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 kumar Sreelal M.S. Sandeep Sahu

Fact File of Infosys ØInfosys Technologies Ltd . delivers IT enabled business solutions to enable Global 2000 companies win in a Flat World . Ø ØInfosys 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 . Ø ØInfosys 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: ØPerformance ratios ØWorking capital ratios ØLiquidity ratios ØSolvency ratios

Liquidity Ratios Can the company continue to pay its liabilities and debts?

Current Ratio Current Ratio = Total Current Assets/ Total Current Liabilities ØThe ratio is regarded as a test of liquidity for a company. Ø ØIt 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

By Industry norm current ratio for service industry is around 1.2

Current Ratio.. Inferences ØIn current scenario Infosys has Rs. 4.71 to pay Rs. 1 i.e. it has 370% more capacity to repay its short term liabilities. Ø ØThis depicts a sound financial heath of the company as far as repaying short term obligations are concerned. Ø ØCurrent ratio decreased from 4.96 in Mar-07 to 3.3 in Mar-08. Ø ØReason??

Quick Ratio Quick Ratio = (Cash + Account receivables + short term investments)/ Current liabilities Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

4.67

3.28

4.91

2.73

2.77

Profitability Ratio

Return on Assets: ROA

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

Net Income ROA := Total Assets

Mar-09 32.14

Mar-08 32.06

Mar-07 32.34

Mar-06 31.35

Mar-05 31.66

Return on Equity: 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.

Net Income ROE := Total Common Equity

Mar-09 32.67

Mar-08 33.14

Mar-07 33.89

Mar-06 35.1

Mar-05 36.32

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

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

§

§

§

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 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.

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

0.77

0.79

0.69

0.67

0.62

Working Capital/Sales The 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

• 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

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

• 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

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

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

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

• 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. 2.Company needs to reduce its cost of sales i.e. Software Development related expenses, to increase its Gross Profit ratio and Operating net ratio. 3. 4.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. •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 • •

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Thank You.