Financial statements analysis of Infosys annual report 2007-08
“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.
• Chairman and chief mentor -N. R.Narayan Murthy
• Co Chairman -Nandan Nilkani
• C.E.O. -S.Gopalkrishnan
• No. of Directors -9
• No of Awards -32
• 32 in the world and 10th in Asia-Pacific in Innovation in 2006
• Currently have 52 global development centers
• 1st company to be added on NASDAQ -100 INDEX
• On an average ,Infosys receive close to 1 million job
applications in a year. Just 2.3% of the applicants got selected.
Year 2006 2011
Future growth projections
GLOBAL Services 226 328
BPO 144 234
Factors critical for successful, sustainable and scalable
technology service of Infosys.
Authorized Share capital 300 Cr. ( 60 Cr. X Rs. 5 ) Factors
The issued, subscribed and paid up capital as on 31Mar 08,
Market Capitalization as on 31 Mar 08 was Rs 82362 Cr.
(previous year 1,15,307 Cr.)
Book value per share increased to 235.84 from 195.41. ( 20.7
98.6 % of total income from overseas and rest domestic
Earning Per Share increased by 15.4 %
The entire capital expenditure was funded out of internal cash
Totally debt free.
OPPORTUNITIES AND THREATS
OPPORTUNITY THREAT AND RISK STRENGTH
Highly competitive and Infosys strength
rapidly changing market Global Delivery model
Year 2006 2011 Difficult to predict
Status as an employer of
revenue and expenses
GLOBAL Services 226 328 High dependence on choice
Innovation and leadership
BPO 144 234 clients located at USA and
Long Standing Client
Ability to hire, attract and relationship
retain skilled technological Strategy
persons •Increasing business from
Wage pressure in India existing and new clients
Dollar and Money •Investment in Infrastructure
relation and Employee
•Deep industry Knowledge.
•Enhance Brand Visibility
The Risk Management landscape at Infosys includes
• Risk Identification
• Risk Management and Control
• Risk Reporting
The roles and responsibility is clearly identified.
Exchange of best ideas and best practices
Shows Mathematical Relationship between
one variable & another
Groups of financial ratios:
Ratios name Purpose of calculating
Liquidity ratios Measures short term liquidity of the firm
Profitability ratios Measures efficiency of firms activities &
ability to generate profits
Ownership ratios Helps the investor to analyze his present &
future investment in the firm.
Current Ratio 4.91 3.28
Stock/Working Capital Ratio NIL NIL
Debt equity ratio NIL NIL
Capital Gearing ratio NIL NIL
Proprietary Ratio 85.9 78.2
Interest Coverage ratio NIL NIL
Debt Service coverage ratio NIL NIL
Stock Turnover ratio NIL NIL
Debtors turnover ratio 5.63 5
Average collection period 64 72
Fixed assets turnover ratio 7.08 6.49
Gross profit ratio ( In % ) 44.7 43.3
Operating profit ratio ( In % ) 32.1 31.7
Net profit ratio ( In % ) 28.8 28.6
Return on investment ( In % ) 33.9 33.1
Return on equity ( In % ) 41.8 36.3
Dividend per share 11.5 13.3
Earnings per share 67.9 78.2
Dividend payout ratio ( In % ) 16.9 16.9
Price earning ratio 29.8 18.4
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.
• As it is a Service oriented company , it does not have
any stock kept with it. So there is no amount blocked
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) .
• But if we see ,ultimately its
Operating net profit ratio has still from 32.73 to
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
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.
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
• As Infosys is a Debt Free company , it has certain
Advantages and Disadvantages
• Not dependent on External Borrowers
• No Interest burden , therefore higher profits.
• No burden of Loan Repayment
• Can Get Loans easily in Future
• Gives lower E.P.S. for Shareholders.
• 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 .
• The Return on Equity (ROE) & Return on
Investment (ROI) 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
• Company needs to reduce its cost of sales i.e.
Software Development related expenses, to
increase its Gross Profit ratio and
Operating net ratio.
• Company needs to have stringent credit
policy, to reduce the funds required for
• 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.
Factors critical for growth in India and
Factors contributing for IT growth in India
• High Quality delivery
• Significant cost benefits
• Abundant skilled manpower
Factors contributing for growth of Infosys
Effective integration of onsite and offshore work.
Increase depth and breadth of service (One Solution ).
Develop and maintain of knowledge and emerging technology.
Attract and maintain high quality technology professionals.
Make strategic investment in HR and Physical Infrastructure.
Global delivery Model
End to End Solution ( Ex. Finacle)