ANALYSIS OF FINANCIAL STATEMENTS

OF INFOSYS LIMITED

TABLE OF CONTENTS:
(1)INTRODUCTION TO IT INDUSTRY
(2)PROFILE OF INFOSYS LIMITED
(3)OBJECTIVE OF ANALYSIS AND METHODOLOGY
(4)FINANCIAL ANALYSIS USING RATIO ANALYSIS
(5)INTERPRETATIONS OF THE RATIOS
(6)RECOMMENDATIONS
(7)REFERENCES

INTRODUCTION TO IT INDUSTRY
The Information technology industry in India has gained a brand identity as a knowledge
economy due to its IT and ITES sector. The ITITES industry has two major components: IT
Services and business process outsourcing (BPO). The growth in the service sector in India has
been led by the ITITES sector, contributing substantially to increase in GDP, employment, and
exports. The sector has increased its contribution to India's GDP from 1.2% in FY1998 to 4.8 %
during the quarter in FY2013. The major cities that account for about nearly 90% of this sectors
exports are Bangalore, Chennai, Hyderabad, Delhi, Mumbai and Kolkata. Bangalore is
considered to be the Silicon Valley of India because it is the leading IT exporter. Export
dominate the ITITES industry, and constitute about 77% of the total industry revenue. Though
the ITITES sector is export driven, the domestic market is also significant with a robust revenue
growth. The industrys share of total Indian exports (merchandise plus services) increased from
less than 4% in FY1998 to about 25% in FY 2012. The "Top Six Indian IT Services Providers"
are Tata Consultancy Services, Infosys, Wipro, HCL Technologies, and Tech Mahindra, Mind
Tree.
This sector has also led to massive employment generation. The industry continues to be a net
employment generator - expected to add 230,000 jobs, thus providing direct employment to
about 2.8 million, and indirectly employing 8.9 million people. Generally dominant player in the
global outsourcing sector. However, the sector continues to face challenges of competitiveness in
the globalized and modern world
The IT sector has been India's sunshine sector for quite some time now. The industry has
contributed considerably to changing India's image from a slow developing economy to a global
player in providing world class technology solutions. According to the IBEF (India Brand Equity
Foundation) figures, the Indian IT industry is set to touch $225 billion by 2020. Industry experts
and NASSCOM say the Indian IT workforce will touch 30 million by 2020, becoming the
highest sector employer. This will be coupled with steady increase in pay in a sector already
offering a high base. The outsourcing industry too is looking towards India and is expected to be
a $2.5 billion industry in the next 24 months.

ABOUT INFOSYS

Infosys technologies Ltd. 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 is a NYSE listed global consulting and IT services company with more than 155,000
employees. From a capital of US$ 250, it has grown to become a US$ 7.398 billion (FY14
revenues) company with a market capitalization of approximately US$ 31 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 valuation services, IT infrastructure services and business process
outsourcing.
Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruption 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 centers in India, China,
Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries
have 105,453 employees.
Infosys take pride in building strategic long-term client relationship. Over 97% of Infosys
revenue comes from its customers.

Milestones of Infosys over last 5 years:

2013

Infosys Board appoints N. R. Narayana Murthy as Executive Chairman of the Board

Infosys begins trading on NYSE Euronext London and Paris markets
3

Infosys Edge wins the NASSCOM Business Innovation Award for 2013

Infosys presented with 2013 Environmental Tracking Carbon Ranking Leader award

Infosys employee strength grows to over 155,000

2012

Listed on the NYSE market

Infosys acquires Lodestone Holding AG, a leading management consultancy based in
Switzerland

Forbes ranks Infosys among the world's most innovative companies

Infosys among top 25 performers in Caring for Climate Initiative

Infosys crosses the US$ 7 billion revenue mark

2011

N. R. Narayana Murthy hands over chairmanship to K.V. Kamath

Infosys crosses US$ 6 billion revenue mark, employee strength grows to over 130,000

2010

Infosys crosses the US$ 5 billion revenue mark

2009

Infosys opens its first development center in Brazil and second Latin American
development center in Monterrey, Mexico
Infosys selected as a member of The Global Dow

Employee strength grows to over 100,000

LOCATIONS
Infosys has 87 global software development centers of which 32 are in India and 55 are outside
India. It has 69 sales offices around the world of which 2 are in India and 67 are outside India.
In recent years, Infosys has begun shifting operations to the United States and other countries
outside of India. In 2012, Infosys announced a new office in Milwaukee, Wisconsin to service
Harley-Davidson, being the 18th international office in the United States. Infosys hired 1,200
United States employees in 2011, and expanded the workforce by an additional 2,000 employees
in 2012. Globally, Infosys has 67 offices between the US, India, China, Australia, Japan, Middle
East, United Kingdom, Germany, France, Switzerland, Netherlands, Poland, Canada.
4

ACQUISITIONS

In December 2003, Infosys had acquired Australia-based IT service provider Expert

Information Services for $23 million.
In December 2009, Infosys BPO acquired Atlanta-based McCamish Systems for about
$38 million.

In January 2012, Infosys BPO acquired Australia-based Portland Group, provider of

strategic sourcing and category management services, for about AUD 37 million.

In September 2012, Infosys acquired Switzerland-based Lodestone Management

Consultants for about $345 million.

CURRENT SHAREHOLDING
As of 30 June 2013:

Shareholders

Shareholding

Promoters group

16.04%

Life Insurance Corporation of India

06.72%

Aberdeen Asset Management PLC

03.89%

Abu Dhabi Investment Authority

02.35%

Oppenheimer Developing Markets Fund

02.13%

Financial Institutions and Individual investors

68.87%

Total

100.00%

Board of directors
Name

Designation

N R Narayana Murthy
S D Shibulal
Ashok Vemuri
David L Boyles
Jeffrey S Lehman
Omkar Goswami
R Seshasayee
B G Srinivas

Executive Chairman
Managing Director & CEO
Director
Independent Director
Independent Director
Independent Director
Independent Director
Director

S Gopalakrishnan
Ann M Fudge
V Balakrishnan
Deepak M Satwalekar
Leo Puri
Ravi Venkatesan
Srinath Batni
K V Kamath

Executive Vice Chairman

Independent Director
Director
Independent Director
Independent Director
Independent Director
Director
Independent Director

PROFILE OF INFOSYS LIMITED

HISTORY
Infosys was co-founded in 1981 by N.R. Narayana Murthy, Nandan Nikelani, N.S. Raghavan, S.
Gopalakrishnan, S.D. Shibulal, K. Dinesh and Ashok Arora after they resigned from Patni
Computer Systems. The company was incorporated as "Infosys Consultants Pvt Ltd." with a
capital of $250 in Model Colony, Pune as the registered office and signed up its first client, Data
Basics Corporation, in New York. In 1983, Infosys corporate headquarters was relocated to
Bangalore.
CHANGE IN NAME
It changed its name to "Infosys Technologies Private Limited" in April 1992. It changed its name
to "Infosys Technologies Limited" when it became a public limited company in June 1992. It
was later renamed to "Infosys Limited" in June 2011.On 1 June 2013, Mr. Narayana Murthy, one
of the founding members of Infosys and its long time CEO, returned from his retirement to
assume office in Infosys as its Executive Chairman.
LISTING
Infosys made an initial public offer (IPO) in February 1993 with an offer price of Rs. 95 per
share against book value of Rs. 10 per share. Interestingly, Infosys IPO was under-subscribed but
it was "bailed out" by US investment banker Morgan Stanley which picked up 13% of equity at
the offer price.Its shares were listed in stock exchanges in June 1993 with trading opening at Rs.
145 per share. In October 1994, it made a private placement of 5,50,000 shares at Rs. 450 each
against book value of Rs. 10 per share to Foreign Institutional Investors(FIIs), Financial
Institutions (FIs) and Corporates. In March 1999, it issued 2,070,000 ADSs (equivalent to
1,035,000 equity shares of par value of Rs. 10 each) at US $34 per ADS under the American
Depositary Shares Program and the same were listed on the NASDAQ National Market in US.
The total issue amount was US $70.38 million. The share price surged to Rs. 8,100 by 1999
making it the costliest share on the market at the time. At that time, Infosys was among the 20
biggest companies by market capitalization on the NASDAQ.During July 2003, June 2005 and
November 2006, it made secondary ADS issues of US $294 million, US $1.07 billion and US $
1.605 billion respectively.In December 2012, Infosys transferred the listing of its American
Depositary Shares (ADS) from the NASDAQ to the NYSE. The Credit Rating of the company is
BBB+ (given by Standard and Poors on 7-May-2010).

