Financial ratio analysis infosys Project Report

Infosys Technologies Limited

Financial Statements Ratio Analysis

Sandeep Sahu M-09-28Saurabh Sharma M-09-29Saurav Kumar M-09-30Sreelal M.S. M-09-31

Project report in partial fulfillment of the course of Managerial Accounting atRajiv Gandhi Institute of Petroleum Technology

Rae Bareilly, Uttar Pradesh

This report aims at analyzing various financial statements of Infosys Technologies Limited and interpreting the impact of these ratios on the financial decision-making.


Table of Contents

1- About Infosys

2- Fact File of Infosys

3- OBJECTIVE

4- RATIO ANALYSIS

5- OBJECTIVE OF RATIOS

6- FORMS OF RATIO

7- STEPS IN RATIO ANALYSIS

8- Parties interested in Ratio Analysis

9- Operational & Financial Ratios

10- Margin Ratios

11- Performance Ratios

12- Efficiency Ratios

13- Financial Stability Ratios

14- Analysis of Financial Ratios

15- Conclusions

16- Annexure 1

17- Annexure 2

2


About Infosys

Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Today, we are a global leader in the "next generation" of IT and consulting with revenues of over US$ 4 billion.

Infosys defines designs and delivers technology-enabled business solutions that help Global 2000 companies win in a Flat World. Infosys also provides a complete range of services by leveraging our domain and business expertise and strategic alliances with leading technology providers.

Infosys' offerings span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services and business process outsourcing

Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing. The GDM is based on the principle of taking work to the location where the best talent is available, where it makes the best economic sense, with the least amount of acceptable risk.

Infosys has a global footprint with over 50 offices and development centres in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries have 105,453 employees as on September 30, 2009

Infosys takes pride in building strategic long-term client relationships. Over 97% of our revenues come from existing customers.

3


Fact File of Infosys

Infosys Technologies Ltd (NASDAQ: INFY) delivers IT-enabled business solutions to enable Global 2000 companies win in a Flat World. Our solutions focus on providing strategic differentiation and operational superiority to clients. We leverage our domain and business expertise along with a complete range of services.

With Infosys, clients are assured of a transparent business partner, world-class processes, speed of execution and the power to stretch their IT budget by leveraging the Global Delivery Model that Infosys pioneered.

Infosys has a global footprint with sales offices in 30 countries and development centres in India, US, China, Australia, UK, Canada, Japan and many other countries. Infosys has over 105,000 employees of 73 nationalities.

Key Facts

Senior Executives

Chairman of the Board and Chief Mentor:

Narayana N.R. Murthy

Chief Executive Officer and Managing Director :

S. Gopalakrishnan

Financial Summary (LTM Sep 09)

IFRS

Revenues: US$ 4,568 million

Net Income after taxes: US$ 1,283 million

Earnings per ADS: US$ 2.25 (basic)

4


Total assets: US$ 5,188 million

Cash and cash equivalents: US$ 2,878 million

Indian GAAP (consolidated)

Total Income : Rs. 22,478 crore

Net profit after taxes : Rs. 6,321 crore

Earnings per share (Rs. 5) : Rs. 110.34 (basic)

Total assets : Rs. 20,757 crore

Cash and cash equivalents : Rs. 13,796 crore

5


OBJECTIVE:

To understand the information contained in financial statements with a view to

know the strength or weaknesses of the firm and to make forecast about the future

prospects of the firm and thereby enabling the financial analyst to take different

decisions regarding the operations of the firm.

RATIO ANALYSIS:

Fundamental Analysis has a very broad scope. One aspect looks at the

6


general (qualitative) factors of a company. The other side considers tangible and

measurable factors (quantitative). This means crunching and analyzing numbers

from the financial statements. If used in conjunction with other methods, quantitative

analysis can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet,

income statement, and cash flow statement. It's comparing the number against

previous years, other companies, the industry, or even the economy in general.

