Financial Statements Ratio Analysis: Infosys Technologies Limited

Infosys Technologies Limited
Financial Statements
Ratio Analysis
Sandeep Sahu M-09-28
admin
Saurav Kumar M-09-30
Sreelal M.S. M-09-31
Project report in partial fulfillment of the course of Managerial Accounting at

Rajiv Gandhi Institute of Petroleum Technology
Rae Bareilly, Uttar Pradesh
This report aims at analyzing various financial statements of Infosys Technologies Limited and
interpreting the impact of these ratios on the financial decision-making.
Financial Statements Ratio Analysis
Table of Contents
1- About Infosys
2- Fact File of Infosys
3- OBJECTIVE
4- RATIO ANALYSIS
5- OBJECTIVE OF RATIOS
6- FORMS OF RATIO
7- STEPS IN RATIO ANALYSIS

8- Parties interested in Ratio Analysis
9- Operational & Financial Ratios
10-Margin Ratios
11-Performance Ratios
12-Efficiency Ratios
13-Financial Stability Ratios
14-Analysis of Financial Ratios
15-Conclusions
16-Annexure 1
17-Annexure 2
2
About Infosys
Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people
with US$ 250. Today, we are 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.
Infosys' offerings span business and technology consulting, application services,

systems integration, product engineering, custom software development,
maintenance, re-engineering, independent testing and 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 centres 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.
3
Fact File of Infosys

Infosys Technologies Ltd (NASDAQ: INFY) delivers IT-enabled business solutions to
enable Global 2000 companies win in a Flat World. Our solutions focus on providing
strategic differentiation and operational superiority to clients. We leverage our
domain and business expertise along with a complete range of services.
With Infosys, clients are assured of a transparent business partner, world-class

processes, speed of execution and the power to stretch their IT budget by leveraging
the Global Delivery Model that Infosys pioneered.
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.
Key Facts
Senior Executives
Chairman of the Board and Chief Narayana N.R.

Mentor: Murthy
Chief Executive Officer and S.

Managing Director : Gopalakrishnan
Financial Summary (LTM Sep 09)
IFRS
4
Revenues: US$ 4,568

million
Net Income after taxes: US$ 1,283

million
Earnings per ADS: US$ 2.25 (basic)
Total assets: US$ 5,188

million
Cash and cash equivalents: US$ 2,878

million
Indian GAAP (consolidated)
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
5
OBJECTIVE:
To understand the information contained in financial statements with a view to

know the strength or weaknesses of the firm and to make forecast about the future
prospects of the firm and thereby enabling the financial analyst to take different
decisions regarding the operations of the firm.
RATIO ANALYSIS:
Fundamental Analysis has a very broad scope. One aspect looks at the
6
general (qualitative) factors of a company. The other side considers tangible and
measurable factors (quantitative). This means crunching and analyzing numbers
from the financial statements. If used in conjunction with other methods, quantitative
analysis can produce excellent results.
Ratio analysis isn't just comparing different numbers from the balance sheet,
income statement, and cash flow statement. It's comparing the number against
previous years, other companies, the industry, or even the economy in general.
Ratios look at the relationships between individual values and relate them to how a
company has performed in the past, and might perform in the future.
MEANING OF RATIO:
A ratio is one figure express in terms of another figure. It is a mathematical yardstick
that measures the relationship two figures, which are related to each other and mutually
interdependent. Ratio is express by dividing one figure by the other related figure. Thus a
ratio is an expression relating one number to another. It is simply the quotient of two
numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute
figures as “so many times”. As accounting ratio is an expression relating two figures or
accounts or two sets of account heads or group contain in the financial statements.
MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship of items or
group of items in the financial statement are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measure or guides concerning the
financial health and profitability of business enterprises. Ratio analysis can be used both in
trend and static analysis. There are several ratios at the disposal of an annalist but their
group of ratio he would prefer depends on the purpose and the objective of analysis.
While a detailed explanation of ratio analysis is beyond the scope of this section, we
will focus on a technique, which is easy to use. It can provide you with a valuable
investment analysis tool.
7
This technique is called cross-sectional analysis. Cross-sectional analysis