OPERARIONS
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On 31 March 2013, Infosys had 798 clients across 30 countries. It earns 62% of its
revenue from North America, 23% from EUROPE, 2% from India and remaining 13%
from rest of the world. Infosys has 87 global software development centers of which 32
are in India and 55 are outside India. It has 69 sales offices around the world of which 2
are in India and 67 are outside India.
In recent years, Infosys has begun shifting operations to the United States and other
countries outside of India. In 2012, Infosys announced a new office in Milwaukee,
Wisconsin to service Harley-Davidson, being the 18th international office in the United
States.Infosys hired 1,200 United States employees in 2011, and expanded the
workforce by an additional 2,000 employees in 2012. Globally, Infosys has 67 offices
between
the US, India, China, Australia, Japan, Middle
East,United
Kingdom, Germany, France, Switzerland, Netherlands, Poland, Canada.
BONUS SHARE AND ATOCK SPLIT
Fisca
l

Bonus Share
Issue

Stock Split Ratio

1986 1:1

2 for 1

1989 1:1

2 for 1

1991 1:1

2 for 1

1992 1:1

2 for 1

1994 1:1

2 for 1

1997 1:1

2 for 1

1999 1:1

2 for 1

2000 ---

2 for 1
8

2004 3:1

4 for 1

2006 1:1

2 for 1

Acquisitions

In December 2003, Infosys had acquired Australia-based

IT service provider Expert Information Services for $23
million.

In December 2009, Infosys BPO acquired Atlanta-based

McCamish Systems for about $38 million.

In January 2012, Infosys BPO acquired Australia-based

Portland Group, provider of strategic sourcing and category
management services, for about AUD 37 million.

In September 2012, Infosys acquired Switzerlandbased Lodestone Management Consultants for about $345
million.

Current shareholding
As of 30 June 2013:
Shareholders

Shareholding

Promoters group

16.04%

Life Insurance Corporation of India

06.72%

Aberdeen Asset Management PLC

03.89%

Abu Dhabi Investment Authority

02.35%
9

Oppenheimer Developing Markets Fund

02.13%

Financial Institutions and Individual investors 68.87%

Total

100.00%

Initiatives
Infosys Foundation
In 1996, Infosys established the Infosys Foundation, to support the underprivileged sections of
society. At the outset, the Infosys Foundation implemented programs in Karnataka. It
subsequently covered Tamil Nadu, Andhra Pradesh, Maharashtra, Odisha, and Punjab in a
phased manner. A team at the Foundation identifies programs in the areas of Healthcare,
Education, Culture, Destitute Care and Rural Development.
Academic Entente
Infosys' Global Academic Relations team forges Academic Entente (AcE) with academic and
partner institutions. It explores co-creation opportunities between Infosys and academia through
case studies, student trips and speaking engagements. They also collaborate on technology,
emerging economies, globalization, and research. Some initiatives include research
collaborations, publications, conferences and speaking sessions, campus visits and campus
hiring.
Infosys Labs
Infosys Labs is organized as a global network of research labs and innovation hubs.
Infosys Labs collaborates with leading national and international universities such as
the University of Southern California Viterbi School of Engineering, University of
Cambridge, Queensland University of Technology, University of Illinois at Urbana
Champaign, Indian Institute of Technology Bombay, IITB Monash Research Academy, Purdue
University, International Institute of Information Technology Bangalore.
Infosys Prize is an annual award given to scientists, researchers, engineers and social scientists
in India. It is given by the Infosys Science Foundation, a not-for-profit trust which was set up in
February 2009 by Infosys and some members of its Board. The prize is given under six
10

categories. Each category includes a gold medallion, a citation certificate, and prize money of
Rs. 50 Lacs.

Employees
Infosys had a total of 156,688 employees as on 31 March 2013, of which 34.7% were women. Its
workforce consists of employees representing 89 nationalities working from 32 countries. Out of
its total workforce, 79% are software professionals, 15% are working in its BPO arm and
remaining 5% work for support and sales. The attrition rate of Infosys Ltd., excluding its
subsidiaries, for 12 months ending 31 March 2013, was 16.3%.
During FY 2012-13, Infosys received 378,994 applications from prospective employees and had
a gross addition of 37,036 employees.
Training Centre in Mysore
As the world's largest corporate university, the Infosys global education centre in the 340 acre
campus has 500 instructors and 200 classrooms, with international benchmarks at its
core. Established in 2002, it had trained around 100,000 engineering graduates by June 2012. It
can train 12,000 employees with 3 batches of 4000 employees for 4 months each.
Infosys Leadership Institute (ILI)
ILI based in Mysore has 96 rooms and trains about 400 Infoscians annually to become 'leaders'.
List of CEOs
Name

Period

N. R. Narayana Murthy 1981 to March 2002

Nandan Nilekani

March 2002 to April 2007

S Gopalakrishnan

April 2007 to August 2011

S D Shibulal

August 2011 till date

11

Awards and Recognitions

Infosys has consistently been honored by clients, industry bodies, media and other influencers. It
was ranked #19 amongst the world's most innovative companies by Forbes.
The company was ranked number one among the best managed companies in Asia Pacific in the
annual Euro money Best Managed Companies in Asia survey, 2013 and named a leader in The
Forrester Wave: Enterprise Mobility Services, Q1 2013 report.
The company also won the Oracle Excellence Award for Specialized Partner of the Year North
America in both Financial Management and Human Capital Management categories, at Oracle
OpenWorld2012.
Boston Consulting Group has listed it in the list of top ten technology companies for total
shareholder return. Infosys was in the list of top twenty green companies in Newsweek's Green
Rankings for 2012.
It has been voted India's most admired company in The Wall Street Journal Asia 200 every year
since 2000. The company's corporate governance practices were recognized by The Asset
Platinum award and the IR Global Rankings. Infosys was also ranked as the 15th most trusted
brand in India by The Brand Trust Report.
Infosys Cloud Ecosystem Hub won the 2012 Golden Peacock Award for the most innovative
product/service.

OBJECTIVE OF ANALYSIS AND METHODOLOGY

OBJECTIVE OF THE STUDY:
The objective of the study is to analyze the financial statements of Infosys Limited using the
technique of ratio analysis so as to determine:

The financial position, i.e. strength and weakness of the firm over the past years.
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The performance levels of the firm over the years compared with the industry and its
competitor.
The efficiency of management policy framework and its execution levels.
The future prospects of the firm in terms of overall growth in the industry.

METHODOLOGY USED:
1. Source of data : The data extracted for the purpose of analysis is from a secondary

but reliable source.

2. Period of analysis : The period taken into consideration for the purpose financial

analysis is from financial years ranging from 2009 to 2013,

i.e.
March 2009: 1/4/2009 to 31/3/2010
March 2010: 1/4/2010 to 31/3/2011
March 2011: 1/4/2011 to 31/3/2012
March 2012: 1/4/2012 to 31/3/2013
March 2013: 1/4/2013 to 31/6/2013
3. Technique used for analysis : The technique used for the financial analysis is

ratio analysis. A ratio analysis is a statistical

yardstick by means of which relationship between two or various accounting figures can
be compared or measured. It is essentially concerned with the calculation of relationships
which after proper identification and interpretation may provide information about the
operations and state of affairs of a business enterprise.
The analysis is used to provide indicators of past performance in terms of critical
success factors of a business. This assistance in decision-making reduces reliance on
guesswork and intuition and establishes a basis for sound judgment.
Why only ratio analysis is used for financial analysis?

Simplifies financial statements

Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios

highlight the factors associated with successful and unsuccessful firm. They also
reveal strong firms and weak firms, overvalued and undervalued firms.
Helps in planning: It helps in planning and forecasting. Ratios can assist
management, in its basic functions of forecasting. Planning, co-ordination, control
and communications.
Makes inter-firm comparison possible: Ratios analysis also makes possible
comparison of the performance of different divisions of the firm. The ratios are
helpful in deciding about their efficiency or otherwise in the past and likely
performance in the future.

13

Help in investment decisions: It helps in investment decisions in the case of

investors and lending decisions in the case of bankers etc.
Provides sufficient insight to appraise the future prospect of the firm.

Types of Ratios Analyzed:

(a) LIQUIDITY RATIOS :Liquidity refers to the ability of a firm to meet its short-term
financial obligations when and as they fall due. The main
concern of liquidity ratio is to measure the ability of the firms to meet their short-term
maturing obligations. Failure to do this will result in the total failure of the business, as it
would be forced into liquidation.
Current Ratio: Current ratio may be defined as the relationship between current
assets and current liabilities. This ratio is also known as "working capital ratio". It is a
measure of general liquidity and is most widely used to make the analysis for short
term financial position or liquidity of a firm. It is calculated by dividing the total of
the current assets by total of the current liabilities.
Current Ratio = Current Assets / Current Liabilities

This ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety
or cushion available to the creditors. It is an index of the firms financial stability. It is also an
index of technical solvency and an index of the strength of working capital.
A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time and when they become due. On the other hand, a relatively low
current ratio represents that the liquidity position of the firm is not good and the firm shall not be
able to pay its current liabilities in time without facing difficulties. An increase in the current
ratio represents improvement in the liquidity position of the firm while a decrease in the current
ratio represents that there has been a deterioration in the liquidity position of the firm. A ratio
equal to or near 2 : 1 is considered as a standard or normal or satisfactory. The idea of having
double the current assets as compared to current liabilities is to provide for the delays and losses
in the realization of current assets. However, the rule of 2 :1 should not be blindly used while
making interpretation of the ratio. Firms having less than 2 : 1 ratio may be having a better
liquidity than even firms having more than 2 : 1 ratio. This is because of the reason that current
ratio measures the quantity of the current assets and not the quality of the current assets. If a
firm's current assets include debtors which are not recoverable or stocks which are slow-moving
or obsolete, the current ratio may be high but it does not represent a good liquidity position.

