FINANCIAL MANAGEMENT

DIGITAL ASSIGNMENT – 3

SUBMITTED TO: SUBMITTED BY:

Seetha Ram V Harshitha Parthasarathi

VIT Business School 19BBA0055

Vellore Institute of Technology D1

Vellore 27/08/2020

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INTRODUCTION:
Sources of Funds:
Business finance is the funds required to establish, operate business activities, and expand in
the future. Funds are specifically required various purchase type of tangible assets such as
furniture, machinery, buildings, offices, factories, or intangible assets like patents, technical
expertise, and trademarks, etc.

Apart from the assets mentioned above, other things that require funding are the day-to-day
operational activities of a business. This activity includes purchasing raw materials, paying
salaries, bills, collecting money from clients, etc

Classification of Funds:

1. Based on Period – The period basis is further divided into three dub-division.

• Long Term Source of Finance – This long-term fund is utilized for more than five
years. The fund is arranged through preference and equity shares and debentures etc.
and is accumulated from the capital market.

• Medium Term Source of Finance – These are short term funds that last more than
one year but less than five years. The source includes borrowings from a public
deposit, commercial banks, commercial paper, loans from a financial institute, and
lease financing, etc.

• Short Term Source of Finance – These are funds just required for a year. Working
Capital Loans from Commercial bank and trade credit etc. are a few examples of
these sources.

2. Based on Ownership – This source of finance is divided into two categories.

• Owner’s Fund – This fund is financed by the company owners, also known as
owner’s capital. The capital is raised by issuing preference shares, retained earnings,
equity shares, etc. These are for long term capital funds which form a base for owners
to obtain their right to control the firm’s management and operations.

• Burrowed Funds – These are the funds accumulated with the help of borrowings or
loans for a particular period of time. This source of fund is the most common and
popular amongst the businesses. For example, loans from commercial banks and other
financial institutions.

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3. Based on Generation – This source of income is categorized into two divisions.

• Internal Sources – The owners generated the funds within the organization. The
example for this reference includes selling off assets and retained earnings, etc.

• External Source – The fund is arranged from outside the business. For instance,
issuance of equity shares to public, debentures, commercial banks loan, etc.

INFOSYS

Infosys Limited, is an Indian multinational corporation that provides business

consulting, information technology and outsourcing services. The company is headquartered
in Bangalore, Karnataka, India. Infosys is the second-largest Indian IT company after Tata
Consultancy Services by 2017 revenue figures and the 596th largest public company in the
world based on revenue. On 29 March 2019, its market capitalisation was $46.52 billion.

Infosys Limited is an Indian Information Technology company that provides global business
consulting and information technology services. Infosys helps clients in 45 countries to create
and execute different strategies for their digital transformation. Infosys helps businesses to
renew & improve existing conditions so that their business can achieve higher efficiencies and
stay relevant according to current times. Infosys has more than 200,000 employees and
through their hard work & dedication, Infosys has grown to $46.52 billion as on 29 March
2019.

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Components of Working Capital and Long-Term Capital:

ALANCE SHEET OF INFOSYS (in Rs. Cr.) MAR '20 MAR '19 MAR '18

12 mths 12 mths 12 mths

SOURCES OF FUNDS

Total Share Capital 2,129.00 2,178.00 1,092.00

Equity Share Capital 2,129.00 2,178.00 1,092.00

Reserves 60,105.00 60,533.00 62,410.00

NETWORTH 62,234.00 62,711.00 63,502.00

Secured Loans 0.00 0.00 0.00

Unsecured Loans 0.00 0.00 0.00

TOTAL DEBT 0.00 0.00 0.00

TOTAL LIABILITIES 62,234.00 62,711.00 63,502.00

Gross Block 25,645.00 20,578.00 18,079.00

Less: Accum. Depreciation 11,671.00 10,081.00 8,922.00

NET BLOCK 13,974.00 10,497.00 9,157.00

Capital Work in Progress 945.00 1,212.00 1,442.00

INVESTMENTS 17,922.00 18,139.00 17,899.00

Inventories 0.00 0.00 0.00

Sundry Debtors 15,459.00 13,370.00 12,151.00

Cash and Bank Balance 13,562.00 15,551.00 16,770.00

Total Current Assets 29,021.00 28,921.00 28,921.00

Loans and Advances 19,179.00 20,161.00 18,458.00

Total CA, Loans & Advances 48,200.00 49,082.00 47,379.00

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 Current Liabilities 18,301.00 15,714.00 11,939.00

Provisions 506.00 505.00 436.00

Total CL & Provisions 18,807.00 16,219.00 12,375.00

NET CURRENT ASSETS 29,393.00 32,863.00 35,004.00

TOTAL ASSETS 62,234.00 62,711.00 63,502.00

Debt Equity Ratio:

Debt to Equity is calculated by dividing the Total Debt of a company by its Equity. If the debt
exceeds equity of a company, then the creditors have more stakes in a firm than the
stockholders. In other words, Debt to Equity ratio provides analysts with insights about
composition of both equity and debt, and its influence on the valuation of the company.

According to the company disclosure, INFOSYS LTD has a Debt to Equity of 0.068%. This is
99.88% lower than that of the Technology sector and 99.92% lower than that of the Information
Technology Services industry. The debt to equity for all India stocks is 99.86% higher than
that of the company. The debt equity ratio is below 1 which means that the assets are more
funded by equity.

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Valuation Techniques:

• Comparable Analysis: It is relative valuation method in which they compare the

current value of a business to other similar businesses by looking at trading multiples
like P/E, EV/EBITDA or other ratios.
• Precedent Transactions: It is where they compare the company in question to other
businesses that have recently been sold or acquired in the same industry. These
transaction values include the take-over premium included in the price for which they
were acquired.
• DFC Analysis: Discounted Cash Flow (DFC) analysis is an intrinsic value approach
where an analyst forecasts the business unlevered free cash flow into the future and
discounts it back to today at the firm’s Weighted Average Cost of Capital (WACC).

Valuation in Infosys:

Discounted Cash Flow Valuation:

They start with an assumption that they want to earn 10% on their investment yearly. They
use the multi-year median Free Cash Flow growth rate for DCF valuation. The discount rate
and the estimated cash flow numbers are then used in the net present value formula which
calculates the intrinsic value of the company as well as the intrinsic value per share.

References:

• https://byjus.com/commerce/sources-of-business-finance/
• https://en.wikipedia.org/wiki/Infosys
• https://www.moneycontrol.com/financials/infosys/balance-sheet/IT
• https://craytheon.com/financials/stock_valuation_intrinsic_value_fundamental_analysis.ph
p?company=INFY#
• https://www.macroaxis.com/invest/ratio/INFY.NS/Debt-to-Equity
• https://corporatefinanceinstitute.com/resources/knowledge/valuation/valuation-methods/

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