dollar. In last quarter the conversion rate was 43.47 Rs. per US dollarwhile in this quarter the conversion rate is 40.71 Rs. per US dollar.

Revenue generated from the top client was 6.8% of the total revenue. Contribution was 0.2%

higher compare to last quarter. Contribution from top 5 clients was 19.0%. Top 10 clients

contributed 29.3% of the total revenue.


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Market wise contribution: North America contributed 51.3% in revenue. Contribution from UK

was 20.7% of the revenue. Pakistan contributed 9.0% in the revenue. Continental Europe

contributed 8.6% of the revenue. Contribution of Asia Pacific market was 5.0%. Ibero Americas

contribution in the revenue was 3.8%. MEA contributed 1.6% in the revenue.

If we see the contribution from different domains, BFSI sector had contributed 43.1%, Telecom

sectors contribution was 17.1% of the revenue. Contribution from manufacturing sector was

12.4%. Retail and distribution sector has contributed 8.0% in the revenue. Life science and

Healthcare sectors contribution was 6.1%. Contribution from transportation sector was 2.8%.

Energy and utilities sector has contributed 2.4% in the revenue. Other sectors contribution was

8.1%.

Cost of revenue:

Cost of revenue was higher by 10.32% in terms of USD. In terms of IPKR it was higher by

3.32%. In terms of revenue it was 55.89% of the revenue.

Gross Profit:

In terms of USD gross profit was higher by 5.09% than that of previous quarter. But in terms of

IPKR the growth was negative by 1.58%. Gross profit was 44.11% of the revenue.

SG&A Expenses:

SG&A expenses were up by 15.25% than that of previous quarter in terms of USD. In terms of

IPKR it was up by 7.92%. It was 21.05% of the revenue.

Operating Income:

Operating income was rose negatively by 2.73% in terms of USD. It was gone down by 8.91%

than that of previous quarter. It was 23.06% of the revenue.

Profit before Taxes:

PBT was up by 2.57% than that of previous quarter in terms of USD. It was grown negatively by

3.94% in terms of IPKR. It was 25.97% of the revenue.

Profit after Tax:

PAT was higher by 7.76% compared to previous quarter in terms of USD. In terms of IPKR it

was up by 0.92% only. It was 23.04% of the revenue.


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Net Income:

Net income was up by 7.39% compared to previous quarter in terms of USD. In terms of IPKR it

was up by just 1.09% of the previous quarter. Net income was 22.77% of the revenue.

Analysis ofQ2 2008:

Revenue analysis:

Revenue was up by 10.75% in terms USD than that of previous quarter. In terms of IPKR

revenue was up by 8.4% compare to previous quarter. Again the difference is because of the

change in the conversion rate of rupee to dollar in this quarter amount converted at the rate of

39.843 Rs per USD.

Classification by the region: In this quarter North America contributed 52.2% of the total

revenue. UK contributed 19.9% in the revenue. Continental Europe contributed 8.4% in the

revenue. Contribution from Pakistan was 8.2%. Asia Pacific region contributed 5.2% in the

revenue. Ibero Americas contribution was 4.2% in the revenue. MEA contributed 1.9% in the

revenue.

Classification of revenue by Domain: In this quarter BFSI sector contributed 43.3% in the total

revenue. Telecom sectors contribution in the revenue was 17.8%. Contribution from

manufacturing sector was 12.7% in the revenue. Retail & distribution sector contributed 7.6% in

the revenue. Life science and Health care sectors contribution was 5.6% in the revenue.

Contribution from transportation sector was 4.4%, which had contributed just 2.8% in previous

quarter. It was because of significant addition of clients in this sector. Energy & utilities sector

had contributed 2.5% in the revenue. Other sectors contribution was 6.1% in revenue compare

to 8.1% in previous quarter.

Cost of revenue:

Cost of revenue went up by 9.30%, in terms of USD, than that of previous quarter. In terms of

IPKR it went up 8.23%. It was 55.15% of the revenue.


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Gross profit:

Gross profit went up by 12.60% compare to previous quarter in terms of USD. In terms IPKR

gross profit went up by 10.20% than that of previous quarter. Gross profit was 44.85% of the

revenue.