Quick Ratio: The quick ratio, also referred to as acid test ratio, examines the ability
of the business to cover its short-term obligations from its quick assets only (i.e. it
ignores stock & prepaid expenses).
As a general rule of thumb suggests that the quick ratio should be around 1.
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Quick Ratio = Quick Assets / Current Liabilities

The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It
measures the firm's capacity to pay off current obligations immediately and is more rigorous test
of liquidity than the current ratio. It is used as a complementary ratio to the current ratio. Liquid
ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and
prepaid expenses as a part of current assets. Usually a high liquid ratios an indication that the
firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other
hand a low liquidity ratio represents that the firm's liquidity position is not good. As a
convention,
generally, a quick ratio of "one to one" (1:1) is considered to be
satisfactory. Although liquidity ratio is more rigorous test of liquidity than the current ratio, yet
it should be used cautiously and 1:1 standard should not be used blindly. A liquid ratio of 1:1
does not necessarily mean satisfactory liquidity position of the firm if all the debtors cannot be
realized and cash is needed immediately to meet the current obligations. In the same manner, a
low liquid ratio does not necessarily mean a bad liquidity position as inventories are not
absolutely non-liquid. Hence, a firm having a high liquidity ratio may not have a satisfactory
liquidity position if it has slow-paying debtors. On the other hand, A firm having a low liquid
ratio may have a good liquidity position if it has a fast moving inventories. Though this ratio is
definitely an improvement over current ratio, the interpretation of this ratio also suffers from the
same limitations as of current ratio.
(b) CAPITAL STRUCTURE/ LEVERAGE RATIOS- Any ratio used to calculate the

financial leverage of a company to get an idea of the company's methods of financing or

to measure its ability to meet financial obligations. There are several different ratios, but
the main factors looked at include debt, equity, assets and interest expenses. It is a ratio
used to measure a company's mix of operating costs, giving an idea of how changes in
output will affect operating income. Fixed and variable costs are the two types of
operating costs; depending on the company and the industry, the mix will differ.

Debt-Equity Ratio: Debt-to-Equity ratio indicates the relationship between the

external equities or outsiders funds and the internal equities or shareholders funds. It
is also known as external - internal equity ratio. It is determined to ascertain
soundness of the long term financial policies of the company. Debt to equity ratio
indicates the proportionate claims of owners and the outsiders against the firms
assets. The purpose is to get an idea of the cushion available to outsiders on the
liquidation of the firm. However, the interpretation of the ratio depends upon the
financial and business policy of the company. The owners want to do the business
with maximum of outsider's funds in order to take lesser risk of their investment and
to increase their earnings (per share) by paying a lower fixed rate of interest to
outsiders. The outsider creditors on the other hand, want that shareholders (owners)
should invest and risk their share of proportionate investments. A ratio of 1:1 is
usually considered to be satisfactory ratio although there cannot be rule of thumb or
standard norm for all types of businesses. Theoretically if the owners interests are
greater than that of creditors, the financial position is highly solvent. In analysis of the
long-term financial position it enjoys the same importance as the current ratio in the
analysis of the short-term financial position.
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Debt Equity Ratio = External Equities / Internal Equities

INTEREST COVERAGE RATIO- A ratio used to determine how easily a

company can pay interest on outstanding debt. The interest coverage ratio is
calculated by dividing a company's earnings before interest and taxes (EBIT) of one
period by the company's interest expenses of the same period:

The lower the ratio, the more the company is burdened by debt expense.
The interest coverage ratio is used to determine how easily a company can pay interest
expenses on outstanding debt. When a company's interest coverage ratio is 1.5 or
lower, its ability to meet interest expenses may be questionable. An interest
coverage ratio below 1 indicates the company is not generating sufficient
revenues to satisfy interest expenses. A ratio under 1 means that the company is
having problems generating enough cash flow to pay its interest expenses.
Ideally, you want the ratio to be over 1.5.
(c)

PROFITABILITY RATIOS: Profitability is the ability of a business to earn profit over

a period of time. Although the profit figure is the starting point for any calculation of cash
flow, as already pointed out, profitable companies can still fail for a lack of cash. Without
profit, there is no cash and therefore, profitability must be seen as a critical success factors. A
company should earn profits to survive and grow over a long period of time. Profits are
essential, but it would be wrong to assume that every action initiated by management of a
company should be aimed at maximizing profits, irrespective of social consequences.
Profitability is a result of a larger number of policies and decisions. The profitability ratios
show the combined effects of liquidity, asset management (activity) and debt management
(gearing) on operating results. The overall measure of success of a business is the
profitability which results from the effective use of its resources.

Gross profit ratio: It is the ratio of gross profit to net sales expressed as a
percentage. It expresses the relationship between gross profit and sales. Gross profit
ratio may be indicated to what extent the selling prices of goods per unit may be
reduced without incurring losses on operations. It reflects efficiency with which a
firm produces its products. As the gross profit is found by deducting cost of goods
sold from net sales, higher the gross profit better it is. There is no standard GP ratio
for evaluation. It may vary from business to business. However, the gross profit
earned should be sufficient to recover all operating expenses and to build up reserves
after paying all fixed interest charges and dividends.
Gross Profit Ratio = (Gross profit / Net sales) 100
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Net profit ratio: Net profit ratio is the ratio of net profit (after taxes) to net sales. It is
expressed as percentage. The two basic components of the net profit ratio are the net
profit and sales. The net profits are obtained after deducting income-tax and,
generally, non-operating expenses and incomes are excluded from the net profits for
calculating this ratio. Thus, incomes such as interest on investments outside the
business, profit on sales of fixed assets and losses on sales of fixed assets, etc are
excluded. NP ratio is used to measure the overall profitability and hence it is very
useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the
firm shall not be able to achieve a satisfactory return on its investment. This ratio also
indicates the firm's capacity to face adverse economic conditions such as price
competition, low demand, etc. Obviously, higher the ratio the better is the
profitability. But while interpreting the ratio it should be kept in mind that the
performance of profits also be seen in relation to investments or capital of the firm
and not only in relation to sales.
Net Profit Ratio = (Net profit / Net sales) 100

Expenses Ratio: A measure of what it comes to an investment company to operate a

mutual fund an expense ratio is determined through an annual calculation, where a
fund's operating expenses are dividend by the average dollar value of its assets under
management. Operating expenses are taken out of a fund's assets and lower the return
to a fund's investors. It is also known as Management Expense Ratio (MER).
The expense ratio of a stock or asset fund is the total percentage of fund assets used
for administrative, management, advertising (12b-1), and all other expenses. An
expense ratio of 1% per annum means that each year 1% of the fund's total assets will
be used to cover expenses. The expense ratio does not include sales loads or
brokerage commissions.
Operating profit ratio: The operating profit ratio is another measurement of
managements efficiency. It compares the quality of a companys operations to its
competitors. A business that has a higher operating margin than its industrys average
tends to have lower fixed costs and a better gross margin, which gives management
more flexibility in determining prices. This pricing flexibility provides an added
measure of safety during tough economic times.
Return on Capital Employed: It is the ratio of net profit to share holder's
investment. It is the relationship between net profit (after interest and tax) and share
holder's/proprietor's fund. This ratio establishes the profitability from the share
holders' point of view. The ratio is generally calculated in percentage. The two basic
components of this ratio are net profits and shareholder's funds. Shareholder's funds
include equity share capital, (preference share capital) and all reserves and surplus
belonging to shareholders. Net profit means net income after payment of interest and
income tax because those will be the only profits available for share holders. This
ratio is one of the most important ratios used for measuring the overall efficiency of a
firm. As the primary objective of business is to maximize its earnings, this ratio
indicates the extent to which this primary objective of businesses being achieved.
This ratio is of great importance to the present and prospective shareholders as well as
17

the management of the company. As the ratio reveals how well the resources of the
firm are being used, higher the ratio, better are the results. The interfirm comparison
of this ratio determines whether the investments in the firm are attractive or not as the
investors would like to invest only where the return is higher.
Return on investment = [Net profit (after interest and tax) / Net worth] 100

Earnings Per Share ratio(EPS): EPS Ratio is a small variation of return on

equity capital ratio and is calculated by dividing the net profit after taxes and
preference dividend by the total number of equity shares. The earnings per share
is a good measure of profitability and when compared with EPS of similar
companies, it gives a view of the comparative earnings or earnings power of the
firm. EPS ratio calculated for a number of years indicates whether or not the
earning power of the company has increased.