compares financial ratios of several companies from the same industry. Ratio
analysis can provide valuable information about a company's financial health. A
financial ratio measures a company's performance in a specific area. For example,
you could use a ratio of a company's debt to its equity to measure a company's
leverage. By comparing the leverage ratios of two companies, you can determine
which company uses greater debt in the conduct of its business. A company whose
leverage ratio is higher than a competitor's has more debt per equity. You can use
this information to make a judgment as to which company is a better investment risk.
However, you must be careful not to place too much importance on one ratio. You
obtain a better indication of the direction in which a company is moving when several
ratios are taken as a group.
OBJECTIVE OF RATIOS
Ratio is work out to analyze the following aspects of business organization-
A Solvency-
1 Long term
2 Short term
3 Immediate
B Stability
C Profitability
D Operational efficiency
E Credit standing
F Structural analysis
G Effective utilization of resources
H Leverage or external financing
FORMS OF RATIO:
Since a ratio is a mathematical relationship between to or more variables /

accounting figures, such relationship can be expressed in different ways as follows –
A] As a pure ratio:
8
For example the equity share capital of a company is Rs. 20,00,000 & the
preference share capital is Rs. 5,00,000, the ratio of equity share capital to
preference share capital is 20,00,000: 5,00,000 or simply 4:1.
B] As a rate of times:
In the above case the equity share capital may also be described as 4 times
that of preference share capital. Similarly, the cash sales of a firm are
Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash
sales can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the
credit sales are 2.5 times that of cash sales.
C] As a percentage:
In such a case, one item may be expressed as a percentage of some other

item. For example, net sales of the firm are Rs.50,00,000 & the amount of the gross
profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales
[ 10,00,000/50,00,000]
STEPS IN RATIO ANALYSIS
The ratio analysis requires two steps as follows:
1] Calculation of ratio
2] Comparing the ratio with some predetermined standards. The standard ratio may
be the past ratio of the same firm or industry’s average ratio or a projected ratio or
the ratio of the most successful firm in the industry. In interpreting the ratio of a
particular firm, the analyst cannot reach any fruitful conclusion unless the calculated
ratio is compared with some predetermined standard. The importance of a correct
standard is oblivious as the conclusion is going to be based on the standard itself.
Parties interested in Ratio Analysis

Ratio analysis serves the purpose of various parties interested in financial
statements. Primarily the objective of ratio analysis and interpreting the financial
9
statements is to get adequate information useful for the performance of various

functions like planning, coordinating, controlling, communication and forecasting etc.
The interested parties may be:
Share holders/Investors:
Investor in the company will like to access the financial position of company where
he is going to invest. The first concern would be the security of the investment and
then the return on the investment in the form of interest and dividends. So, Investors
concentrate on the firm’s financial structure to the extent that influences the firm’s
earning ability and risk.
Trade creditors:
They are interested in firm’s ability to meet its claims over a short period of time. So
their analysis is usually confined to evaluation of firm’s liquidity position.
The long term creditors:

They are concerned with firm’s long term future solvency and survival. They analyze
the firm’s profitability over a period of time, its ability to generate cash, ability to pay
interest, repay the principle and relationship between various sources of funds.
Employees:
Employees are interested in financial position the concern especially profitability.
Their wages and amount of fringe benefits are related to the volume of profits
earned by the concern. The employees make use of the information available in the
financial statements.
Government:
Government is interested to know the overall financial health of the company.
Various financial statements published by the industrial units are used to calculate
the ratios for determining short-term, long-term and overall financial position of the
firm. Government may base its future policies on the basis of industrial information
available from various units.
Management:
Management of the firm requires these statements for its own evaluation and
decision making. Moreover, it is responsible for the overall performances of the firm
maintaining its solvency so as to be able to meets short-term and long-term
obligations to the creditors and at the same time ensuring an adequate rate of
10
return, consistent with safety of funds of its owner. Financial analysis may not
provide exact answer to the questions but it will be an indication of forthcoming
future.
1- Operational & Financial Ratios
(a) Earnings Per Share (Rs)

