A FINANCIAL ANALYSIS – SATYAM COMPUTERS

-Neha Agarwal (10HS60010)

-Princy George (10HS60013)

Contents

BALANCE SHEET AND P&L STATEMENT OF MAHINDRA SATYAM

RATIO ANALYSIS BEFORE DISCLOSURE OF SCANDAL

AFTER DISCLOSURE OF SCANDAL

COMPARISON WITH INFOSYS TECHNOLOGIES

Balance Sheet of Mahindra Satyam (Values in Cr.)

Mar '04 Mar '05 Mar '06 Mar '07 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 63.25 63.85 64.89 133.44 134.1

Equity Share Capital 63.25 63.85 64.89 133.44 134.1

Share Application Money 0.19 0.45 1.78 7.85 1.83

Preference Share Capital 0 0 0 0 0

Reserves 2,517.52 3,153.17 4,268.75 5,648.07 7,221.71

Revaluation Reserves 0 0 0 0 0

Networth 2,580.96 3,217.47 4,335.42 5,789.36 7,357.64

Secured Loans 7.3 9.87 12.57 13.79 23.67

Unsecured Loans 0 0 0 0 0

Total Debt 7.3 9.87 12.57 13.79 23.67

Total Liabilities 2,588.26 3,227.34 4,347.99 5,803.15 7,381.31

Mar '04 Mar '05 Mar '06 Mar '07 Mar '08

Application Of Funds

Gross Block 847.16 937.7 1,153.16 1,280.40 1,486.53

Less: Accum. Depreciation 597.76 685.41 803.74 930.45 1,062.04

Net Block 249.4 252.29 349.42 349.95 424.49

Capital Work in Progress 22.17 64.68 76.84 290.05 458.63

Investments 74.75 78.48 155.74 201.15 493.8

Inventories 0 0 0 0 0

Sundry Debtors 592.82 765.17 1,122.81 1,649.86 2,223.41

Cash and Bank Balance 346.2 558.92 1,144.18 593.16 1,143.10

Total Current Assets 939.02 1,324.09 2,266.99 2,243.02 3,366.51

Loans and Advances 187.34 155.06 298.12 394.07 766.04

Fixed Deposits 1,469.16 1,804.38 1,908.15 3,366.66 3,318.58

Total CA, Loans & Advances 2,595.52 3,283.53 4,473.26 6,003.75 7,451.13

Deffered Credit 0 0 0 0 0

Current Liabilities 194.53 262.87 435.71 621.3 896.46

Provisions 159.06 188.77 271.56 420.45 550.28

Total CL & Provisions 353.59 451.64 707.27 1,041.75 1,446.74

Net Current Assets 2,241.93 2,831.89 3,765.99 4,962.00 6,004.39

Miscellaneous Expenses 0 0 0 0 0

Total Assets

2,588.25 3,227.34 4,347.99 5,803.15 7,381.31

Contingent Liabilities 8.68 38.22 134.45 267.2 623.28

Book Value (Rs) 81.6 100.76 133.57 86.65 109.71

Mahindra Satyam

Profit & Loss account ------------------- in Rs. Cr. -------------------

Mar '04 Mar '05 Mar '06 Mar '07 Mar '08

Income

Sales Turnover 2,541.55 3,464.23 4,634.31 6,228.47 8,137.28

Excise Duty 0.00 0.00 0.00 0.00 0.00

Net Sales 2,541.55 3,464.23 4,634.31 6,228.47 8,137.28

Other Income 78.61 80.96 377.08 180.82 255.43

Stock Adjustments 0.00 0.00 0.00 0.00 0.00

Total Income 2,620.16 3,545.19 5,011.39 6,409.29 8,392.71

Expenditure

Raw Materials 0.00 0.00 0.00 0.00 0.00

Power & Fuel Cost 13.43 18.68 26.98 34.68 47.04

Employee Cost 1,338.84 1,999.10 2,702.24 3,692.92 4,964.84

Other Manufacturing Expenses 27.53 41.50 31.23 34.67 36.75

Selling and Admin Expenses 370.73 415.92 544.51 764.67 982.49

Miscellaneous Expenses 97.21 98.77 135.01 171.62 275.85

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00

Total Expenses 1,847.74 2,573.97 3,439.97 4,698.56 6,306.97

Mar '04 Mar '05 Mar '06 Mar '07 Mar '08

Operating Profit 693.81 890.26 1,194.34 1,529.91 1,830.31

PBDIT 772.42 971.22 1,571.42 1,710.73 2,085.74

Interest 0.75 0.76 2.72 7.61 5.94

PBDT 771.67 970.46 1,568.70 1,703.12 2,079.80

Depreciation 111.62 103.94 122.81 129.89 137.94

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 660.05 866.52 1,445.89 1,573.23 1,941.86