Earnings per share (EPS) Ratio = (Net profit after tax Preference dividend) / No. of
equity shares (common shares)
Dividend per Share (DPS): The sum of declared dividends for every ordinary share issued.

Dividend per share (DPS) is the total dividends paid out over an entire year (including interim
dividends but not including special dividends) divided by the number of outstanding ordinary
shares issued. DPS can be calculated by using the following formula:

where, D - Sum of dividends over a period (usually 1 year)

SD - Special, one time dividends
S - Shares outstanding for the period

Dividends per share are usually easily found on quote pages as the dividend paid in the most
recent quarter which is then used to calculate the dividend yield. Dividends over the entire year
(not including any special dividends) must be added together for a proper calculation of DPS,
including interim dividends. Special dividends are dividends which are only expected to be
issued once so are not included. The total number of ordinary shares outstanding is sometimes
calculated using the weighted average over the reporting period.

Dividend Payout Ratio: It is calculated to find the extent to which earnings per share
have been used for paying dividend and to know what portion of earnings has been
retained in the business. It is an important ratio because ploughing back of profits enables
a company to grow and pay more dividends in future. The payout ratio is the indicator of
the amount of earnings that have been ploughed back in the business. The lower the
payout ratio, the higher will be the amount of earnings ploughed back in the business and
vice versa. A lower payout ratio or higher retained earnings ratio means a stronger
financial position of the company.
18

Dividend Payout Ratio = Dividend per Equity Share / Earnings per Share
(d) ACTIVITY RATIOS : If a business does not use its assets effectively, investors in the
business would rather take their money and place it somewhere else. In order for the assets to be
used effectively, the business needs a high turnover. Unless the business continues to generate
high turnover, assets will be idle as it is impossible to buy and sell fixed assets continuously as
turnover changes. Activity ratios are therefore used to assess how active various assets are in the
business.
Increased turnover can be just as dangerous as reduced turnover if the business does not have the
working capital to support the turnover increase. As turnover increases more working capital and
cash is required and if not, over trading occurs.

Debtors Turnover Ratio: A concern may sell goods on cash as well as on credit. Credit
is one of the important elements of sales promotion. The volume of sales can be increased
by following a liberal credit policy. The effect of a liberal credit policy may result in
tying up substantial funds of a firm in the form of trade debtors (or receivables). Trade
debtors are expected to be converted into cash within a short period of time and are
included in current assets. Hence, the liquidity position of concern to pay its short term
obligations in time depends upon the quality of its trade debtors. Debtors turnover ratio
indicates the velocity of debt collection of a firm. In simple words it indicates the number
of times average debtors (receivable) are turned over during a year. This ratio indicates
the number of times the debtors are turned over a year. The higher the value of debtors
turnover the more efficient is the management of debtors or more liquid the debtors are.
Similarly, low debtors turnover ratio implies inefficient management of debtors or less
liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There
is no rule of thumb which may be used as a norm to interpret the ratio as it may be
different from firm to firm.
Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

Inventory Turnover Ratio: A ratio showing how many times a company's inventory is sold and
replaced over a period. The days in the period can then be divided by the inventory turnover
formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days.

19

Although the first calculation is more frequently used, COGS (cost of goods sold) may be
substituted because sales are recorded at market value, while inventories are usually
recorded at cost. Also, average inventory may be used instead of the ending inventory
level to minimize seasonal factors.
This ratio should be compared against industry averages. A low turnover implies poor
sales and, therefore, excess inventory. A high ratio implies either strong sales or
ineffective buying.
High inventory levels are unhealthy because they represent an investment with a rate of
return of zero. It also opens the company up to trouble should prices begin to fall.
A low turnover is usually a bad sign because products tend to deteriorate as they sit in a
warehouse. Companies selling perishable items have very high turnover. For more
accurate inventory turnover figures, the average inventory figure, ((beginning inventory +
ending inventory)/2), is used when computing inventory turnover. Average inventory
accounts for any seasonality effects on the ratio.

Working Capital Turnover ratio: It indicates the velocity of the utilization of net
working capital. This ratio represents the number of times the working capital is turned
over in the course of year.The working capital turnover ratio measures the efficiency with
which the working capital is being used by a firm. A high ratio indicates efficient
utilization of working capital and a low ratio indicates otherwise. But a very high
working capital turnover ratio may also mean lack of sufficient working capital which is
not a good situation. If the information about cost of sales is not available the figure of
sales may be taken as the numerator.
Working Capital Turnover Ratio = Cost of goods sold / Net Working Capital

Fixed Assets Turnover Ratio: It is also known as sales to fixed assets ratio. This ratio
measures the efficiency and profit earning capacity of the concern. Higher the ratio,
greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of
fixed assets. The ratio is calculated by using following formula:
Fixed Assets Turnover Ratio = Cost of goods sold / Net Fixed Assets

Method used for interpretation: The interpretation of the various ratios are done at two levels :
(i)

The individualistic firms performance from financial years 2009 to 2013. For
example, in the case of interpreting the current ratio the data interpreted will be
shown in this manner:

20

Mar'09
4.31

Mar'10
4.34

(ii)

Mar'11
4.65

Mar'12
3.98

Mar'13
4.3

The firms performance pitched with the industrial performance and competitor (TCS). For
example, in the data interpreted for the current ratio will be shown in this manner :

MAR13

MAR12

MAR11

MAR10

MAR09

INDUSTRY

2.285

2.36

2.50

2.23

2.14

INFOSYS

4.31

4.34

4.65

3.98

4.3

TCS

2.69

2.85

1.87

2.22

Data of Industry: For arriving at a rational interpretation the industrys data is imperative. The
performance of the firms ratios with respect to industrial ratios for the period FY05 to FY08 is a relevant
yardstick for gauging the firms overall performance.
Now, for calculating the industrial ratios, the cumulative data of the following firms are taken into
consideration:

Infosys

Tata Consultancy Services(TCS)

Wipro

HCL

Tech Mahindra

Mindtree

Profile of TCS: Tata Consultancy Services Limited (TCS) is an

Indian multinational information technology (IT) services, business solutions and consulting
company headquartered in Mumbai, Maharashtra TCS operates in 44 countries and has 199
branches across the world. It is a subsidiary of the Tata Group and is listed on the Bombay Stock
Exchange and the National Stock Exchange of India. TCS is the largest Indian company
by market capitalization and is the largest India-based IT services company by 2013 revenues.
(7) Why TCS chosen to be a competitor for comparison: As we can reckon from the above

profile of TCS that it has substantial presence in India as well as it is trying to expand globally.
The firm has greater exposure to the market, market capitalization and revenue centers than TCS.

21

Therefore comparing Infosys with TCS, will provide us with a rationale of appraising the
futuristic position of Infosys in the industry as it comes to the levels of TCS, as in the future
Infosys will have approximately more market capitalization as TCS has it today.

FINANCIAL ANALYSIS USING RATIO

ANALYSIS
LIQUIDITY RATIOS:
Current Ratio of InfosysMar '13

Mar '12

Mar '11

Mar '10

Mar '09

4.31

4.34

4.65

3.98

4.3

As per the rule of thumb says that the current ratio should be at least 2:1, that is the current assets
should meet current liabilities at least twice, is considered as satisfactory.
Now, by seeing the current ratios of Infosys from 2009 to 2013, we can easily examine that there
is first increasing trend, followed by decreasing trend in Mar'12 and increased to 4.3 in Mar'13.

22

As we can observe that the firm was having a high current ratio in Mar09, that is 4.31 which
higher than the standard. This figure can be explained with the fact that the firm was trading with
less current liabilities in its books, as we compare the current liabilities of Mar13 with Mar12.
In Mar10,it had a strong liquid figure with a substantial increase in fixed deposits and short term
loans and advances, though there was an increase in current liabilities by 19.9% from Mar09,
but it was not sufficient to curb the high current ratio i.e. 4.34 still ways above the standards.
In Mar11, it touched the highest current ratio, i.e. 4.65 in the last 5 years. It had a strong liquid
figure with huge increase in fixed deposits (51.86%), though there was an increase in current
liabilities by 17.19% from Mar10, but it was not sufficient to curb the high current ratio, i.e.
4.65 still ways above the standards.
In Mar12, the current ratio was corrected with a quantum dip, it was 14.40% less than Mar11.
This major correction was experienced with further more introductions of current liabilities
which increased with 32.80% compared with Mar11 and with the complete removal of the funds
locked up in the fixed deposits and substantial reduction of short term loans and advances. The
firm was having a weakest current ratio as compared with the others i.e. 3.98, it just managed to
sweep through its current liabilities.
In Mar13, , the current ratio showed an improving positive sign and the firm managed to attain a
high current ratio, far away from the standards i.e. 4.3. This can be explained by again
substantial increase in the loans and advances and sundry debtors which contributed a 80.46% to
the total current assets and a reduced rate of increase in current liabilities i.e. only 14.28% as
compared with Mar12.
COMPARISON AMONG INFOSYS, TCS AND INDUSTRYMAR13

MAR12

MAR11

MAR10

MAR09
23

INDUSTRY

2.285

2.36

2.50

2.23

2.14

INFOSYS

4.31

4.34

4.65

3.98

4.3

TCS

2.69

2.85

1.87

2.22

As we can observe from the above chart that Infosys has always been an outperformer in
maintaining its high current ratio above the industry benchmark. This shows a respectful
management of working capital as per current ratio performance.
On the other hand, TCS has been managing to fulfill its current liabilities with always over
performing the industry standards, but way far from the levels of Infosys. Its current ratio
position has been increasing from 2.22 IN Mar09 to 3 in Mar13. It just managed to cover up its
current liabilities in Mar10. It has to improve on its current ratio to compete with the levels of
Infosys.