Ratios look at the relationships between individual values and relate them to how a

company has performed in the past, and might perform in the future.

MEANING OF RATIO:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick

that measures the relationship two figures, which are related to each other and mutually

interdependent. Ratio is express by dividing one figure by the other related figure. Thus a

ratio is an expression relating one number to another. It is simply the quotient of two

numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute

figures as “so many times”. As accounting ratio is an expression relating two figures or

accounts or two sets of account heads or group contain in the financial statements.

MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship of items or

group of items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the

financial health and profitability of business enterprises. Ratio analysis can be used both in

trend and static analysis. There are several ratios at the disposal of an annalist but their

group of ratio he would prefer depends on the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we

will focus on a technique, which is easy to use. It can provide you with a valuable

investment analysis tool.

7


This technique is called cross-sectional analysis. Cross-sectional analysis

compares financial ratios of several companies from the same industry. Ratio

analysis can provide valuable information about a company's financial health. A

financial ratio measures a company's performance in a specific area. For example,

you could use a ratio of a company's debt to its equity to measure a company's

leverage. By comparing the leverage ratios of two companies, you can determine

which company uses greater debt in the conduct of its business. A company whose

leverage ratio is higher than a competitor's has more debt per equity. You can use

this information to make a judgment as to which company is a better investment risk.

However, you must be careful not to place too much importance on one ratio. You

obtain a better indication of the direction in which a company is moving when several

ratios are taken as a group.

OBJECTIVE OF RATIOS

Ratio is work out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate

B) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

FORMS OF RATIO:

Since a ratio is a mathematical relationship between to or more variables /

accounting figures, such relationship can be expressed in different ways as follows –

A] As a pure ratio:

8


For example the equity share capital of a company is Rs. 20,00,000 & the

preference share capital is Rs. 5,00,000, the ratio of equity share capital to

preference share capital is 20,00,000: 5,00,000 or simply 4:1.

B] As a rate of times:

In the above case the equity share capital may also be described as 4 times

that of preference share capital. Similarly, the cash sales of a firm are

Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash

sales can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the

credit sales are 2.5 times that of cash sales.

C] As a percentage:

In such a case, one item may be expressed as a percentage of some other

item. For example, net sales of the firm are Rs.50,00,000 & the amount of the gross

profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales

[ 10,00,000/50,00,000]

STEPS IN RATIO ANALYSIS

The ratio analysis requires two steps as follows:

1] Calculation of ratio

2] Comparing the ratio with some predetermined standards. The standard ratio may

be the past ratio of the same firm or industry’s average ratio or a projected ratio or

the ratio of the most successful firm in the industry. In interpreting the ratio of a

particular firm, the analyst cannot reach any fruitful conclusion unless the calculated

ratio is compared with some predetermined standard. The importance of a correct

standard is oblivious as the conclusion is going to be based on the standard itself.

Parties interested in Ratio Analysis

Ratio analysis serves the purpose of various parties interested in financial statements. Primarily the objective of ratio analysis and interpreting the financial

9


statements is to get adequate information useful for the performance of various functions like planning, coordinating, controlling, communication and forecasting etc.

The interested parties may be:

Share holders/Investors:

Investor in the company will like to access the financial position of company where he is going to invest. The first concern would be the security of the investment and then the return on the investment in the form of interest and dividends. So, Investors concentrate on the firm’s financial structure to the extent that influences the firm’s earning ability and risk.

Trade creditors:

They are interested in firm’s ability to meet its claims over a short period of time. So their analysis is usually confined to evaluation of firm’s liquidity position.

The long term creditors:

They are concerned with firm’s long term future solvency and survival. They analyze the firm’s profitability over a period of time, its ability to generate cash, ability to pay interest, repay the principle and relationship between various sources of funds.

Employees:

Employees are interested in financial position the concern especially profitability. Their wages and amount of fringe benefits are related to the volume of profits earned by the concern. The employees make use of the information available in the financial statements.