Extra-ordinary items 1.90 0.47 0.00 0.00 0.00

PBT (Post Extra-ord Items) 661.95 866.99 1,445.89 1,573.23 1,941.86

Tax 106.15 116.74 206.14 150.00 226.12

Reported Net Profit 555.79 750.26 1,239.75 1,423.23 1,715.74

Total Value Addition 1,847.75 2,573.96 3,439.97 4,698.56 6,306.97

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 126.72 159.63 229.56 231.85 234.89

Corporate Dividend Tax 16.24 20.86 32.02 37.55 39.86

Per share data (annualised)

Shares in issue (lakhs) 3,162.52 3,192.65 3,244.50 6,671.96 6,704.79

Earning Per Share (Rs) 17.57 23.50 38.21 21.33 25.59

Equity Dividend (%) 200.00 250.00 350.00 175.00 175.00

Book Value (Rs) 81.60 100.76 133.57 86.65 109.71

RATIO ANALYSIS BEFORE DISCLOSURE OF SCANDAL

LIQUIDITY MEASURES:

As the name suggests, short-term solvency ratios as a group are intended to provide information on the firm’s

liquidity. The primary concern is to measure the firm’s ability to pay its bills over the short run without undue

stress.

Current Ratio:

An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the

company is. Current ratio is equal to current assets divided by current liabilities. If current liabilities exceed

current assets, then the company may have problems meeting its short-term obligations.

Current Ratio = Current Assets / Current Liability

Table 1: Current Ratio

Year

Current Assets (Rs. In

Crores)

Current Liabilities

(Rs. In Crores)

Current Ratio

2003-04 2,595.52 353.59 4.827

2004-05 3,283.53 451.64 5.037

2005-06 4,473.26 707.27 5.203

2006-07 6,003.75 1041.75 3.61

2007-08 7,451.13 1446.74 3.755

Interpretation:

Here, the current ratio fluctuates from year to year about the value of 4. If the current assets of a company are

more than twice the current liabilities, then that company is generally considered to have good short-term

financial strength. Thus, Satyam’s balance sheets indicated good financial strength up till the year 2008.

0

1

2

3

4

5

6

2003-04 2004-05 2005-06 2006-07 2007-08

Current Ratio

Current Ratio

Quick Ratio:

Liquid ratio is also known as ‘quick’ or ‘Acid test ‘ratio. Liquid assets refer to assets which are quickly

convertible into cash. Current Assets other stock and prepaid expenses are considered as quick assets. The ideal

liquid ratio accepted ‘norm’ for liquid ratio ‘1’.

Quick Ratio = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets (minus) Inventory

Table 2: Quick Ratio

Year

Current Assets (Rs. in

crores)

Current Liabilities

(Rs. in crores)

Quick Ratio

2003-04 939.02 194.53 4.827

2004-05 1324.09 262.87 5.037

2005-06 2266.99 435.71 5.203

2006-07 2243.02 621.3 3.61

2007-08 3366.51 896.46 3.755

Intrepretation:

Satyam, being a software company has zero inventories. Hence current ratio is equal to quick ratio for Satyam.

ASSET MANAGEMENT / TURNOVER MEASURES:

These ratios are intended to describe how efficiently, or intensively, a firm uses its assets to generate sales.

Asset Turnover Ratio = Total Revenue / Total Assets

Table 3: Asset Turnover Ratio

Year

Total Revenue

(Rs. In Crores)

Total Assets

(Rs. In Crores)

Asset Tuenover Ratio

2003-04 2620 2588.25 1.01

2004-05 3,545.19 3,227.34 1.09

2005-06 5,011.39 4,347.99 1.15

2006-07 6,409.29 5,803.15 1.10

2007-08 8,392.71 7,381.31 1.13

Interpretation:

There has been a decline in the year 2006-07 but rising otherwise which indicates that the net fixed assets is

used more effectively to increase the sales without additional investment in the period of study.

PROFITABILITY MEASURES:

These are probably the best-known and most widely used of all financial ratios. In one form or another, they are

intended to measure how efficiently the firm uses its assets and how efficiently the form manages its operations.

The focus in this group is on the bottom line – net income.

Net Profit Margin

This ratio helps in determining the efficiency with which affairs of the business are being managed. An increase

in the ratio over the previous period indicates improvement in the operational efficiency of the business. The

ratio is thus on effective measure to check the profitability of business. However, constant increase in the above

ratio after year is a definite indication of improving conditions of the business.

Net Profit Margin = ( Net Profit / Net Sales ) * 100

Table 4: Net Profit Margin

Year

Net Profit

(Rs. In Crores)

Net Sales

(Rs. In Crores)

Net Profit Ratio

(In %)

2003-04 555.79 2,541.55 21.86

2004-05 750.26 3,464.23 21.65

2005-06 1,239.75 4,634.31 26.75

2006-07 1,423.23 6,228.47 22.85

2007-08 1,715.74 8,137.28 21.0

Interpretation:

The profit margin was seen to be fluctuating around 23%. Since it was continuously positive, Satyam’s financial

statements indicated a good profit margin.