QUICK RATIO OF INFOSYSMar13

Mar12

Mar11

Mar10

Mar09

4.25

4.27

4.56

3.89

4.26

As the quick ratio represents the ability of the firm to cover its current liabilities without
considering its inventories and it also provides us with an insight much clear and deeper than the
current ratio. It shows the performance of quick assets in compensating the current liabilities and
presents us with weight of funds blocked in inventories.
24

As the rule of thumb, a quick ratio of 1:1 is considered satisfactory.

Now, as we can observe from the chart above that the quick ratio of Infosys has always remained
above the standards, though having a increasing trend followed by a decreasing trend and has
followed the same pattern as that of the current ratio, which provides us with a rational that the
firm is not dependant on its inventories for clearing its current liabilities and the firm has as an
efficient inventory management, as the funds locked up in inventories does not affect the
liquidity position of the firm.

This chart above in-depth interprets that the quick ratio of Infosys is always following the same
trend as that of the current ratio. The difference is because of the absence of inventories in quick
25

assets and the minute difference reflects a strong liquidity front for Infosys as it can clear its
current liabilities without liquidating its inventories.

COMPARISON AMONG INFOSYS, TCS AND INDUSTRYMar13

Mar12

Mar11

Mar10

Mar09

Industry

2.45

2.59

2.62

2.24

2.14

Infosys

4.25

4.27

4.56

3.89

4.26

TCS

3.01

2.66

2.83

1.86

2.21

As we can observe from the chart above that Infosys has always performed above the industry
standards and has shown its strong liquidity front with a high quick ratios. This also reflects its
efficient planning in investing funds into its inventory and having least dependency on inventory
for clearing its current liabilities, which is far better than the industrial standards.
On the other hand, TCS is following up the industry trend and is far below than Infosys. In fact
in the case of quick ratios, its position has slightly weakened as compared with its position in
current ratios because of the exclusion of inventories. It has to improve the way of planning in
investing funds into its inventory, so as to have minimal dependency on inventory for clearing up
the current liabilities and to touch the level of Infosys.

26

CAPITAL STRUCTURE/ LEVERAGE RATIOS:

1. DEBT EQUITY RATIOThis ratio measures the proportion of Debt and Capital , both equity and preferences, in the capital
structure of a company. In other words it measures the extent of assets financed through long term
borrowing.
DEBT EQUITY RATIO = Long term Debt/ (Equity Shareholders Fund+ Preference Capital)
The ratio helps in assessing whether a company is relying more on debts or capital financing for more
assets. Higher the debts, more is the financial risk of defaults in intrests and debt service. It also hampers
the capacity of a company to raise cheaper funds. A high capital content means not passing the cost
differential of debt and equity to the equity holders.

Debt Equity Ratio (Infosys)

Mar 13

Mar 12

Mar 11

Mar 10

Mar 09

As we know that Infosys is a 0 debt firm, So the debt part is 0 which is the numerator part of the ratio so
so the debt equity ratio is 0 all over.

Debt Equity Ratio Comparison (Infosys, TCS, Industry)

27

Mar 13

Mar 12

Mar 11

Mar 10

Mar 9

Infosys

TCS

0.01

0.01

0.01

0.01

0.04

Industry

0.1

0.16

0.2

0.13

0.22

While comparing the company performance with the competitor TCS and with the overall IT
industry The graph prepared above shows that Infosys is a 0 debt firm, So the debt part is 0
which is the numerator part of the ratio so the debt equity ratio is 0 all over. When we observe
the condition of TCS we found that the in the period 2009-10 the ratio decreased with a high ate
that can happen in only two situations. First one is about the debt part which according to the
graph seems to be decreasing which is a good sign for the firm.
Secondly the other condition could be that the share holders fund and the preference shares have
increased which good and beneficial for future. As a comparison Infosys is a 0 debt company so
it is unmatchable but TCS is also balancing the ratio in last 4 years that determines the company
performance is consistent
Now keeping the whole industry in the mind the debt equity ratio is overall decreasing in last
five years and an increment of 53% in year 2010-11. It seems the industry is doing well but the
comparison is with Infosys the second one is far better.

2. INTEREST COVERAGE RATIOThe ratio measures the capacity of a company to pay the intrest liability it has incurred on its
long term borrowing, out of its each profit. It is also known as times intrest covered.
INTEREST COVERAGE RATIO = (Profit after tax + interest on long term debt +
noncash charges) / interest on long term debt

28

The ratio helps in assessing whether a company is comfortably placed to service its interests
obligations out of revenues it is generating. Higher the ratio, greater the ability of a company to
service interest, lesser the financial risk of default and higher the comfort level of the lender.
Interest Coverage Ratio (Infosys)
Mar 13

Mar 12

Mar 11

Mar 10

Mar 09

As we know that Infosys is a 0 debt firm, so the debt part is 0 which is the denominator part of
the ratio so the debt equity ratio is 0 all over. In other words we can say that the Company has
concern only with the profit there is no debt or financial liability thats a very overwhelming fact
Interest Coverage Ratio (Infosys, TCS, Industry)
Mar 13

Mar 12

Mar 11

Mar 10

Mar 9

Infosys

TCS

374.06

627.33

415.57

519.56

240.84

Industry

143.18

199.98

140.72

188.65

70.07

29

As we know that Infosys is a 0 debt firm, so the debt part is 0 which is the denominator part of
the ratio so the debt equity ratio is 0 all over. In other words we can say that the Company has
concern only with the profit there is no debt or financial liability thats a very overwhelming fact
While comparing with TCS the graph shows continuous rise and fall in every year. In the year
2009-10 the ratio has a drastic increase in the interest coverage ratio that means either the debt
part is decreasing or profit is increasing. Both things signifying the rise of the company thats a
good thing but it decreased rapidly in the next financial year but after is again has a drastic
increase of 210 percent in the profit in the period 2011-12. Then there is a downfall but overall
the company is running in profit. The profit is increased 55% in the last 5 year time that is 200913.The company performance is not consistent we can say, overall.
Now talking about the industry, the ratio has increased 105% as an overall performance of the
industry. But the performance is not good or consistent.

PROFITABILITY RATIOS:
1. Profit Ratios based on turnover30

a. Gross Profit Ratio of InfosysMar13

Mar12

Mar11

Mar10

Mar09

25.85

29.04

29.51

30.59

29.67

As we can observe from the above chart that the gross profit ratio of Infosys has shown
a more over a sluggish growth from 29.67% in Mar09 to 25.85% in Mar13. This
sluggish growth in gross profit ratio can be explained from the fact that as the net sales
heavily increased by 86.01% from Mar09 to Mar13, but on the other hand the cost of
goods sold also increased in a similar weight. The cost of goods sold were increasing
proportionately with the increase in the net sales, therefore leaving us with a sluggish
growth rate of gross profit ratio from Mar09 to Mar13, but the positive point here is that
in spite of such increasing rate of cost of goods the firm managed in maintaining the
levels of gross profit ratio, with proportionately increasing the growth in net sales.

