CAPITAL STRUCTURE OF INFOSYS LTD.SUBMITTED BY
PRABIR KUMAR DAS MBA 2nd SEMESTARREGD NO-1006286039 UNDER THE GUIDANCE OF
Mr.N.S.NANDAASSISTANT PROF. (FINANCE)
SRUSTI ACADEMY OF MANAGEMENT1
DECLARATIONI PRABIR KUMAR DAS do here by declare that the Mini project report entitled CAPITAL STRUCTURE OF INFOSYS submitted by me as the requirement for the degree of Masters in Business Administration course of Srusti Academy of Management is my own and then it has not been submitted previously for the award of any degree to another institution or published any time before.
Date: Place: PRABIR KUMAR DAS
1
SRUSTI ACADEMY OF MANAGEMENT (38/1, Chandaka Industrial Estate, near Infocity, P.O Patia, Bhubaneswar, odisha, India)Approved by AICTE, under Ministry of HRD, Govt. of India & Affiliated to BPUT, odisha
Ref No.: . CERTIFICATE
Date: 06/05/11
This is to certify that the project report entitled CAPITAL STRUCTURE OF INFOSYS LTD submitted by Mr. PRABIR KUMAR DAS , ,in partial fulfillment of the requirement for the award of degree of Master in Business Administration from Biju Pattnaik University of Technology, Odisha under my supervision & guidance. I wish him all the luck in his career ahead.
Mr.N.S.NANDA
ASSISTANT PROF. (FINANCE)
Acknowledgement1
I take this opportunity to offer my sincere felling of gratitude and thank to everyone who helped me to number of hellions hands for cooperate and service to bring out this desertion. At the output, express my deep sense of gratefulness to my guide. For her guidance, inspiration and support in each stage of my work. He helped me formulating the entire frame work for the project. I would also like to thank some other faculty who in spite of their busy schedule took out few moments and their co-operation, in this project could never have been possible.
PRABIR KUMAR DAS SEC-B REGD NO-1006286039
Contents1
Objectives of study Methodology
Introduction Brief understanding about the topic Company profile Observation Suggestion Conclusion
OBJECTIVES OF STUDY:-
1
FROM WHICH SOURCES FUND FOR LONG TERM PURPOSES.1.
THE
INFOSYS
RAISE
THEIR
2.
WHAT ARE THE WAYS THEY OPERATING WITH THOSE
CAPITAL.
Methodology This project based only on secondary data, through the the Website of Infosys, manuals, articles and journals.1
Referenceswww.infosys .com http://www.allinterview.com/showanswers/1767.html http://www.caclubindia.com/experts/reserves-surplus-492610.asp http://in.answers.yahoo.com/question/index?qid=20100112032053AAbXD9W http://www.moneycontrole.com http://www.reddiffmoney.com
BRIEF UNDERSTANDING STRUCTURE:-
ABOUT
CAPITAL
Capital structure is a mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Capital1
structure is very important to survive the business in long run. After simple watching the balance sheet of company, you see two sides of balance sheet. One side is liability side and other side is asset side. Liability side is the mixture of finance of company which company has collected from internal and external sources and it has been used or will be used for development of company. In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equityfinanced and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example is referred to as the firm's leverage. In reality, capital structure may be highly complex and include dozens of sources.
Sources of Capital Structure
Equity share capital: Equity share capital is also referred to as ordinary Indian context it is defined by section 85 (2) of the companies act
shares and in
1956. They are the real risk-takers and care-takers of the company and they enjoy the right of voting.
Share application money: Share application money is that money received
by a company during an IPO. Payments received for a subscription of stock is normally received over the IPO life.
Preference share capital: Preference share holders have the preference to Reserves and surplus: Amounts retained in the business and not distributed
get fixed rate of interest of profit for their shares.
to owners.
Reserves can be:1
I. II.
Profits made and not passed on to owners. These are some times known as Capital reserves which can not be passed on to owners and represent the Secured loans: Asset on which the lender has the legal right to exercise
retained earnings. perceived increase in valuation of some fixed assets. ownership if the funds are not returned is called collateral. If collateral is associated with a loan, it is called a secured loan.
Unsecured loans: The loan is made to the borrower with no strings attached
and no collateral, it is called an unsecured loan.
Importance of Capital Structure3 importance of capital structure these are:
Reduce the overall risk of company Adjustment according to Business Environment Idea generation of new source of fund
Reduce the overall risk of company:When we make capital structure before actual getting money from money supplier, we can do many adjustments for reducing our overall risk. Suppose, we have made capital structure in which we add three sources of fund, one is equity share, and other is debenture and last is pref. shares. Because we know that we have to pay debt at its maturity at any cost and its interest at fixed rate. So, we try to get minimum debt in new business because in new business our rate of return will be less than rate of interest and for getting more loan means taking high risk of return more amount of interest even there is no profit.