0

5

10

15

20

25

30

2003-04 2004-05 2005-06 2006-07 2007-08

Net Profit Ratio

Net Profit Ratio

Return on Assets:

This ratio is computed to know the productivity of the total assets. It is a measure of profit per rupee of assets.

Return on Assets = ( Net Profit after Tax / Total Assets ) * 100

The term ‘Total Assets’ includes the fixed asset, current assets and capital work in progress of the company. The

below table clearly reveals the relationship between the net profit and Total Assets employed in the business.

Table 5: Return on Assets

Year

Net Profit

(Rs. In Crores)

Total Assets

(Rs. In Crores)

Return on assets

2003-04 555.79 2588.25 21.47

2004-05 750.26 3,227.34 23.24

2005-06 1,239.75 4,347.99 28.51

2006-07 1,423.23 5,803.15 24.52

2007-08 1,715.74 7,381.31 23.24

Interpretation:

Return on Total Assets of Satyam can been seen to be following the same trend as the profit margin ratio.

Return on Total Assets increases when Net Profit (shown in the previous section) increases.

0

5

10

15

20

25

30

2003-04 2004-05 2005-06 2006-07 2007-08

Return on Assets

Return on Assets

MARKET VALUE MEASURES:

Earnings Per Share:

The overall profitability can also be judged by calculating earnings per share. The earnings per share measure

helps in determining the market price of the equity shares of the company. A comparison of earning per share of

the company with another will also help in deciding whether the equity share capital is being effectively used or

not. It also helps in estimating the company’s capacity to pay dividend to its equity shareholders.

Earning Per Equity Share = ( Net Profit after Tax / Number of Equity Shares ) * 100

Table 6: Earnings Per Share

Year

Net

Profit

(Rs. In Crores)

Shares In Issue (Lakhs) Earning Per Share

2003-04 555.79 3,162.52 17.57

2004-05 750.26 3,192.65 23.5

2005-06 1,239.75 3,244.50 38.21

2006-07 1,423.23 6,671.96 21.33

2007-08 1,715.74 6,704.79 25.59

Interpretation:

Earnings Per share for the year 2005 is 150% higher than 2004 due to more Net Profit as the consequence of

high sales value and low interest charges. In the year 2006 and 2007 earnings per share is comparatively less

with compare to 2005 due to economic conditions.

0

5

10

15

20

25

30

35

40

45

2003-04 2004-05 2005-06 2006-07 2007-08

Earnings Per Share

Earnings Per Share

AFTER DISCLOSURE OF SCANDAL (in January 2009)

Comparison with earlier results and comparison with Infosys Technologies

Profit Margin Comparison

For Mahindra Satyam

Year/Values Net Profit (In Millions) Net Sales (In Millions) Net Profit Margin

2009-2010 (1239) 54810 -2.26%

2008-2009 (81746) 88126 -9.276%

2007-2008 17157.4 81372.8 21%

For Infosys Technologies

Years/Values Net Profit(In

Millions)

Net Sales(In

Millions)

Net Profit

Margin

(Infosys)

Net Profit

Margin

(Satyam)

2007-2008 44700 163310 27.37% -2.26%

2008-2009 58190 207600 28.02% -9.276%

2009-2010 58030 220980 26.26% 21%

Comparison of Profit Margin of Infosys and Satyam Across the years 2007-2010

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2007-2008 2008-2009 2009-2010

Satyam

Infosys

Comparison of EPS (Earnings Per Share)

Year/Values EPS Values

(Infosys)

EPS Values

(Satyam)

2007-2008 78.15 25.24

2008-2009 101.58 -121.49

2009-2010 101.30 -1.14

-150

-100

-50

0

50

100

150

2007-2008 2008-2009 2009-2010

EPS Values (Satyam)

EPS Values (Infosys)

Comparison of Debt-Equity Ratio

For Satyam

Year/Values Total Debt(In Millions) Total Equity(In

Millions)

Debt-Equity Ratio

2007-2008 422 46300 0.0091

2008-2009 8142 17445 0.4667

2009-2010 2167 72392 0.0299

For Infosys

Year/Values Total Debt Total Equity Debt-Equity Ratio

(Infosys)

Debt-Equity Ratio

(Satyam)

2007-2008 0.00 13490 0.00 0.0091

2008-2009 0.00 17809 0.00 0.4667

2009-2010 0.00 22036 0.00 0.0299

CONCLUSION

By watching the individual and comparative analysis of Satyam, both individually with its previous results and

with Infosys Technologies, we find that the EPS, Debt-Equity Ratio and Profit Margin of Infosys is much higher

than Satyam. Also the data and the graph shows that the values for Satyam drastically decreased in year 2008-

2009. This is a clear reflection of the effect of the scandal at Satyam which got revealed in January 2009.

The leverage value (Debt-Equity ratio) for Satyam increased by 51 times in 2008-09. In comparison, Infosys has

no leverage at all.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

2007-2008 2008-2009 2009-2010

Debt-Equity Ratio (Satyam)

Debt-Equity Ratio (Infosys)