Meaning:
Earnings per Share are calculated to find out overall profitability of the organization.
Earnings per Share represent earning of the company whether or not dividends are
declared. If there is only one class of shares, the earning per share are determined
by dividing net profit by the number of equity shares.
EPS measures the profits available to the equity shareholders on each share held.
11
Formula:
NPAT
Earnings per share =

Number of equity share
The higher EPS will attract more investors to acquire shares in the company as it
indicates that the business is more profitable enough to pay the dividends in time.
But remember not all profit earned is going to be distributed as dividends the
company also retains some profits for the business.
For Infosys the variance of EPS ratio for 5 years is -
Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
108.08 78.06 65.42 90.65 68.38
Earnings Per Share (Rs)

120
100
80 Earnings Per Share

(Rs)
60
40
20
0
(b)Cash earnings per share Ratio :
Formula:
(Net operating cash flow-current depreciation of fixed assets-amortization of

intangible assets-amortization deferred charges-interest expense and cost of raising
funds in cash + investment income in cash)
Total equity
For Infosys the variance of CEP ratio for 5 years is –
12
Mar- Mar- Mar- Mar- Mar-

09 08 07 06 05
113.86 87.69 74.34 102.54 80.44
CEPS(Rs)
120
100
80
CEPS(Rs)
60
40
20
0
38412 38777 39142 39508 39873
(c) DIVIDEND PER SHARE:-

Meaning:
DPS shows how much is paid as dividend to the shareholders on each share held.
Formula:
Dividend Paid to Ordinary Shareholders
Dividend per Share =
13
Number of Ordinary Shares
For Infosys the variance of DPS ratio for 5 years is
Mar-09 Mar-08 Mar-07 Mar-06 Mar-05

24.15 44.35 17.66 49.89 16.2
Dividend per share

60
50
40
Dividend per share
30
20
10
0
(d)Book NAV/Share(Rs)
An expression for net asset value that represents a fund's (mutual, exchange-traded,
and closed-end) value per share. It is calculated by dividing the total net asset value
of the fund or company by the number of shares outstanding.
It is also referred to as "book value per share".
Calculated as:
14

09 08 07 06 05
311.35 235.84 195.14 249.89 194.15
Book NAV/Share(Rs)
350
300
250
200 Book NAV/Share(Rs)
150
100
50
0
38412 38777 39142 39508 39873
(e) Tax Rate:

An average tax rate is the ratio of the amount of taxes paid to the tax base (taxable
income or spending).
To calculate the average tax rate on an income tax, divide total tax liability by taxable
income:
• Let a be the average tax rate.
• Let t be the tax liability.
Let i be the taxable income.
For Infosys the variance of tax ratio for 5 years is

09 08 07 06 05
15
13.33 12.35 8.51 11.12 14.58
Tax Rate(%)
16
14
12
10
Tax Rate(%)
8
6
4
2
0
38412 38777 39142 39508 39873
2- Margin Ratios
(a) Core EBITDA Margin ratio :
EBITDA is the acronym for Earnings before Interest, Taxes, Depreciation, and
Amortization.
EBITDA Margin refers to EBITDA divided by total revenue. EBITDA margin

measures the extent to which cash operating expenses use up revenue.
16
09 08 07 06 05
36.57 36.09 34.98 34.71 35.76
Core EBITDA Margin(%)

37
36.5
36
35.5 Core EBITDA Margin(%)
35
34.5
34
33.5
38412 38777 39142 39508 39873
(b)EBIT Margin rartio:
In financial and business accounting, earnings before interest and taxes (EBIT) or
operating income is a measure of a firm's profitability that excludes interest and
income tax expenses.[1]
EBIT = Operating Revenue – Operating Expenses (OPEX) + Non-operating Income
Operating Income = Operating Revenue – Operating Expenses