Government:

Government is interested to know the overall financial health of the company. Various financial statements published by the industrial units are used to calculate the ratios for determining short-term, long-term and overall financial position of the firm. Government may base its future policies on the basis of industrial information available from various units.

Management:

Management of the firm requires these statements for its own evaluation and decision making. Moreover, it is responsible for the overall performances of the firm maintaining its solvency so as to be able to meets short-term and long-term obligations to the creditors and at the same time ensuring an adequate rate of return, consistent with safety of funds of its owner. Financial analysis may not

10


provide exact answer to the questions but it will be an indication of forthcoming future.

1- Operational & Financial Ratios

(a) Earnings Per Share (Rs)Meaning:

Earnings per Share are calculated to find out overall profitability of the organization.

Earnings per Share represent earning of the company whether or not dividends are

declared. If there is only one class of shares, the earning per share are determined

by dividing net profit by the number of equity shares.

EPS measures the profits available to the equity shareholders on each share held.

11


Formula:

NPAT

Earnings per share =

Number of equity share

The higher EPS will attract more investors to acquire shares in the company as it

indicates that the business is more profitable enough to pay the dividends in time.

But remember not all profit earned is going to be distributed as dividends the

company also retains some profits for the business.

For Infosys the variance of EPS ratio for 5 years is -

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

108.08 78.06 65.42 90.65 68.38

Mar ' 09Mar ' 08Mar ' 07Mar ' 06Mar ' 050

20

40

60

80

100

120

Earnings Per Share (Rs)

Earnings Per Share (Rs)

( b)Cash earnings per share Ratio :

Formula:

(Net operating cash flow-current depreciation of fixed assets-amortization of intangible assets-amortization deferred charges-interest expense and cost of raising funds in cash + investment income in cash)

Total equity

For Infosys the variance of CEP ratio for 5 years is –

12


Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

113.86 87.69 74.34 102.54 80.44

Mar/09Mar/08Mar/07Mar/06Mar/050

20

40

60

80

100

120

CEPS(Rs)

CEPS(Rs)

(c) DIVIDEND PER SHARE:-Meaning:

DPS shows how much is paid as dividend to the shareholders on each share held.

Formula:

Dividend Paid to Ordinary Shareholders

Dividend per Share =

13


Number of Ordinary Shares For Infosys the variance of DPS ratio for 5 years is

Mar-09 Mar-08 Mar-07 Mar-06 Mar-0524.15 44.35 17.66 49.89 16.2


10

20

30

40

50

60

Dividend per share

Dividend per share

(d)Book NAV/Share(Rs)

An expression for net asset value that represents a fund's (mutual, exchange-traded, and closed-end) value per share. It is calculated by dividing the total net asset value of the fund or company by the number of shares outstanding.

It is also referred to as "book value per share".

Calculated as:

14


Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

311.35 235.84 195.14 249.89 194.15


50

100

150

200

250

300

350

Book NAV/Share(Rs)

Book NAV/Share(Rs)

(e) Tax Rate:An average tax rate is the ratio of the amount of taxes paid to the tax base (taxable income or spending).To calculate the average tax rate on an income tax, divide total tax liability by taxable income: • Let a be the average tax rate. • Let t be the tax liability. Let i be the taxable income. For Infosys the variance of tax ratio for 5 years is

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

15


13.33 12.35 8.51 11.12 14.58


2

4

6

8

10

12

14

16

Tax Rate(%)

Tax Rate(%)

2- Margin Ratios

(a) Core EBITDA Margin ratio :

EBITDA is the acronym for Earnings before Interest, Taxes, Depreciation, and Amortization.

EBITDA Margin refers to EBITDA divided by total revenue. EBITDA margin measures the extent to which cash operating expenses use up revenue.