COMPARISON AMONG INFOSYS, TCS AND INDUSTRYMar13

Mar12

Mar11

Mar10

Mar09
31

Industry

19.35

19.46

19.55

21.68

21.32

Infosys

25.85

29.04

29.51

30.59

29.67

TCS

26.92

27.64

27.98

26.82

23.75

As we can observe from the chart above that Infosys has always performed with higher
gross profit ratios as compared with the industrial standards as well as with its peer
(TCS).
Despite of suffering with the highest growth rate in cost of goods sold, it has able to
generate sufficient growth rate in net sales to maintain its high gross profit ratio in the
industry. However, TCS has better gross profit ratio than Infosys in Mar13. The reason
for this can be attributed as the reduction in cost of goods sold with slight increase in net
sales.
This is a positive sign for Infosys in case of general profitability position as it maintain its
high gross profit margins from Mar09 to Mar12, but it has to increase its net sales
along with the reduction in cost of goods sold to compete with main competitor (TCS) to
maintain its high profitability position in the IT Industry.

b. Net Profit Ratio of Infosys32

Mar09

Mar10

Mar11

Mar12

Mar13

26.48

26.49

23.84

23.41

22.07

As we can examine from the above chart that the net profit ratio which is represented by
the percentage of net sales has shown an decreasing trend from 26.48% in Mar09 to
22.07% in Mar13. This can be explained by the fact that net profit increased by 57.46%
from Mar09 to Mar13 which is much lower than the increase in net sales, i.e. 86.01% .
Thus, the net profit ratio decreased by 19.99% from Mar09 to Mar13.
COMPARISON AMONG INFOSYS, TCS AND INDUSTRYMar09

Mar10

Mar11

Mar12

Mar13

Industry

14.26

19.27

16.07

15.75

17.47

Infosys

26.48

26.49

23.84

23.41

22.07

TCS

18.69

23.07

23.93

21.11

21.68

33

As we can examine from the chart above that Infosys has shown a stable performance
in maintaining a high overall net profit ratio as compared with the industry as well as
with its peer(TCS) over a period of time, i.e. Mar09 to Mar13. In Mar11, TCS gave a
hard time to Infosys and matched up with the level of Infosys, but unable to maintain in
the further years. Now, lets compare the net sales, to reckon the efficiency in producing
net profits.
Mar09

Mar10

Mar11

Mar12

Mar13

Industry

15,072

16,312

19,621

24,616

28,241

Infosys

21,693

22,742

27,501

33,734

40,352

TCS

27,812

30,028

37,324

48,893

62,989

34

By observing the chart above, we can analyze that the scale of net sales for Infosys are
greater than IT Industry standards, but lower than TCS. It is clearly visible after
examining the above graph that TCS is on a different level than Infosys, its way above
in the scale of net sales. We can say that TCS is approximately 100% above Infosys in
respect to net sales from Mar09 to Mar13.
After comparing the net sales and the net profit ratio of Industry, Infosys and TCS, we
can say that as the net sales of Infosys are lower than TCS, but it is a better performer
in its net profit ratio. This means that Infosys performs efficiently in generating better net
profits with comparatively less net sales. Hence, this proves that Infosys is trading at
better spreads as compared with its peer and industry. This is a positive sign for Infosys
for its profitability as per net profit ratio is concerned.

c. Selling and Administrative Expenses Ratio of InfosysMar09

Mar10

Mar11

Mar12

Mar13

7.85

7.87

7.94

8.47

4.99

35

We can observe from the above graph that Infosys follows an increasing
trend from Mar09 to Mar12 and the followed by a decreasing trend from
Mar12 to Mar13. Thus, it can be interpreted as Infosys always managed to
maintain its selling and administrative expenses ratio far above industry
standards. In Mar12, the firm is attaining lowest expense ratio over 5 years
which is favorable for a firm. This can be explained as reduction in the selling
and administrative expenses by 41.08% from Mar12 to Mar13.

COMPARISON AMONG INFOSYS, TCS AND INDUSTRYMar09

Mar10

Mar11

Mar12

Mar13

Industry

8.88

6.55

5.35

6.13

0.83

Infosys

7.85

7.87

7.94

8.47

4.99

TCS

6.51

6.37

5.09

0.00

0.00

36

It can be observed from the graph that Infosys has higher selling and
administrative expenses ratio than its peer(TCS) AND IT Industry standards.
On the other hand, TCS, is far below from the industry standards in selling
and administrative ratios and is far away from Infosys.

d. Operating Profit Ratio of InfosysMar09

Mar10

Mar11

Mar12

Mar13

33.18

34.57

32.61

31.79

28.58

37

As we can observe from the above chart that the operating profit ratio followed an
increasing trend from 33.18% in Mar09 to 34.57% in Mar10, followed by a decreasing
trend from 34.57% in Mar10 to 28.58% in Mar13. This increase in the operating profit
ratio from Mar09 to Mar10 can be explained by the fact that the gross profit increased
by 55.65% and the operating expenses only increasing by 45.6%, which gives a strong
numerator number for the ratio and for the denominator side the net sales increased by
48.4% from Mar09 to Mar10. The operating profit ratio presented a downward trend
from 34.57% in Mar10 to 28.58% in Mar13. This can be explained by fact that the
operating expenses increased by 51.5% from Mar10 and the gross profit increased by
only 29.94% because of reduction in cost of goods sold, which gives a weak numerator
number for the operating profit ratio as compared with previous years and the net sales
also increased by only 35.11% .
COMPARISON AMONG INFOSYS, TCS AND IT INDUSTRYMar09

Mar10

Mar11

Mar12

Mar13

Industry

24.42

24.99

22.57

22.19

21.88

Infosys

33.18

34.57

32.61

31.79

28.58

TCS

25.77

29.02

29.95

29.52

28.63

As we can reckon from the chart above that Infosys is an out performer in its operating
profit ratio. The firm is above the industrial standard performance and is far above from
its peer (TCS) from Mar09 to Mar12. This shows that the company has kept its
operating expenses in control in an efficient manner for generating greater operating
profits. This is again a positive sign for the firms general profitability as operating profit
ratio is concerned.
38

On the other hand, TCS continued to control its operating expenses in an efficient
manner which resulted in the increasing operating profit ratio from 25.77% in Mar09 to
28.63% in Mar13. In Mar13, TCS controlled its operating expenses in an efficient
manner for generating greater operating profits and thus, matched up with the level of
Infosys.

2. Profit Ratios Based on Investment:

a. Return on Capital Employed of InfosysMar09

Mar10

Mar11

Mar12

Mar13

40.25

34.1

35.74

37.18

33.68

As we can observe from the above chart that the return on capital employed for Infosys
follows an decreasing trend from 40.25% in Mar09 to 33.68% in Mar13. This
decreasing trend can be explained by the fact that the net profits after tax of the firm
increased sluggishly and average capital employed increased from Mar09 to Mar10,
resulting in the downfall of return on capital employed.
In Mar10 to Mar12, the ratio increased by 34.1% to 37.18%. This explains the better
utilization of funds and the profitability of the company and rate of impressive return on
capital employed.
In Mar13, the ratio decreased 37.18% from Mar12 to 33.68%. The slight drop in the
ratio value for the financial year 2013indicates a marginal reduction in the returns
available to the concern, yet the overall figure holds good for the firm.
39

COMPARISON AMONG INFOSYS, TCS AND INDUSTRYMar09

Mar10

Mar11

Mar12

Mar13

Industry

39.17

35.66

27.68

29.27

30.19

Infosys

40.25

34.1

35.74

37.18

33.68

TCS

42.44

45.04

44.77

46.96

46.67

From the chart we can observe that the return on capital employed of Infosys has been
following industry standards majorly. The ratio has followed a stable and steady path
unlike than its peer which had a increasing trend always. In Mar11, Infosys crossed the
industrial standards and ended up just below its peer(TCS).
By analyzing the following we can say that Infosys might not be having a high return on
capital employed in the industry but has a stable and steadily increasing return on
investment. This represents that the firm is less volatile in its returns and has shown a
stable sustained growth in case of R.O.I, which means that the shareholders fund are
not entangled in high variable returns and hence they bear the least risk on their
investment. This is a positive sign from the point of investment in case of long-term
investments as per R.O.I is concerned.

b. Earnings Per Share(EPS) of InfosysMar09

Mar10

Mar11

Mar12

Mar13
40

101.58

101.13

112.22

147.5

158.75

As we can observe from the above chart that EPS of Infosys has followed an increasing
trend from 101.58 in Mar09 to 158.75 in Mar13 with a change of 56.28% .This
represents a strong earning power of the firm as the ratio has followed an increasing
trend and has followed the same path as that of return on equity, which in turn is a
positive sign. The increasing E.P.S is a positive sign for the profitability of the firm but
we have to compare it with its peers to have a rational projection of the profitability.
COMPARISON AMONG INFOSYS and TCSMar09

Mar10

Mar11

Mar12

Mar13

Infosys

101.58

101.13

112.22

147.5

158.75

TCS

47.92

28.62

38.62

55.97

65.23

41

As we can observe from the above chart that both firms have followed an increasing
trend in their respective earning per share ratio. This means that both the firms have
earning power in the industry and they contribute positively to the earnings of the whole
industry as well as to the return to their respective shareholders.
Now, as we can observe that Infosys is above its peer in its E.P.S ratio. Hence, we can
say that Infosys has the potential of earning and has performed in its E.P.S. increasingly
over the years and the firm has the scope of increasing its earning power by coming up
to the level of sales as that of its peer.

c. Dividend Per Share of InfosysMar09

Mar10

Mar11

Mar12

Mar13

23.50

25.00

60.00

47.00

42.00

42

We can observe from the graph that the ratio has increased at a faster growth from
Mar10 to Mar11, but followed by the decreasing trend. Increasing ratio of dividend per
share is a positive sign and the company management believes that the company
growth can be sustained in the coming future. It shows the exact amount of profit
earned by the owners and thus, attracts more investors and shareholders in the
company.
COMPARISON AMONG INFOSYS AND TCSMar09