09 08 07 06 05
17
33.14 32.6 31.45 30.18 32.51
EBIT Margin(%)
34
33
32 EBIT Margin(%)
31
30
29
28
38412 38777 39142 39508 39873
(c)Pre Tax Margin:
Net Earnings + Income Tax

Pre tax Margin =
Net Sales
Explanation of Pre tax Margin:
The Pre tax Margin measures how well a company can generate before-tax profits at
the current level of sales.
Importance of Pretax Margin:
As with any margin, a high or increasing Pretax Margin is usually a positive sign,
showing the company is able to keep its operations costs low, while being able to
pull in strong earnings. The Pretax Margin varies greatly between industries, so you
will have to compare the results for the company you are analyzing to industry
averages.

09 08 07 06 05
33.13 32.59 31.45 30.17 32.49
18
Pre Tax Margin(%)

34
33
32 Pre Tax Margin(%)
31
30
29
28
38412 38777 39142 39508 39873
(d)PAT Margin rate :
The after tax profit margin ratio tells you the profit per sales dollar after all expenses
are deducted from sales. In other words, the after tax profit margin ratio shows you
the percentage of net sales that remains after deducting the cost of goods sold and
all other expenses including income tax expense. The calculation is: Net Income
after Tax /Net Sales.
The profit margin ratio is most useful when it is compared to 1) the same company’s
profit margin ratios from earlier accounting periods, 2) the same company’s targeted
or planned profit margin ratio for the current accounting period, and 3) the profit
margin ratios of other companies in the same industry during the same accounting
period.

27.52 27.37 28.05 26.17 27.28
PAT Margin rate

28.5
28
27.5
27 PAT Margin rate
26.5
26
25.5
25
19
(e) Cash Profit Margin ratio

30.66 28.23 28.57 28.58 30
Cash Profit Margin ratio

31
30.5
30
29.5
29 Cash Profit Margin ratio
28.5
28
27.5
27
05
06
08
09
07
'
'
'
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ar
ar
ar
ar
ar
M
3- Performance Ratios
(a) ROA ratio :
The return on assets (ROA) percentage shows how profitable a company's assets
are in generating revenue.
ROA can be computed as:
This number tells you what the company can do with what it has, i.e. how many
dollars of earnings they derive from each dollar of assets they control. Its a useful
number for comparing competing companies in the same industry. The number will
vary widely across different industries. Return on assets gives an indication of the
capital intensity of the company, which will depend on the industry; companies that
require large initial investments will generally have lower return on assets.

34.76 33.09 33.47 36.21 35.29
ROA (%)
36.5
36
35.5
35
34.5 ROA (%)
34
33.5
33
32.5
32
31.5
20
(b) ROE ratio :
Return on Equity (ROE, Return on average common equity, return on net worth,
Return on ordinary shareholders' funds) (requity) measures the rate of return on the
ownership interest (shareholders' equity) of the common stock owners. 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.

32.67 33.13 33.89 35.1 36.33
ROE(%)
37
36
35
ROE(%)
34
33
32
31
30
(c) ROCE Ratio :
Return on Capital Employed (ROCE) is used in finance as a measure of the returns

that a company is realising from its capital employed. It is commonly used as a
measure for comparing the performance between businesses and for assessing
whether a business generates enough returns to pay for its cost of capital.

09 08 07 06 05
37.71 37.81 37.05 39.51 42.54
21
ROCE(%)
44
42
40 ROCE(%)
38
36
34
38412 38777 39142 39508 39873
(d)Asset Turnover:
Asset 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.[1]
• "Sales" is the value of "Net Sales" or "Sales" from the company's income
statement
• "Average Total Assets" is the value of "Total assets" from the company's
balance sheet in the beginning and the end of the fiscal period divided by 2.