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

16


36.57 36.09 34.98 34.71 35.76

Mar/09Mar/08Mar/07Mar/06Mar/0533.5

34

34.5

35

35.5

36

36.5

37

Core EBITDA Margin(%)

Core EBITDA Margin(%)

(b)EBIT Margin rartio:

In financial and business accounting, earnings before interest and taxes (EBIT) or operating income is a measure of a firm's profitability that excludes interest and income tax expenses.[1]EBIT = Operating Revenue – Operating Expenses (OPEX) + Non-operating IncomeOperating Income = Operating Revenue – Operating Expenses

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

33.14 32.6 31.45 30.18 32.51

17



29

29.5

30

30.5

31

31.5

32

32.5

33

33.5

EBIT Margin(%)

EBIT Margin(%)

(c)Pre Tax Margin:

Net Earnings + Income Tax Pre tax Margin =

Net Sales

Explanation of Pre tax Margin:

The Pre tax Margin measures how well a company can generate before-tax profits at the current level of sales.

Importance of Pretax Margin:

As with any margin, a high or increasing Pretax Margin is usually a positive sign, showing the company is able to keep its operations costs low, while being able to pull in strong earnings. The Pretax Margin varies greatly between industries, so you will have to compare the results for the company you are analyzing to industry averages.

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

33.13 32.59 31.45 30.17 32.49


29

29.5

30

30.5

31

31.5

32

32.5

33

33.5

Pre Tax Margin(%)

Pre Tax Margin(%)

(d)PAT Margin rate :

18


The after tax profit margin ratio tells you the profit per sales dollar after all expenses are deducted from sales. In other words, the after tax profit margin ratio shows you the percentage of net sales that remains after deducting the cost of goods sold and all other expenses including income tax expense. The calculation is: Net Income after Tax /Net Sales.

The profit margin ratio is most useful when it is compared to 1) the same company’s profit margin ratios from earlier accounting periods, 2) the same company’s targeted or planned profit margin ratio for the current accounting period, and 3) the profit margin ratios of other companies in the same industry during the same accounting period.



25.5

26

26.5

27

27.5

28

28.5

PAT Margin rate

PAT Margin rate

(e) Cash Profit Margin ratio

Mar-09 Mar-08 Mar-07 Mar-06 Mar-0530.66 28.23 28.57 28.58 30

19



27.5

28

28.5

29

29.5

30

30.5

31

Cash Profit Margin ratio

Cash Profit Margin ratio

3- Performance Ratios

(a) ROA ratio :The return on assets (ROA) percentage shows how profitable a company's assets are in generating revenue.ROA can be computed as: This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control. Its a useful number for comparing competing companies in the same industry. The number will vary widely across different industries. Return on assets gives an indication of the capital intensity of the company, which will depend on the industry; companies that require large initial investments will generally have lower return on assets.


Mar ' 09Mar ' 08Mar ' 07Mar ' 06Mar ' 0531.5

32

32.5

33

33.5

34

34.5

35

35.5

36

36.5

ROA (%)

ROA (%)

(b) ROE ratio :

Return on Equity (ROE, Return on average common equity, return on net worth, Return on ordinary shareholders' funds) (requity) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures

20


a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth.



31

32

33

34

35

36

37

ROE(%)

ROE(%)

(c) ROCE Ratio :

Return on Capital Employed (ROCE) is used in finance as a measure of the returns that a company is realising from its capital employed. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

37.71 37.81 37.05 39.51 42.54


35

36

37

38

39

40

41

42

43

ROCE(%)

ROCE(%)

(d)Asset Turnover:

21


Asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company.[1] • "Sales" is the value of "Net Sales" or "Sales" from the company's income statement • "Average Total Assets" is the value of "Total assets" from the company's balance sheet in the beginning and the end of the fiscal period divided by 2.