Mar10

Mar11

Mar12

Mar13

Infosys

23.5

25

60

47

42

TCS

14

20

14

25

22

43

We can observe from the graph that Infosys has always better dividend per share ratio
that TCS and showed better profits to the owners. Infosys has followed an increasing
trend from 24.5 in Mar09 to 60 in Mar11 and followed decreasing trend afterwards, but
maintained its position at top of the IT Industry.
On the other hand, TCS has always underperformed that Infosys and has to earn better
profits to the owners by efficient utilization of the resources to match up with the level of
Infosys, though it has also an increasing trend from Mar09 to Mar10 and Mar11 to
Mar12, but not able to maintain its results.

d. Dividend Payout Ratio of InfosysMar09

Mar10

Mar11

Mar12

Mar13

26.26

26.71

58.71

37.51

29.69

44

As we can observe from the above chart that the dividend payout ratio of Infosys as
followed an overall increasing trend from 26.26 in Mar09 to 58.71% in Mar11 with an
impressive increase of just 123.57% over 3 years and then followed decreasing trend
from 58,71% in Mar11 to 29,69 in Mar13.
The chart reflects that after Mar11, the firm started to payout less percent of dividend
and retained the rest to build its retained earnings block for its long term/expansion
objectives.
A clear analysis about this ratio can be made after comparing it with its peer and
industry.
COMPARISON AMONG INFOSYS, TCS AND INDUSTRYMar09

Mar10

Mar11

Mar12

Mar13

Industry

24.70

25.19

30.17

30.09

26.82

Infosys

26.26

26.71

58.71

37.51

29.69

TCS

30.59

65.54

35.32

54.85

36.21

As we can observe from the above chart that the industry has a increasing trend in its
dividend payout ratio, which means that the every player in the industry is trying to
retain its earning to maximum and give the least dividend, so as to build their respective
retained earning block for utilizing the retained funds in its long term/expansion
objectives. Hence we can depict from this phenomena that the IT Industry in India is at
its expansion.
45

Now, Infosys dividend payout ratio has not followed the industrial trend and is always
above the industrial standard but is way below the levels of TCS. This means that the
firm is paying out dividend at a higher rate as compared with the industry but that rate is
much lesser than that of its peer. Hence we can comment that the firm is building up its
retained earning block with a greater rate as compared with its peer but can be more
restrictive in its dividend paying out policy, as it is still way above the industrial
standards. This also reflects that Infosys is in a better position to perform on its long
term/expansion plans as it is saving up its earnings at a much greater rate than its peer.
This is a positive sign for Infosys as per the dividend payout ratio is concerned.

ACTIVITY RATIOS:
1. DEBTOR TURNOVER RATIO
Debtors Turnover Ratio is calculated to comment upon the liquidity/efficiency with which the
liquid resources are being used by the firm.
DEBTOR TURNOVER RATIO = Net credit sales / Average debtors
Net credit sales = Total sales cash sales sales return
Average debtors= (Opening debtor + closing debtor)/ 2
A high Debtors ratio indicates less credit time allowed by the firm to its clients and it is good and
the vice versa. Average Collection period shows the velocity of debt collection of a firm. It also
shows the number of times the average debtors (receivables) are turned over during a year.
Debtor Turnover Ratio (Infosys)
Mar 13

Mar 12

Mar 11

Mar 10

Mar 09

6.22

6.4

6.75

6.35

6.23

46

As the graph shows the ratio is almost constant allover except having the increment in 2010-11

that shows the company had max credit sales in that period as comparing to last 5 years.

Debtor Turnover Ratio (Infosys, TCS, Industry)

Mar 13

Mar 12

Mar 11

Mar 10

Mar 9

Infosys

6.22

6.4

6.75

6.35

6.23

TCS

4.92

4.96

5.31

5.06

4.88

Industry

5.26

5.5

5.71

5.23

5.26

47

Now for the comparison we know that As the graph shows the ratio is almost constant allover
except having the increment in 2010-11 that shows the company had max credit sales in that
period as comparing to last 5 years.
In case of TCS the analysis shows that there is an increment of 8.8% from the period 2009-11
and same decrement in the period 2011-13. The overall ratio is increased in five year period .
Now comparing with the industry the same pattern is going as in case of Infosys and TCS.
As an overall comment the pattern is same so we can say they are performing consistently but
the value is greater in case of Infosys so it is the more better among all the three standards we
have taken. The table shows that Infosys has the greater net credit sales which makes the ratio
greater everywhere and than anyone in the sector.

2. INVENTORY TURNOVER RATIOS

This ratio shows how fast the inventory can be sold. Actually inventory is always seen as less
liquid able item and it costs the company. Japanese Company like Toyota discovered Just in
Time approach to reduce the inventory cost. A high inventory ratio is good from the point of
view of better and quick utilization of inventory.
INVENTORY TURNOVER RATIOS= Cost of goods sold / Average inventory
Cost of goods sold = Total net sales / Gross profit
Average inventory = (opening inventory closing inventory) /2
48

A low inventory ratio represent that the inventory in slow moving and costs the company in the
form of carrying cost i.e. salary of stores persons, lighting, rent, insurance etc.
Inventory Turnover Ratio (Infosys)
Mar 13

Mar 12

Mar 11

Mar 10

Mar 09

Actually inventory is always seen as less liquid able item and it costs the company. In case of
Infosys the value is 0 because of no inventories. Having no problem is the best solution of every
problem so there is the problem of inventory we are talking about and Infosys doesnt has this.

Inventory Turnover Ratio (Infosys, TCS, Industry)

Mar 13

Mar 12

Mar 11

Mar 10

Mar 9

Infosys

TCS

2978.23

2751.48

2048.55

2120.69

860.55

Industry

1508.6

1443.1

913.87

963.45

528.99

49

Comparing it with the industry and the competitor TCS as we know that actually inventory is
always seen as less liquid able item and it costs the company. In case of Infosys the value is 0
because of no inventories. Having no problem is the best solution of every problem so there is
the problem of inventory we are talking about and Infosys doesnt has this.
Now talking about TCS we can see by the graph that the inventory ratio is high and is getting
higher by the time that means the inventory is moving very fastly and thats a good thing. The
ratio is drastically increased by 246.2% and thats great.
In case of industry the same pattern can be observed from the graph and the increment is 185%,
but above all the ratio is the greatest in case of Infosys.

3. WORKING CAPITAL TURNOVER RATIO

The ratio shows the number of times the working capital is turned over in the course of the year.
WORKING CAPITAL TURNOVER RATIO=Cost of goods sold / Net working capital
This ratio measures the efficiency with which the working capital is being used by a firm. A
higher ratio shows efficient working capital and low ratio indicates otherwise.
Working Capital Turnover Ratio (Infosys)
Mar 13

Mar 12

Mar 11

Mar 10

Mar 09

246.22

260.08

262.75

221.33

214.08

50

This ratio measures the efficiency with which the working capital is being used by a firm. As
higher the ratio will be, the company will said to b efficiently using money. Here the graph
shows that the ratio increased in the year 2009-11 and then decreasing in the further period that
means the companys working capital is being used efficiently in the first half and then the
efficiency decreased the percentage increment and downfall are 22.5% and 6% respectively. And
overall its increasing by 13%.
Working Capital Turnover Ratio (Infosys, TCS, Industry)
Mar 13

Mar 12

Mar 11

Mar 10

Mar 9

Infosys

246.22

260.08

262.75

221.33

214.08

TCS

148.2

138.39

138.18

89.84

96.75

Industry

106.53

119.83

113.69

99.47

92.15

51

This ratio measures the efficiency with which the working capital is being used by a firm. As
higher the ratio will be, the company will said to b efficiently using money. Here the graph
shows that the ratio increased in the year 2009-11 and then decreasing in the further period that
means the companys working capital is being used efficiently in the first half and then the
efficiency decreased the percentage increment and downfall are 22.5% and 6% respectively. And
overall its increasing by 13%.
In case of TCS the overall increment is 54% in the period 2009-13 that means the company is
efficiently using money for itself.
In case of overall industry the ratio is increased by 15 % in 5 years and decreased by 10 percent
in last year. Comparing all, the overall performance is much better in case of Infosys.

4. FIXED ASSETS TURNOVER RATIO

The ratio measures the extent of turn over or volume of gross income generated by the fix assets
of a company or in other words the efficiency in its utilization.
FIX ASSET TURNOVER RATIO= Net sales / Average working capital
Capital work in progress does not lead to revenue generation; Hence it is not included here.
Fix assets are the income generating assets of the company .Naturally the more efficiency they
are utilized, the more they contributed towards operating revenue and it turn more towards return
on net worth (RONW). An analyst therefore made to study and assess the fixed asset efficiency
of a company.