09 08 07 06 05
0.77 0.79 0.69 0.67 0.62
Asset Turnover (x)

1
0.8
0.6 Asset Turnover (x)
0.4
0.2
0
38412 38777 39142 39508 39873
22
(e)Sales/Fixed Asset Ratio

3.39 3.47 3.38 3.18 3.2
Sales/Fixed Asset Ratio

3.5
3.4
3.3 Sales/Fixed Asset Ratio
3.2
3.1
3
(f)Working Capital/Sales(x)
The Working Capital Productivity Ratio helps explain how well the company is using
its working capital. Historically this has been a useful guide to investors or
stakeholders seeking to assess a company’s ability to manage cash. Any measure
of cash management is important to understand since a business needs cash to
operate, this is the oxygen that businesses need to live. This ratio is purported to
have been established by the US management consultant George Stalk while
working in Japan. The ratio gives a possible indication of the relationship between
financial performance and process improvement.
The Working Capital Productivity ratio can be defined as:
Revenue
Working Capital Productivity Ratio =
(Current Assets – Current Liabilities)

09 08 07 06 05
0.61 0.54 0.54 0.42 0.35
23
Working Capital/Sales(x)
0.8
0.6 Working Capital/Sales(x)
0.4
0.2
0
38412 38777 39142 39508 39873
3- Efficiency Ratios
(a)Fixed Capital/Sales(x)

09 08 07 06 05
25.89 26.83 25.58 27.8 27.36
Fixed Capital/Sales(x)
28
27.5
27
26.5
Fixed Capital/Sales(x)
26
25.5
25
24.5
24
38412 38777 39142 39508 39873
(b)Receivable days

09 08 07 06 05
58.39 62.8 52.88 56.02 50.16
24
Receivable days
70
60
50
40 Receivable days
30
20
10
0
38412 38777 39142 39508 39873
(c) Payable days

This ratio shows how many days it takes to pay accounts payable. This ratio is
similar to accounts payable turnover (above.) The business may be losing valuable
creditor discounts by not paying promptly.
The formula is:
365 days
_____________________
Accounts Payable Turnover

09 08 07 06 05
17.14 38.16 35.43 37.09 41.41
Payable days
50
40
30 Payable days
20
10
0
38412 38777 39142 39508 39873
(d) PER Ratio
The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", "PER",
"earnings multiple," or simply "multiple") is a measure of the price paid for a share
relative to the annual net income or profit earned by the firm per share.[2] It is a
financial ratio used for valuation: a higher P/E ratio means that investors are paying
25
more for each unit of net income, so the stock is more expensive compared to one
with lower P/E ratio
There are various P/E ratios, all defined as:

09 08 07 06 05
13.03 18.3 30.43 16.99 15.97
PER(x)
35
30
25
PER(x)
20
15
10
5
0
38412 38777 39142 39508 39873
(e)PCE ratio
A measure of price changes in consumer goods and services. Personal
consumption expenditures consist of the actual and imputed expenditures of
households; the measure includes data pertaining to durables, non-durables and
services. It is essentially a measure of goods and services targeted toward
individuals and consumed by individuals

09 08 07 06 05
11.63 16.31 27.07 14.54 14
26
PCE(x)
30
25
20 PCE(x)
15
10
5
0
38412 38777 39142 39508 39873
(f) Price/Book Ratio
A ratio used to compare a stock's market value to its book value. It is calculated by
dividing the current closing price of the stock by the latest quarter's book value per
share.
It is also known as the "price-equity ratio".
Calculated as:

09 08 07 06 05
4.25 6.06 10.31 5.96 5.8
27
Price/Book(x)
12
10
8
Price/Book(x)
6
0
38412 38777 39142 39508 39873
(g) Yield Ratio

The return on an investment. This refers to the interest or dividends received from a
security and are usually expressed annually as a percentage based on the
investment's cost, its current market value or its face value.
It is a comparison of the expected yield of one bond to the expected yield of another.
A yield ratio is important when deciding whether to invest in one bond or another;
generally, the one with the higher yield wins out. However, it is important to take into
account the after tax basis when taking the yield ratio of a corporate bond and a tax-
exempt municipal bond. A corporate bond yields less than its stated interest rate
because of taxation, whereas a tax-exempt municipal bond does not. Thus, a
municipal bond paying a lower interest rate will often net the bondholder more than a
corporate bond with a slightly higher interest rate, depending upon one's tax bracket.