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

0.77 0.79 0.69 0.67 0.62


0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Asset Turnover (x)

Asset Turnover (x)

(e)Sales/Fixed Asset Ratio


22



3.05

3.1

3.15

3.2

3.25

3.3

3.35

3.4

3.45

3.5

Sales/Fixed Asset Ratio

Sales/Fixed Asset Ratio

(f)Working Capital/Sales(x)

The Working Capital Productivity Ratio helps explain how well the company is using its working capital. Historically this has been a useful guide to investors or stakeholders seeking to assess a company’s ability to manage cash. Any measure of cash management is important to understand since a business needs cash to operate, this is the oxygen that businesses need to live. This ratio is purported to have been established by the US management consultant George Stalk while working in Japan. The ratio gives a possible indication of the relationship between financial performance and process improvement.The Working Capital Productivity ratio can be defined as:

Revenue Working Capital Productivity Ratio =

(Current Assets – Current Liabilities)

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

0.61 0.54 0.54 0.42 0.35


0.1

0.2

0.3

0.4

0.5

0.6

0.7

Working Capital/Sales(x)

Working Capital/Sales(x)

3- Efficiency Ratios

(a)Fixed Capital/Sales(x)

23


Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

25.89 26.83 25.58 27.8 27.36


24.5

25

25.5

26

26.5

27

27.5

28

Fixed Capital/Sales(x)

Fixed Capital/Sales(x)

(b)Receivable days

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

58.39 62.8 52.88 56.02 50.16


10

20

30

40

50

60

70

Receivable days

Receivable days

(c) Payable days This ratio shows how many days it takes to pay accounts payable. This ratio is similar to accounts payable turnover (above.) The business may be losing valuable creditor discounts by not paying promptly. The formula is:

24


365 days _____________________

Accounts Payable Turnover

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

17.14 38.16 35.43 37.09 41.41


5

10

15

20

25

30

35

40

45

Payable days

Payable days

(d) PER Ratio

The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", "PER", "earnings multiple," or simply "multiple") is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.[2] It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio

There are various P/E ratios, all defined as:

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

13.03 18.3 30.43 16.99 15.97

25



5

10

15

20

25

30

35

PER(x)

PER(x)

(e)PCE ratioA measure of price changes in consumer goods and services. Personal consumption expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, non-durables and services. It is essentially a measure of goods and services targeted toward individuals and consumed by individuals

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

11.63 16.31 27.07 14.54 14


5

10

15

20

25

30

PCE(x)

PCE(x)

26


(f) Price/Book Ratio

A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.

It is also known as the "price-equity ratio".

Calculated as:

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

4.25 6.06 10.31 5.96 5.8


2

4

6

8

10

12

Price/Book(x)

Price/Book(x)

27


(g) Yield Ratio The return on an investment. This refers to the interest or dividends received from a security and are usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.

It is a comparison of the expected yield of one bond to the expected yield of another. A yield ratio is important when deciding whether to invest in one bond or another; generally, the one with the higher yield wins out. However, it is important to take into account the after tax basis when taking the yield ratio of a corporate bond and a tax-exempt municipal bond. A corporate bond yields less than its stated interest rate because of taxation, whereas a tax-exempt municipal bond does not. Thus, a municipal bond paying a lower interest rate will often net the bondholder more than a corporate bond with a slightly higher interest rate, depending upon one's tax bracket.

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

1.77 2.32 0.57 1.51 0.51


0.5

1

1.5

2

2.5

Yield(%)

Yield(%)

(h) EV/Net Sales(x)

A valuation measure that compares the enterprise value of a company to the company's sales. EV/sales gives investors an idea of how much it costs to buy the company's sales. This measure is an expansion of the price-to-sales valuation, which uses market capitalization instead of enterprise value. EV/sales is seen as more accurate because market capitalization does not take into account as well as enterprise value the amount of debt a company has, which needs to be paid back at some point

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

3.29 4.82 8.34 4.19 4.22

28



1

2

3

4

5

6

7

8

9

EV/Net Sales(x)

EV/Net Sales(x)

(i) EV/Core EBITDA(x)

An indicator of a company's financial performance which is calculated in the following EBITDA calculation:

EBITDA is essentially Net Income with interest, taxes, depreciation, and amortization added back to it. EBITDA can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. However, this is a non-GAAP measure that allows a greater amount of discretion as to what is (and is not) included in the calculation. This also means that companies often change the items included in their EBITDA calculation from one reporting period to the next.