Adjustment according to Business Environment:1
Company also adjusts different sources expected amount according to business environment. Suppose in future, if government of India cuts off his relation with China, from where our company is getting fund, it will definitely tough for us to get more money from China. But proper planning of capital structure of future sources will be helpful for us to enlarge our area for getting money. In finance, it is called maneuverability. It means to create mobility of sources of fund by including maximum alternatives in planned capital structure.
Idea generation of new source of fund:Good planning of capital structure will make versatile to finance manager for getting money from new sources. If you have studied Wikipedias page of venture capital or private equity sources, you would precisely understand that how finance managers of company are generating new and new idea for getting money from public at low risk.
COMPANY PROFILE Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Today, Infosys Technologies Ltd is 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. They offerings span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and1
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 centers 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.
Infosys annual reporto Capital Structure of Infosys Table-1: (Rs crore)
From Year 2009 2008 2007 2006 2005 2004
To Year 2010 2009 2008 2007 2006 2005
Class Of Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share
Authorized Issued Capital 300.00 300.00 300.00 300.00 150.00 150.00 Capital 286.91 286.42 286.00 285.60 137.78 135.29
Paid Up Shares (No) 573825192 572830043 571995758 571209862 275554980 270570549
Paid Up Face Value 5 5 5 5 5 5
Paid Up Capital 286.91 286.42 286.00 285.60 137.78 135.29
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From Year
To Year
Class Of Share
Authorized Issued Capital Capital
Paid Up Shares (No)
Paid Up Face Value
Paid Up Capital
2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share
50.00 50.00 50.00 50.00 50.00 50.00 30.00 10.00 10.00 10.00 4.00 4.00
33.32 33.12 33.09 33.08 33.08 33.07 16.02 7.26 7.26 7.26 3.35 1.98
66641056 66243078 66186130 66158117 66150700 33069400 16017200 7259600 7258600 7258600 3352100 1976100
5 5 5 5 5 10 10 10 10 10 10 10
33.32 33.12 33.09 33.08 33.08 33.07 16.02 7.26 7.26 7.26 3.35 1.98
Table-2: Source of Capital Structure of Infosys (Rs crore)
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Sources of funds Owner's fund Equity share capital Share application money Preference share capital 287.00 286.00 286.00 286.00 138.00 -
1
Mar ' 10 Reserves & surplus 21,749.00
Mar ' 09 17,523.00
Mar ' 08 13,204.00
Mar ' 07 10,876.00
Mar ' 06 6,759.00
Loan fundsSecured loans Unsecured loans Total 22,036.00 17,809.00 13,490.00 11,162.00 6,897.00
o
Source of capital structure of Infosys
Company is issuing only equity share. Not preference share and loan which was given in table-1 and table-2.Companies which use borrowed money to expand are called Leveraged companies. Conventional wisdom states that if risks are low (i.e.: There is not much likelihood of a drought), you should go ahead and borrow money. This would be true especially if the growth return on capital employed (or your profit divided by money invested) is higher than the interest rate prevailing The IT industry ought to be a place where leveraging should work then after all, while bank rates are hardly 12-14%, an industry that grows at 35% should go for loans to grab as much profits as it can to expand. But Infosys has said for a very long time that they do not plan to expand with debt, and they only grow internally rather than taking loans. In fact, they have no debt at all, which seems that they1
don't reward their shareholders as much as they could. But here is where I believe that the IT industry is essentially different from manufacturing or agriculture. For my farm which gives me paltry returns, I needed to invest a sizeable amount of money. Typically, a manufacturing plant would invest hundreds of crores, and after a couple of years, profits would be made. But in an IT firm, the investment required is minimal. They really do not need to take loans, because this can be funded out of profits which do not require new shareholders or payment of interest. Here of course, the disadvantage will be lower dividends paid to the shareholders, but this is really the cheapest option, because the shareholders would only get the bank deposit rate from their dividend income, while the company would be growing much faster.
OBSERVATION
I observe that they should paid more dividend to shareholder so that their
wealth will maximize and more number of shareholder attract towards the Infosys to invest their capital.
I also observe that to reduce their overall risk they maintain huge cash balance for safety purposes in near future.
SUGGESTION
1
If company needs more money to establishing new project for that the
company may go for debt or issue preference shares because it is getting better return of their investment and they can return money proper time. I would like to suggest that in the present cut throat competition and
increasing and ever growing needs of corporate expansion and growth equity source of financing isnt sufficient one so apart from equity source they should issue other sources for raising fund.
CONCLUSIONInfosys is a very good software company. It is issuing only equity share. It is continuously getting profit every year. it gives good return to their share holders so the people are very much interested to invest in infosys.Equity share capital, reserve & surplus constantly increasing. Infosys does not take any debt. It has 0 secured loan and unsecured loan. It also does not issue any preference share. Because it does not want to give any interest to the lenders it reduces the profit.
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