financial ratio analysis infosys Presentation

“POWER OF TALENT”“Our Core Corporate Walk Out Every Evening. It is Our

Duty To Make Sure That these Assets return the next Morning, Mentally And Physically Enthusiastic And

Energetic. ”

Presented By:Saurabh Sharma

Saurav kumarSreelal M.S.

Sandeep Sahu

Fact File of Infosys

Infosys Technologies Ltd. delivers IT-enabled business solutions to enable Global 2000 companies win in a Flat World.

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.

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

Ratio Analysis of Financial Statements

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 ratios that a financial analyst will use most frequently, these are:

Performance ratiosWorking capital ratiosLiquidity ratiosSolvency ratios

Liquidity Ratios

Can the company continue to pay its liabilities and debts?

Current Ratio

Current Ratio = Total Current Assets/ Total Current Liabilities

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

It expresses the 'working capital' relationship of current assets available to meet the company's current obligations.

Current Ratio..

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

2.8 2.75 4.96 3.3 4.71

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

1

2

3

4

5

6

Current ratio

Current ratio

By Industry norm current ratio for service industry is around 1.29.

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 the company 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??

Quick Ratio

Quick Ratio = (Cash + Account receivables + short term investments)/ Current liabilitiesMar-09 Mar-08 Mar-07 Mar-06 Mar-05

4.67 3.28 4.91 2.73 2.77

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

1

2

3

4

5

6

Quick ratio

Quick ratio

Profitability Ratio

Assets Total

IncomeNet :ROA

The return on assets (ROA) percentage shows how profitable a company's assets are in generating revenue.

Return on Assets: ROA

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

32.14 32.06 32.34 31.35 31.66

Mar/09Mar/08Mar/07Mar/06Mar/0530

31

32

33

34

35

36

37

ROA

ROA(%)

EquityCommon Total

IncomeNet :ROE

•It measures 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.

Return on Equity: ROE

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

32.67 33.14 33.89 35.1 36.32

Mar/09Mar/08Mar/07Mar/06Mar/0530

31

32

33

34

35

36

37

ROE

ROE(%)

Return on Capital Employed (ROCE) is used in finance as a measure of the return that a company is realising from its capital employed.

Return on Capital Employed (ROCE)

net profits Return on Capital Employed =

Capital employed

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

37.71 37.81 37.05 39.51 42.54

Mar/09Mar/08Mar/07Mar/06Mar/0534353637383940414243

ROCE(%)

ROCE(%)

The Return on Equity (ROE) & Return on Equity (ROE) both has .

It shows that the company has utilize the shareholders funds less efficiently.

This is unfavorable for Company's image as it may result in decrease in the confidence in the investor’s mind for company’s performance.

Asset TurnoverAsset 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.

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

0.77 0.79 0.69 0.67 0.62

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

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Asset Turnover (x)

Asset Turnover (x)

Working Capital/SalesThe Working Capital Productivity Ratio helps explain how well the company is using its working capital.

Working Capital Productivity Ratio = Revenue / (Current Assets – Current Liabilities)

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

0.61 0.54 0.54 0.42 0.35

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

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Working Capital/Sales(x)

Working Capital/Sales(x)

• 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.

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

Operational & Financial Ratios

Earnings Per Share• Earnings per Share are calculated to find out

overall profitability of the organization.

NPAT

Earnings per share =Number of equity share

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

101.65 78.15 66.14 87.72 70.52

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

20

40

60

80

100

120

Earnings Per Share (Rs)

Earnings Per Share (Rs)

DIVIDEND PER SHARE• DPS shows how much is paid as dividend to the

shareholders on each share held.

Dividend Paid to Ordinary

Shareholders

Dividend per Share = Number of equity share

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

23.5 33.25 11.5 45 11.5

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

5

10

15

20

25

30

35

40

45

50

DPS(Rs)

DPS(Rs)

• The Company is currently paying approx 17% of its Current Earnings as Dividend ( D/P ratio is 16.93% ). From shareholders Long term point of view it is good that company is retaining its approx 83% of its present earnings for its future growth.

• Therefore (through Fixed Assets turnover ratio &

D/P ratio) it seems that company is retaining significant amount for its future .

Book NAV/Share • An expression for net asset value that represents

a fund's (mutual, exchange-traded, and closed-end) or a company's value per share

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

311.35 235.84 195.14 249.89 194.15

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

50

100

150

200

250

300

350

Book NAV/Share(Rs)

Book NAV/Share(Rs)

Tax Rate • An average tax rate is the ratio of the amount 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.

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

13.33 12.35 8.51 11.12 14.58

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

2

4

6

8

10

12

14

16

Tax Rate(%)

Tax Rate(%)

Analysis of Financial Ratios• Sales amount 19% but Cost of sales 22%

(bcoz salaries paid to software development employees 26% ). This has resulted in a less proportionate in Gross profit (15%)

• Sales 19% but debtors - significant 35%. It is due to the in Debtors collection period from 64

to 72 days i.e. debtors are given more credit period. This has resulted in of Debtors turnover ratio.

Contd….• But if we see ,ultimately its

Operating net profit ratio has still from 32.13 to 31.72. This is due to a significant increase in Cost of sales by 22%.

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

• 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 ( by 257 % ).

• Funds available with the company has 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%.

• 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 the Operating profit ratio.

Contd….

2) used to finance the working capital requirements. 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 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.

• 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

• 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.

SUGGESTIONS

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.

Contd….

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.

References

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

Thank You.