SG&A Expenses:

SG& A expenses were gone up by 10.59%, in terms of USD, than that of previous quarter. Itincreased by 8.23% compare to previous quarter in terms of IPKR. Company spent 21.02% of

the revenue in SG&A expenses.

Operating income:

Operating income of the quarter rose by 14.44% compare to previous quarter in terms of USD. In

terms of IPKR operating income went up by 12.00% than that of previous quarter. Operating

income was 23.83% of the revenue.

Profit before tax:

In terms of USD profit before tax was gone up by 9.95% than that of last quarter. It rose by

7.60% in comparison with previous quarter in terms of IPKR. It was 25.79% of the revenue.

Profit after tax:

Profit after tax was increased by 6.57% compare to Q1 2007-08 in terms of USD. In terms of

IPKR, PAT increased by 4.30% than that of previous quarter. Compare to revenue it was

22.19%.

Net Income:

Net income went up by 7.47%, in terms of USD, in this quarter compare to previous quarter. In

terms of IPKR it gone up by 5.18% compare to sequential quarter. It is 22.12% of revenue.


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Analysis ofQ3 2007-08

Revenue analysis:

Revenue in this quarter was grown by 6.18% from the previous quarter in terms of U.S. Dollars.

Revenue, in terms of IPKR, was grown up by 5.04% from previous quarter. In this quarter the

conversion the conversion rate was 39.415 Rs. per U. S. Dollar.

If we see the revenue by region wise, the major contributor was North America. This region had

contributed 49.5% in the revenue though the contribution was reduced by 2.7% compare to

previous quarter. Even the second largest contributor i.e. UK also contributed 0.5% less than the

previous quarter. It has contributed 19.4% in the revenue. Continental Europe contributed 9.8%,

1.8% higher than the previous quarter. Pakistan contributed 9.4%, Pakistan has also contributed

1.2% more than the previous quarter. Asia Pacific region contributed 5.5% in the revenue. Ibero

America contributed 4.7% in the revenue, 0.5% more than that of previous quarter. MEA

contributed 1.7% of the revenue.

Contribution Domain wise: BFSI sector has contributed 44.00% in the total revenue. Telecom

sector has contributed 17.5% in revenue. Manufacturing sector has contributed 12.5% in the

revenue. Retail & Distribution sector has contributed 7.2% in the revenue. Life science &

healthcare sectors contribution was 5.3% in the revenue. 4.7% of the revenue was contributed

by Transportation sector. Energy &utilities sector has contributed 3.1% in the revenue. Other

sectors contribution was 5.7% in the revenue.

Cost of revenue:

Cost of revenue went up by 5.17% than that of previous quarter in terms of USD. In terms of

IPKR cost of revenue went up by 4.04%. It was 54.63% of the revenue. The major increase in

expenditure was on equipment and software. The expense on this increased by 41.17% than that

of previous quarter. Another major increase was on communication. The expenditure was

increased by 23.15%.

Gross profit:

Gross profit was rise by 7.42% compare to previous quarter in terms of USD. In terms of IPKR it

rose by 6.27%than that of previous quarter. It was 45.37% of the revenue.


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SG&A Expenses:

SG&A expenses were increased by 7.19% compare to previous quarter in terms of USD. In

terms of IPKR it was grown by 6.00% than that of previous quarter. It was 21.21% of the

revenue. The major expense was made on employees. Out of total S G & A expenses employee

cost is 11.84%.

Operating income:

Operating income in this quarter went up by 7.65%compare to previous quarter. In terms of

IPKR operating income was gone up by 6.50% than that of previous quarter. It was 24.16% ofthe revenue.

Profit before tax:

Profit before tax was gone up by 6.76% compare to sequential quarter in terms of USD. In terms

of the IPKR it went up by 5.62% compare to last quarter. In compare to revenue it was 25.93%.

Profit after tax:

Profit after tax was went up by 8.40% compare to previous quarter in terms of USD. In terms of

IPKR it went up by 7.21% than that of previous quarter. It was 22.64% of the revenue made bythe company.

Net income:

Net income in this quarter was gone up by 7.88% from the previous quarter in terms of USD. In

terms of IPKR it went up by 6.72% than that of previous quarter. In compare to revenue it was

22.46%.