When a company is valued using EBITDA - it is known as a EBITDA Valuation.

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

9 13.35 23.84 12.08 11.79


5

10

15

20

25

30

EV/Core EBITDA(x)

EV/Core EBITDA(x)

29


(j) EV/EBIT(x)

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

9.93 14.78 26.51 13.89 12.97


5

10

15

20

25

30

EV/EBIT(x)

EV/EBIT(x)

(k) EV/CE(x)

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

3.75 5.59 9.82 5.49 5.52


2

4

6

8

10

12

EV/CE(x)

EV/CE(x)

30


4- Financial Stability Ratios

(a) Total Debt/Equity(x)

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

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

0 0 0 0 0


0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Total Debt/Equity(x)

Total Debt/Equity(x)

(b) Current Ratio :A liquidity ratio that measures a company's ability to pay short-term obligations.

The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

31




1

2

3

4

5

6

Current ratio

Current ratio

(c) Quick Ratio

It is an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

The quick ratio is calculated as:



1

2

3

4

5

6

Quick ratio

Quick ratio

32


Analysis of Financial Ratios:

1- Sales amount increase by 19% but Cost of sales increase by 22% (bcoz salaries paid to software development employees increase by 26% ). This has resulted in a less proportionate increase by in Gross profit (15%).

2- Sales increase by 19% but debtors increase by significant 35%.It is due to the increase in Debtors collection period from 64 to 72 days i.e. debtors are given more credit period. This has resulted in decrease of Debtors turnover ratio.

3- As it is a Service oriented company , it does not have any stock kept with it. So there is no amount blocked in stock.So the investment required in working capital is less.

4- Gross Profit Amount increase by approx 15% and Operating Net profit amount increase by approx 18 %.This means that Operating activities of Infosys is more efficient as compared to Software development activities(production activities).

5- But if we see ,ultimately its Operating net profit ratio has still decrease from 32.13 to 31.72.This is due to a significant increase in Cost of sales by 22%.

6- Therefore we analyze that its Cost of sales has so much material affect that it is reducing both GP Ratio & operating profit ratio.

7- As we will see further there is a healthy % increase in Net profit amount by approx 18% (as compared to Gross Profit Amount by approx 15% ). This improvement in its performance is majorly due to improvement in Extra-ordinary items like interest received on deposits from banks (increase by 257 % ).

8- Funds available with the company has increases by approx 21% . In 2007-08 company has not issued any new equity or debt .Therefore the company has raised its funds only through its Reserves & Surplus which is approx 21%.

9- Now the company has employed these funds in following ways: 1) Acquired new fixed assets . This has resulted in more depreciation charged to profits in P & L a/c.This has ultimately decreases the Operating profit ratio.2) used to finance the working capital requirements.

3) has also made some new Investments in the current year(increases by15 )

10-There is a decreases in Fixed assets turnover ratio. At first look it may appears that the company has utilized its Fixed assets less efficiently.However it has acquired New Fixed assets worth Rs 1050 crores in the year 2007-08 which may help the company in Future growth.

11-Company has no Debt and Preference capital which means that there is no Capital Gearing ratio,no Debt-Equity ratio and no Interest Coverage ratio.

33


As Infosys is a Debt Free company,it has certain Advantages and Disadvantages.

ADVANTAGES :

• Not dependent on External Borrowers

• No Interest burden , therefore higher profits.

• No burden of Loan Repayment

• Can Get Loans easily in Future.

DISADVANTAGE:

• Gives lower E.P.S. for Shareholders.

34


Conclusions:

1- Company needs to reduce its cost of sales i.e. Software Development related expenses, to increase its Gross Profit ratio and Operating net ratio.

2- Company needs to have stringent credit policy, to reduce the funds required for working capital.

