Financial statements analysis of Infosys annual report 2007-08


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It contains detailed ratio and performance analysis of Infosys annual report 2007-08

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Financial statements analysis of Infosys annual report 2007-08

  1. 1. INFOSYS “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- Abhay Khandelwal Kanika Gupta Rahul Kejriwal Rajendra Tripathy Sagnik Ray
  2. 2. OVERVIEW • 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.
  4. 4. Contd….
  5. 5. MANAGEMENT’S DISCUSSION AND ANALYSIS Year 2006 2011  Future growth projections GLOBAL Services 226 328 BPO 144 234  Factors critical for successful, sustainable and scalable technology service of Infosys. Financial Condition  Authorized Share capital 300 Cr. ( 60 Cr. X Rs. 5 ) Factors  The issued, subscribed and paid up capital as on 31Mar 08, 286 Cr.
  6. 6. Contd…  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 % increase)  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 flow.  Totally debt free.
  7. 7. OPPORTUNITIES AND THREATS OPPORTUNITY THREAT AND RISK STRENGTH Highly competitive and Infosys strength rapidly changing market Global Delivery model Superior quality 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 Europe. 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 •Expand geographically •Deep industry Knowledge. •Enhance Brand Visibility
  8. 8. RISK MANAGEMENT  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
  9. 9. Ratio Analysis of Financial Statements
  10. 10. Ratio Analysis 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.
  11. 11. FINANCIAL RATIOS 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
  12. 12. FINANCIAL RATIOS 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
  13. 13. 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.
  14. 14. • 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) .
  15. 15. Contd…. • But if we see ,ultimately its Operating net profit ratio has still from 32.73 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.
  16. 16. • 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 % ).
  17. 17. • 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.
  18. 18. 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 may help the company in Future growth.
  19. 19. • 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.
  20. 20. • 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 .
  21. 21. • 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 performance.
  22. 22. SUGGESTIONS • 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 working capital.
  23. 23. Contd…. • 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.
  24. 24. Thank-You.
  25. 25. Factors critical for growth in India and Infosys  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)