09 08 07 06 05
1.77 2.32 0.57 1.51 0.51
28
Yield(%)
2.5
2
1.5 Yield(%)
1
0.5
0
38412 38777 39142 39508 39873
(h) EV/Net Sales(x)
A valuation measure that compares the enterprise value of a company to the

company's sales. EV/sales gives investors an idea of how much it costs to buy the
company's sales. This measure is an expansion of the price-to-sales valuation,
which uses market capitalization instead of enterprise value. EV/sales is seen as
more accurate because market capitalization does not take into account as well as
enterprise value the amount of debt a company has, which needs to be paid back at
some point

09 08 07 06 05
3.29 4.82 8.34 4.19 4.22
EV/Net Sales(x)
10
8
6 EV/Net Sales(x)
4
2
0
38412 38777 39142 39508 39873
(i) EV/Core EBITDA(x)
An indicator of a company's financial performance which is calculated in the

following EBITDA calculation:
29
EBITDA is essentially Net Income with interest, taxes, depreciation, and amortization
added back to it. EBITDA can be used to analyze and compare profitability between
companies and industries because it eliminates the effects of financing and
accounting decisions. However, this is a non-GAAP measure that allows a greater
amount of discretion as to what is (and is not) included in the calculation. This
also means that companies often change the items included in their
EBITDA calculation from one reporting period to the next.
When a company is valued using EBITDA - it is known as a EBITDA Valuation.

09 08 07 06 05
9 13.35 23.84 12.08 11.79
EV/Core EBITDA(x)
30
20 EV/Core EBITDA(x)
10
0
38412 38777 39142 39508 39873
(j) EV/EBIT(x)

09 08 07 06 05
9.93 14.78 26.51 13.89 12.97
30
EV/EBIT(x)
30
25
20 EV/EBIT(x)
15
10
5
0
38412 38777 39142 39508 39873
(k) EV/CE(x)

09 08 07 06 05
3.75 5.59 9.82 5.49 5.52
EV/CE(x)
12
10
8 EV/CE(x)
6
4
2
0
38412 38777 39142 39508 39873
4- Financial Stability Ratios

(a) Total Debt/Equity(x)
31
A measure of a company's financial leverage, calculated by dividing its total

liabilities by stockholders' equity. It indicates what proportion of equity and debt the
company is using to finance its assets.

09 08 07 06 05
0 0 0 0 0
Total Debt/Equity(x)
1
0.9
0.8
0.7
0.6 Total Debt/Equity(x)
0.5
0.4
0.3
0.2
0.1
0
38412 38777 39142 39508 39873
(b) Current Ratio :

A liquidity ratio that measures a company's ability to pay short-term obligations.
The Current Ratio formula is:
Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

4.71 3.3 4.96 2.75 2.8
32
Current ratio
6
5
4 Current ratio
3
2
1
0
(c) Quick Ratio
It is an indicator of a company's short-term liquidity. The quick ratio measures a

company's ability to meet its short-term obligations with its most liquid assets. The
higher the quick ratio, the better the position of the company.
The quick ratio is calculated as:

4.67 3.28 4.91 2.73 2.77
Quick ratio
6
5
4 Quick ratio
3
2
1
0
33
Analysis of Financial Ratios:
1- Sales amount increase by 19% but Cost of sales increase by 22% (bcoz
salaries paid to software development employees increase by 26% ). This
has resulted in a less proportionate increase by in Gross profit (15%).
2- Sales increase by 19% but debtors increase by significant 35%.
It is due to the increase in Debtors collection period from 64 to 72 days i.e.
debtors are given more credit period. This has resulted in decrease of
Debtors turnover ratio.
3- 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.
4- Gross Profit Amount increase by approx 15% and Operating Net profit
amount increase by approx 18 %.This means that Operating activities of
Infosys is more efficient as compared to Software development
activities(production activities).
5- But if we see ,ultimately its Operating net profit ratio has still decrease from
32.13 to 31.72.This is due to a significant increase in Cost of sales by 22%.
6- Therefore we analyze that its Cost of sales has so much material affect that it
is reducing both GP Ratio & operating profit ratio.
7- 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 (increase by
257 % ).
8- Funds available with the company has increases by 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%.
9- 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 decreases the Operating profit ratio.
2) used to finance the working capital requirements.
3) has also made some new Investments in the current year(increases by
15 )
10-There is a decreases 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.
11-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.
34
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.
35
Conclusions:
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.
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.
36
Annexure- 1
Balance sheet
Mar ' Mar '
Mar ' 09 Mar ' 08 Mar ' 07
06 05
Sources of funds
Owner's fund
Equity share capital 286 286 286 138 135.29
Share application money - - - - -
Preference share capital - - - - -
17,523.0 13,204.0 10,876.0 6,759.0 5,106.4
Reserves & surplus 0 0 0 0 4
Loan funds
Secured loans - - - - -
Unsecured loans - - - - -
17,809.0 13,490.0 11,162.0 6,897.0 5,241.7
Total 0 0 0 0 3
Uses of funds
Fixed assets
2,837.0 2,182.7
Gross block 5,986.00 4,508.00 3,889.00 0 2
Less : revaluation reserve - - - - -
1,275.0 1,005.8
Less : accumulated depreciation 2,187.00 1,837.00 1,739.00 0 2
1,562.0 1,176.9
Net block 3,799.00 2,671.00 2,150.00 0 0
Capital work-in-progress 615 1,260.00 957 571 317.52
1,328.7
Investments 1,005.00 964 839 876 0
Net current assets
15,732.0 12,326.0 6,105.0 3,764.6
Current assets, loans & advances 0 0 9,040.00 0 5
Less : current liabilities & 2,217.0 1,346.0
provisions 3,342.00 3,731.00 1,824.00 0 4
12,390.0 3,888.0 2,418.6
Total net current assets 0 8,595.00 7,216.00 0 1
Miscellaneous expenses not
written - - - - -
17,809.0 13,490.0 11,162.0 6,897.0 5,241.7
Total 0 0 0 0 3
Notes:
Book value of unquoted 1,328.7
investments 1,005.00 964 839 876 0
Market value of quoted
investments - - - - -
Contingent liabilities 347 603 670 523 289.87
37
Number of equity 2755.5