3- Do efficient utilization of shareholders funds to improve its ROI & ROE to maintain its goodwill in investors mind.

4- May go for some Debt borrowing to increase E.P.S. for shareholders.

35


Annexure- 1

Balance sheet

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Mar ' 05

Sources of fundsOwner's fundEquity share capital 286 286 286 138 135.29Share application money - - - - -Preference share capital - - - - -

Reserves & surplus17,523.0

013,204.0

010,876.0

06,759.0

05,106.4

4

Loan fundsSecured loans - - - - -Unsecured loans - - - - -

Total17,809.0

013,490.0

011,162.0

06,897.0

05,241.7

3

Uses of fundsFixed assets

Gross block 5,986.00 4,508.00 3,889.002,837.0

02,182.7

2Less : revaluation reserve - - - - -

Less : accumulated depreciation 2,187.00 1,837.00 1,739.001,275.0

01,005.8

2

Net block 3,799.00 2,671.00 2,150.001,562.0

01,176.9

0Capital work-in-progress 615 1,260.00 957 571 317.52

Investments 1,005.00 964 839 8761,328.7

0

Net current assets

Current assets, loans & advances15,732.0

012,326.0

0 9,040.006,105.0

03,764.6

5Less : current liabilities & provisions 3,342.00 3,731.00 1,824.00

2,217.00

1,346.04

Total net current assets12,390.0

0 8,595.00 7,216.003,888.0

02,418.6

1Miscellaneous expenses not written - - - - -

Total17,809.0

013,490.0

011,162.0

06,897.0

05,241.7

3

Notes:

36


Book value of unquoted investments 1,005.00 964 839 876

1,328.70

Market value of quoted investments - - - - -Contingent liabilities 347 603 670 523 289.87Number of equity sharesoutstanding (Lacs) 5728.3 5719.96 5712.1

2755.55

2705.71

Annexure- 2

Profit loss account

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Mar ' 05

Income

Operating income20,264.0

015,648.0

013,149.0

09,028.0

06,859.6

6

ExpensesMaterial consumed 20 18 22 16 13.55Manufacturing expenses 1,822.00 1,549.00 1,378.00 854 603.67

Personnel expenses 9,975.00 7,771.00 6,316.004,274.0

03,183.2

5Selling expenses 83 89 63 55 82.34Adminstrative expenses 1,456.00 1,257.00 1,144.00 839 650.65Expenses capitalised - - - - -

Cost of sales13,356.0

010,684.0

0 8,923.006,038.0

04,533.4

6

Operating profit 6,908.00 4,964.00 4,226.002,990.0

02,326.2

0Other recurring income 874 678 333 221 118.68

Adjusted PBDIT 7,782.00 5,642.00 4,559.003,211.0

02,444.8

8Financial expenses 2 1 1 1 1.09Depreciation 694 546 469 409 268.22Other write offs - - - - -

Adjusted PBT 7,086.00 5,095.00 4,089.002,801.0

02,175.5

7Tax charges 895 630 352 303 325.3Adjusted PAT 6,191.00 4,465.00 3,737.00 2,498.0 1,850.2

37


0 7Non recurring items -372 5 46 -77 54.11Other non cash adjustments -1 - -5 - -4.59

Reported net profit 5,818.00 4,470.00 3,778.002,421.0

01,899.7

9

Earnigs before appropriation12,460.0

0 9,314.00 5,973.003,849.0

01,970.3

0

Equity dividend 1,345.00 1,902.00 6491,238.0

0 309.8Preference dividend - - - - -Dividend tax 228 323 102 174 42.17

Retained earnings10,887.0

0 7,089.00 5,222.002,437.0

01,618.3

3

References-

1- www.infosys.com 2- www.moneycontrol.com 3- www.rediffmoney.com

38

http://www.rediffmoney.com/

http://www.moneycontrol.com/

http://www.infosys.com/

Financial ratio analysis infosys Project Report

Documents

Transcript of Financial ratio analysis infosys Project Report