36196831 22902527 financial ratio analysis infosys presentation

8/8/2019 36196831 22902527 Financial Ratio Analysis Infosys Presentation

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Fact File of Infosys

. -nfosys Technologies Ltd delivers ITnabled business solutions to enable Global.000 companies win in a Flat World

nfosys has a global footprint with sales

ffices in 30 countries and development, , , , ,entres in India US China Australia UK

, .anada Japan and many other countries ,nfosys has over 105 000 employees of 73

.ationalities


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Fact File of Infosys..

Financial Summary* (LTM Sep 09)

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

* Indian GAAP


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Ratio Analysis

of

Financial Statements


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Financial Ratios..

Financial ratios are tools for interpreting financial

statements to provide a basis for valuing securities

and appraising financial and management

performance.

In general, there are 4 kinds of financial ratiosthat a financial analyst will use most frequently,

these are:

Performance ratios

Working capital ratiosLiquidity ratiosSolvency ratios


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Liquidity Ratios

Can the company continue to pay its

liabilities and debts?


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Current Ratio

Current Ratio = Total Current Assets/ TotalCurrent Liabilities

The ratio is regarded as a test of liquidity.for a company

It expresses the 'working capital' relationshipof current assets available to meet the company's

.current obligations


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Current Ratio..

Mar-05 Mar-06 Mar-07 Mar-08 Mar-092.8 2.75 4.96 3.3 4.71

By Industry norm current ratio for service industry is around 1.


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Current Ratio..

Inferences

. .In current scenario Infosys has Rs 4 71 to pay. . . %Rs 1 i e it has 370 more capacity to repay its

.short term liabilities

This depicts a sound financial heath of thecompany as far as repaying short term obligations.are concerned

. -Current ratio decreased from 4 96 in Mar 07 to. - .3 3 in Mar 08

Reason??


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Quick Ratio

Quick Ratio = (Cash + Account receivables +

short term investments)/ Current

liabilities

Mar-09 Mar-08 Mar-07 Mar-06 Mar-05

4.67 3.28 4.91 2.73 2.77


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Profitability Ratio


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AssetsTotal

IncomeNet:ROA =

The return on assets (ROA) percentage shows howprofitable a company's assets are in generatingrevenue.

:Return on Assets ROA


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32.14 32.06 32.34 31.35 31.66


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EquityCommonTotal

IncomeNet:ROE =

It measures a firm's efficiency at generating profits fromevery unit of shareholders' equity (also known as netassets or assets minus liabilities).ROE shows how well a company uses investmentfunds to generate earnings growth.

:Return on Equity ROE


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32.67 33.14 33.89 35.1 36.32


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Return on Capital Employed (ROCE) is used in financeas a measure of the return that a company is realisingfrom its capital employed.

( )Return on Capital Employed ROCE

et profits =eturn on Capital Employed apital employed


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37.71 37.81 37.05 39.51 42.54


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The Return on Equity (ROE) &

Return on Equity (ROE) bothhas .

It shows that the companyhas utilize the shareholdersfunds less efficiently.

This is unfavorable forCompany's image as it mayresult in decrease in theconfidence in the investorsmind for companys

performance.


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Asset Turnover

Asset turnover is a financial ratio that measures the efficiency of a company's useof its assets in generating sales revenue or sales income to the company.
http://en.wikipedia.org/wiki/Financial_ratiohttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Financial_ratio


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0.77 0.79 0.69 0.67 0.62


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Working Capital/Sales

The Working Capital Productivity Ratio helps explain how well the company isusing its working capital.

Working Capital Productivity Ratio = Revenue / (Current Assets Current Liabilitie


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0.61 0.54 0.54 0.42 0.35


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As it is a Service oriented company , it does

not have any stock kept with it. So there isno amount blocked in stock. So the investment required in working capital

is less.

Gross Profit Amount approx 15% andOperating Net profit amount

approx 18 %.This means that Operating

activities of Infosys is more efficient as

compared to Software developmentactivities(production activities) .