sharesoutstanding (Lacs) 5728.3 5719.96 5712.1 5 2705.71
Annexure- 2
Profit loss
account
Mar ' Mar '
Mar ' 09 Mar ' 08 Mar ' 07
06 05
Income
20,264.0 15,648.0 13,149.0 9,028.0 6,859.6
Operating income 0 0 0 0 6
Expenses
Material consumed 20 18 22 16 13.55
Manufacturing expenses 1,822.00 1,549.00 1,378.00 854 603.67
4,274.0 3,183.2
Personnel expenses 9,975.00 7,771.00 6,316.00 0 5
Selling expenses 83 89 63 55 82.34
Adminstrative expenses 1,456.00 1,257.00 1,144.00 839 650.65
Expenses capitalised - - - - -
13,356.0 10,684.0 6,038.0 4,533.4
Cost of sales 0 0 8,923.00 0 6
2,990.0 2,326.2
Operating profit 6,908.00 4,964.00 4,226.00 0 0
Other recurring income 874 678 333 221 118.68
3,211.0 2,444.8
Adjusted PBDIT 7,782.00 5,642.00 4,559.00 0 8
Financial expenses 2 1 1 1 1.09
Depreciation 694 546 469 409 268.22
Other write offs - - - - -
2,801.0 2,175.5
Adjusted PBT 7,086.00 5,095.00 4,089.00 0 7
Tax charges 895 630 352 303 325.3
2,498.0 1,850.2
Adjusted PAT 6,191.00 4,465.00 3,737.00 0 7
Non recurring items -372 5 46 -77 54.11
Other non cash adjustments -1 - -5 - -4.59
2,421.0 1,899.7
Reported net profit 5,818.00 4,470.00 3,778.00 0 9
12,460.0 3,849.0 1,970.3
Earnigs before appropriation 0 9,314.00 5,973.00 0 0
Equity dividend 1,345.00 1,902.00 649 1,238.0 309.8
38
0
Preference dividend - - - - -
Dividend tax 228 323 102 174 42.17
10,887.0 2,437.0 1,618.3
Retained earnings 0 7,089.00 5,222.00 0 3
References-
1- www.infosys.com
2- www.moneycontrol.com
3- www.rediffmoney.com
39

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Infosys Technologies Limited

Project report in partial fulfillment of the course of Managerial Accounting at

2- Fact File of Infosys

7- STEPS IN RATIO ANALYSIS

13-Financial Stability Ratios

14-Analysis of Financial Ratios

Infosys defines designs and delivers technology-enabled business solutions that

Infosys' offerings span business and technology consulting, application services,

Fact File of Infosys

With Infosys, clients are assured of a transparent business partner, world-class

Chairman of the Board and Chief Narayana N.R.

Chief Executive Officer and S.

Financial Summary (LTM Sep 09)

Revenues: US$ 4,568

Net Income after taxes: US$ 1,283

Earnings per ADS: US$ 2.25 (basic)

Total assets: US$ 5,188

Cash and cash equivalents: US$ 2,878

Indian GAAP (consolidated)

Total Income : Rs. 22,478 crore

Net profit after taxes : Rs. 6,321 crore

Earnings per share (Rs. 5) : Rs. 110.34

Total assets : Rs. 20,757 crore

Cash and cash equivalents : Rs. 13,796 crore

To understand the information contained in financial statements with a view to

MEANING OF RATIO ANALYSIS:

This technique is called cross-sectional analysis. Cross-sectional analysis

Since a ratio is a mathematical relationship between to or more variables /

In such a case, one item may be expressed as a percentage of some other

STEPS IN RATIO ANALYSIS

The ratio analysis requires two steps as follows:

Parties interested in Ratio Analysis

statements is to get adequate information useful for the performance of various

The interested parties may be:

The long term creditors:

1- Operational & Financial Ratios

(a) Earnings Per Share (Rs)

Earnings per share =

108.08 78.06 65.42 90.65 68.38

Earnings Per Share (Rs)

80 Earnings Per Share

(b)Cash earnings per share Ratio :

(Net operating cash flow-current depreciation of fixed assets-amortization of

For Infosys the variance of CEP ratio for 5 years is –

Mar- Mar- Mar- Mar- Mar-

(c) DIVIDEND PER SHARE:-

Dividend Paid to Ordinary Shareholders

Dividend per Share =

Number of Ordinary Shares

For Infosys the variance of DPS ratio for 5 years is

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

Dividend per share

It is also referred to as "book value per share".

Mar- Mar- Mar- Mar- Mar-

200 Book NAV/Share(Rs)

(e) Tax Rate:

For Infosys the variance of tax ratio for 5 years is

Mar- Mar- Mar- Mar- Mar-

13.33 12.35 8.51 11.12 14.58

EBITDA Margin refers to EBITDA divided by total revenue. EBITDA margin

Mar- Mar- Mar- Mar- Mar-

Core EBITDA Margin(%)