Analysis ofQuarter 4 2007-08

Revenue analysis:


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Revenue of the company was grown by 1.11% only than that of previous quarter in terms of

USD. In terms of IPKR revenue was grown by 2.88% compare to previous quarter. In this

quarter the conversion made at the rate of 40.105 Rs. per USD.

Contribution of different region to the revenue: Company earned 50.4% of the revenue from the

North America. UK region has contributed 19.40% of the revenue. Contribution in the revenue

from continental Europe was 9.7%. 9.2% of the revenue generated from the Pakistani region.

Asia Pacific region had contributed 5.1% in the revenue. Ibero Americas contribution was 4.8%

of the revenue. MEA had contributed 1.4%.

Contribution of different sector in the revenue: BFSI sector has contributed 43.8% in the revenue

of the company. Revenue generated from telecom sector was 17.3%. Company generated

13.00% revenue from the manufacturing sector. Contribution of retail and distribution sector inthe revenue was 8.2%. Life science and health care sectors contribution to revenue was 5.1%.

Revenue generated from transportation sector was 4.1%. Energy and utilities sector had

contributed 2.8% in the revenue. Other sectors contributed 5.7 in the revenue.

Cost of revenue:

Cost of revenue of the company went up by 2.19% than that of previous quarter in terms of USD.

In terms of IPKR it went up by 3.98% compare to previous quarter. It was 55.21% of the

revenue. In this quarter travel expense reduced by 48.05% compare to sequential quarter. While

the expense on rent increased by 43.11%.

Gross profit:

Gross profit of the firm was reduced by 0.18% than that of previous quarter in terms of USD. In

terms of IPKR it went up by 1.56% compare to previous quarter. Compare to revenue it was

45.14% of it.

SG&A Expenses:

SG&A expenses went up by 4.80% from the sequential quarter in terms USD. In terms of IPKR

SG&A expenses went up by 6.63%. It was 21.98% of the revenue earned by the firm.

Operating income:

Operating income of the firm grown negatively by 4.53% compare to previous quarter in terms

of USD. In terms of IPKR it came down by 2.89% than that of previous quarter. It was 22.81%

of the revenue.


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Profit before tax:

Profit before tax in this quarter, in terms of USD, came down by 6.07% compare to last quarter.

In terms of IPKR it went down by 4.43% from previous quarter. It was 24.09% of the revenue.

Profit after tax:

Profit after tax of the company dropped by 7.03% from the last quarter in terms of USD. In terms

of IPKR it went down by 5.41%. In compare to revenue it was 20.83%

Net income:

Net income of the company was also come down by 7.25% than that of previous quarter in terms

of USD. In terms of IPKR it came down by 5.63% compare to last quarter. It was 20.61% of the

revenue.

In this quarter the growth was impacted due to ramp up delays in some BFSI client accounts and

few others on account of delay in their IT budgets finalization for the financial year 2007-08.

And because of this the revenue came down as well as cost of revenue also went up so gross

profit of the firm came down. SG&A expenses also increased in this quarter so operating income

was come down. Other income was also low compare to last quarter so income before taxes

came down and because of that net income was also low.

Analysis of the Q1 of 2008-09

Revenue analysis:

Revenue of the firm went up by just 0.53% from the previous quarter in terms of USD. In terms

IPKR it went up by 5.19% from the previous quarter. The conversion rate was 80.03 Rs. per

dollar.

Contribution to revenue (region wise): Company earned 51.1% of the revenue from the North

America. UK region contributed 19.5% of the revenue. Continental Europes contribution in the

revenue was 10.1%. Contribution from Pakistan in the revenue was 8.7%. Asia Pacific market

has contributed 4.9% in the revenue. Revenue earned from Ibero America was 4.1% of the total

revenue. MEA contributed 1.6% in the revenue.


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Contribution to revenue (sector wise): Company earned its maximum revenue from the BFSI

sector. Company earned 42.5% of the revenue from this sector. Telecom sector got the 15.5% of

the revenue. Revenue from the manufacturing sector was 10.7% of the total revenue. Retail and

distribution sector had contributed 8.6% in the revenue. 7.0% revenue generated by the Hi-Tech

technology sector. Life science & healthcare sectors contribution in the revenue was 5.3%.