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Operational & FinancialRatios


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Earnings Per Share

Earnings per Share are calculated tofind out overall profitability of theorganization.

NPAT

Earnings per share = Number of equity share


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101.65 78.15 66.14 87.72 70.52


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DIVIDEND PER SHARE

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

Dividend Paid to Ordinary

Shareholders

Dividend per Share = Number of equity share


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23.5 33.25 11.5 45 11.5


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The Company is currently paying approx17% of its Current Earnings as Dividend

( D/P ratio is 16.93% ). Fromshareholders Long term point of view it isgood that company is retaining itsapprox 83% of its present earnings for its

future growth.

Therefore (through Fixed Assets turnoverratio & D/P ratio) it seemsthat company is retaining significantamount for its future .


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Book NAV/Share

An expression for net asset value thatrepresents a fund's (mutual,exchange-traded, and closed-end) or

a company's value per share


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311.35 235.84 195.14 249.89 194.15


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Tax Rate

An average tax rate is the ratio of theamount of taxes paid to the tax base(taxable income or spending).

Let a be the average tax rate.Let t be the tax liability.Let i be the taxable income.


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13.33 12.35 8.51 11.12 14.58


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Analysis of Financial Ratios

Sales amount 19% but Cost of sales22% (bcoz salaries paidto software development employees26% ). This has resulted in a less

proportionate in Gross profit (15%)

Sales 19% but debtors - significant35%.

It is due to the in Debtors collectionperiod from 64 to 72 days i.e. debtors aregiven more credit period.

This has resulted in


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Contd.

But if we see ,ultimately itsOperating net profit ratio has

still from 32.13 to 31.72.

This is due to asignificant increase inCost of sales by 22%.

Therefore we analyze that its Cost of

sales has so much material affect that it isreducing both GPRatio & operating profit ratio.


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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 inits performance is majorly due toimprovement in Extra-ordinary items like

interest received on deposits from banks( by 257 % ).


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Funds available with the company has

approx 21% . In 2007-08 companyhas not issued any new equity or debt .Therefore the company has raised its funds

only through its Reserves & Surplus whichis approx 21%.

Now the company has employed these fundsin following ways:

1) Acquired new fixed assets . This hasresulted in more depreciation chargedto profits in P & L a/c.

This has ultimately the Operatingprofit ratio.


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Contd.

2) used to finance the working capitalrequirements.

3) has also made some new Investments in

the current year ( by 15 % )

There is a in Fixed assets turnover ratio. At first look it may appears that the

company has utilized its Fixed assets lessefficiently.

However it has acquired New Fixed assetsworth

Rs 1050 crores in the year 2007-08 which


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Company has no Debt and Preference capitalwhich means that there is no Capital Gearingratio, no Debt-Equityratio and no Interest Coverage ratio

As Infosys is a Debt Free company , it has certainAdvantages and Disadvantages

ADVANTAGES :

Not dependent on External Borrowers

No Interest burden , therefore higherprofits.

No burden of Loan Repayment

Can Get Loans easily in Future DISADVANTAGE:

Gives lower E.P.S. for Shareholders.

S GG S O S


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SUGGESTIONS1.

2.Company needs to reduce its cost ofsales i.e. Software Developmentrelated expenses, to increase its

Gross Profit ratio andOperating net ratio.

3.

4.Company needs to have stringentcredit policy, to reduce the fundsrequired for working capital.


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Contd.

3.Do efficient utilization ofshareholders funds to improve itsROI & ROE to maintain its

goodwill in investors mind.4.4. May go for some Debt borrowing

to increase E.P.S. for shareholders.


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References

www.infosys.com

http://finapps.forbes.com

www.moneycontrol.com
http://www.infosys.com/http://finapps.forbes.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://finapps.forbes.com/http://www.infosys.com/


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Thank You.

36196831 22902527 financial ratio analysis infosys presentation

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