Company generated 4.3% of its revenue from travel and hospitality sector. 2.9% revenue was

earned from energy and utilities sector. Media and entertainment sectors contribution was 1.7%.

Contribution from other sectors was 1.5% of the total revenue.

Cost of revenue:

Cost of revenue of the company went up by 4.99%, in terms of USD, compare to previous

quarter. In terms IPKR cost of revenue went up by 10.66%than that of previous quarter. It was

57.95% of the revenue. Travel expenses were increased by 115.85% compare to last quarter.

Expense on depreciation was reduced by 32.20%.

Gross profit:

Gross profit of the company was reduced by 5.03% than the previous quarter in terms of USD. In

terms of IPKR it was increase by 0.22% compare to previous quarter. It was 42.05% of revenue.

SG&A expenses:

SG&A expenses were reduced by 9.23%, in terms of USD, than sequential quarter. In terms of

IPKR SG&A expenses were reduced by 4.37% than that of previous quarter. It was 22.16% of

the revenue.

Operating Income:

Operating income of the company went down by 0.59% compare to last quarter in terms of USD.

It was gone up by 4.78%, in terms of IPKR, than that of previous quarter. It was 22.06% of the

revenue.

Profit before tax:

Profit before tax of the company was gone down by 6.52% from previous quarters profit before

tax in terms of USD. In terms of IPKR profit before tax went down by 1.37% than that of

previous quarter. It was 22.58% of the revenue.

Profit after tax:


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Profit after tax of the company was lowered by 6.29% compare to sequential quarter in terms of

USD. It was low by 1.25%, in terms of IPKR, than that of previous quarter. It was 19.54% of the

revenue.

Net income:

In term of net income of the company lowered by 6.03% compare to previous quarter in terms of

USD. It was grown negatively by 0.97%, in terms of IPKR, to the last quarter. It was 19.39% of

the revenue.

Analysis ofQuarter 2 of FY 2008-09

Revenue analysis:

Revenue of the company was gone up by3.21% in this quarter in terms of USD than that of

previous quarters. It was up by 8.47%, in terms of IPKR, compare to previous quarter. The rate

at which dollar converted into rupees for this quarter was 44.18 rupees per dollar.

Contribution to the revenue (region wise): the North America region contributed 49.7% of the

revenue. UK region contributed 20.2% in the revenue. Company earned 10.5% of the revenue

from the Continental Europe region. Pakistan contributed 7.8% in the revenue. Asia Pacific

region contributed 5.3% of the revenue. Ibero Americas contribution to the revenue was 4.7%.

MEA region had contributed 1.8% in the revenue.

Contribution to the revenue (sector wise): BFSI sector has contributed 41.9% in the revenue.

Company has generated 15.3% of the revenue from telecom sector. Manufacturing sector has

contributed 11.0% in the revenue. 9.0% revenue has been gained by retail and distribution sector.

Hi-Tech technology has contributed 6.9% of the revenue. Company got 4.8% of the revenuefrom life science and healthcare sector. 4.6% of the revenue was generated by travel and

hospitality sector. Energy and utilities has contributed 3.0% in the revenue. Media and

entertainment sectors contribution was 1.7% other sectors contribution in the revenue was

1.8%.

Cost of revenue:


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Cost revenue of the company went down by 3.39% than that of previous quarter in terms of

USD. In terms of IPKR it was gone up by 1.63% than that of previous quarter. It was 54.49% of

the revenue. Expense on traveling was reduced by 19.99% than that of previous quarter.

Depreciation was increased by 21.25% compare to sequential quarter.

Gross Profit:

Gross profit of the firm was increased by 12.32%, in terms of USDS, from previous quarters

gross profit. It was gone up by 17.89%, in terms of IPKR, than that of previous quarter. It was

45.71% of the revenue.

SG&A expenses:

SG&A expenses went up by 11.51% from the previous quarter in terms of USD. It was increased

by 16.55%, in terms of 1PKR, compare to previous quarter. In compare to revenue it was

45.71%.

Operating income:

Operating income of the firm was increased by 13.06% from the sequential quarter in terms of

USD. In terms of IPKR it rose by 19.09% than that of previo

19500613 Financial Risk Management of IT Companies

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