Fix Asset Turnover Ratio (Infosys)

Mar 13

Mar 12

Mar 11

Mar 10

Mar 09

4.48

4.22

3.63

3.29

3.39

52

This ratio shows the extent to which the investment in fixed asset contributes to sales. In case of
Infosys the ratio is constantly increasing during the 5 year period. The overall increment is 32%
that means the company has continuously utilizing its fix assets in this period.
Fix Asset Turnover Ratio (Infosys, TCS, Industry)
Mar 13

Mar 12

Mar 11

Mar 10

Mar 9

Infosys

4.48

4.22

3.63

3.29

3.39

TCS

5.73

5.18

5.18

5.07

5.23

Industry

4.42

4.03

3.88

3.62

3.68

53

Here the pattern is same for industry and for TCS the permanently increasing pattern is being
followed. The thing is Infosys is doing the job with an average speed that is 10% per year. TCS
is doing the same with a very slow rate that is 2 % per year and the industry is using its fix assets
with the higher rate of 20% as compared to the others.

INTERPRETATIONS OF THE RATIOS

OVERALL LIQUIDITY PERFORMANCE OF INFOSYS LIMITED:
From the above trend analysis of the liquidity ratios of Infosys from March 2009-13 and
comparative analysis between Industry vs. Infosys vs. TCS.
We can positively draw upon the following results:
(1) Infosys has always performed outstandingly and above the industry standards as per the
liquidity of the firm is concerned.
(2) Infosys has shown abundant and surplus net current assets which reflects that the firm has
efficient working capital management policies. This can be seen observed from the
following chart.
54

MAR13

MAR12

MAR11

MAR10

MAR09

INDUSTRY

2.285

2.36

2.50

2.23

2.14

INFOSYS

4.31

4.34

4.65

3.98

4.3

TCS

2.69

2.85

1.87

2.22

Now we can observe that after clearing off all the current liabilities Infosys is still having surplus
current assets and it has never experienced a liquidity crunch ( as its peer TCS has, which had
lower net current ratio in Mar10), adding to this the firm is maintaining higher liquidity
position as compared to the industrial standards.
(3) Infosys has proven the fact that it does not depends upon its inventory to clear up the
current liabilities and has sound inventory management system as the optimum level of
funds have been allocated for maintaining appropriate inventories. And as we have
observed in the quick ratio aspect, the firm has a reasonable percentage of contribution of
inventories in its total current assets.
(4) The dependency on Loans and Advances for covering up the current liabilities is minimal
in the case of Infosys as compared with TCS, which highly depends on its Loans and
Advances as well as compared with the industrial standards. This can observed in the
following data:
Percentage of Loans and Advances in Total Current Assets, Loans and Advances (%) on an
average from Mar09 to Mar13
Industry
Infosys
TCS

37.87
0
62.53

This a very positive sign for Infosys with respect to the liquidity front of the firm.

OVERALL PROFITABILITY PERFORMANCE OF INFOSYS LIMITED:

55

From the above trend analysis of the profitability ratios of Infosys from March 2009-2013 and
comparative analysis between Industry vs. INFOSYS vs. TCS.
We can positively draw upon the following results:
(1) Infosys has managed its operations efficiently in producing its products and maintains its
high gross profit ratio, which is highest in the industry.
(2) Infosys has maintained highest operating profit ratio in the industry. This reflects that the
firm is managing its affairs with efficient management policies, cost control techniques
and overall productivity. This provides a positive sign for the investors, as their funds are
used and applied with highest utility.
(3) The firm has performed outstandingly in generating high net profit ratios in the industry,
giving reliance to its investors for their respective investment.
(4) The firm has maintained a consistently increasing return on capital employed ratio,
which follows the industrial patterns as well as which are stable, steady and least volatile
in nature. This provides a positive sign for the investors as their respective investments
are not baring high degree of risk.
(5) The EPS of the firm has also witnessed an increasing trend that adds up value to the firm,
the firm has consistently performed in increasing its earnings from the period Mar09 to
Mar13 which is a positive aspect for the investors as their investments are earning
decent, stable and steady returns and which are exposed to least variance/risk, which is
the most suitable in todays market condition..
(6) The dividend payout ratio suggests us that the firm has a restrictive dividend paying out
policy and has a practice of ploughing back its earnings into its reserves for further
efficient utilization in contributing into its long term/expansion plans as compared with
its peer.

OVERALL ACTIVITY PERFORMANCE OF INFOSYS LIMITED

From the above trend analysis of the Activity ratios of Infosys Limited from 2009-13 and
comparative analysis between Industry v/s Infosys Limited v/s TCS.
We can positively draw upon the following results
(1) The firm has efficient debtors turnover ratio with an average stock velocity period
. This and are operating efficiently as we can see from the comparison Infosys
has higher debtor turnover ratio all over than industry and TCS both. There is a
highest rate in the year 2010-11. represents that the management is following
and has planned a well-versed credit policy
(2) The firm has performed extremely well in its inventory turnover ratio which is 0
means that the management has effective inventory management policies so as
56

to maintain its credit sales as well as recovering it with a superior debtors

velocity.
(3) The firm performs with optimum working capital in its operation having a higher
working capital turnover ratio. This represents that the management is operating
efficiently with its working capital and has an efficient working capital
management policies at its disposal.
(4) The firm has a low and poor performance in its fixed assets turnover ratio, this is
a matter of concern for the management and they have to work hard to cope-up
to the industrial standards. The firms fixed assets are underutilized and the
management has to plan effectively so as to utilize its fixed assets to the
maximum. The management has to work on :
Generating more volume sales
Flexibility in its credit policy to increase sales
Stringent costing of its goods.

OVERALL LEVERAGE PERFORMANCE OF INFOSYS LIMITED

Debt Equity Ratio While comparing the company performance with the
competitor TCS and with the overall IT industry The graph prepared above
shows that Infosys is a 0 debt firm, So the debt part is 0 which is the numerator
part of the ratio so the debt equity ratio is 0 all over. When we observe the
condition of TCS we found that the in the period 2009-10 the ratio decreased with
a high ate that can happen in only two situations. First one is about the debt part
which according to the graph seems to be decreasing which is a good sign for
the firm.
Interest Coverage Ratio While comparing with TCS the graph shows
continuous rise and fall in every year. In the year 2009-10 the ratio has a drastic
increase in the interest coverage ratio that means either the debt part is
decreasing or profit is increasing. Both things signifying the rise of the company
thats a good thing but it decreased rapidly in the next financial year but after is
again has a drastic increase of 210 percent in the profit in the period 2011-12.
Then there is a downfall but overall the company is running in profit. The profit is
increased 55% in the last 5 year time that is 2009-13.The company performance
is not consistent we can say, overall.

RECOMMENDATIONS AFTER THE

ANALYSIS
57

After studying the Infosyss profile, analyzing the financial statements of the firm from the
period of Mar09 to Mar13 and comparative analysis of the various important business ratios
between the firm, its peer (TCS) and the industry, I conclude my analysis with the following
recommendations:

(A) For the MANAGEMENT

The management has implemented efficient inventory management policy which

can be applauded with optimum levels of maintaining inventories as required by
the sales turnover and executing efficient inventory velocity period, which the
management can still has a scope to reduce it.
The firms fixed assets are fully utilized and the company has excessive
stringent credit policy in its industry which is a positive aspect for the operations
of the management. The management should improve its fixed assets turnover
ratio in coming years by they should continue
Generating more volume sales by application of better sales
promotion
Relaxing its credit policy, so as to increase its sales turnover
Working more stringently in controlling its direct expenses
Starting operations from its new hotels without any delay
The management has performed outstandingly in keeping its operating expenses
to the lowest in the industry. This represents that the management operates with
efficient management policies, cost control techniques and high overall
productivity. This framework should be maintained by the management as it can
easily survive the present harsh market conditions.
The management is following a restrictive dividend paying out policy and has a
practice of ploughing back its earnings into its reserves for further efficient
utilization in contributing into its long term/expansion plans. This is a positive
aspect of the dividend policy maintained by the management as it is in-sync with
its vast expansion plans and the management can further correct its dividendpaying out percentages as the industry is more restrictive than in giving out
dividends.
The management has framed an efficient working capital management policy
and has also implemented it effectively. This can be reflected by its strong
liquidity position and surplus net current assets and has never faced any liquidity
crunch. The management has sufficient funds for maintaining its working capital
requirements and does not rely on its debt portion of capital. Even if the trend
shows that there is some additional current assets requirements but the same is
justifiable since the company is into the expansion mode. Overall it should
maintain its working capital management policies more stringently than before so
as to sail through the present slowdown in the economy easily.

(B)For the SHAREHOLDERS :

58

The economy is facing a slowdown in its growth rate as well as the global economy is
under recessionary pressure and the stock markets have driven into bearish modes. All
these are negative factors which have affected the growth of IT Industry as well as for
Infosys negatively.
Infosys is undergoing a huge expansion plan for its operation in the country by increasing
its presence.

(C)For the DEBT-HOLDERs :

The firm has highly leveraged capital structure, which entails maximum risk for the
debt holders.
The firm has till date covered the debt-burden effectively with high debt-service
ratios but the long term creditors should be more vigilant with its client as the major
macroeconomic and industrial indicators indicate a slowdown.
The firm has introduced debt into its capital structure for facilitating its expansion
plans but this could be very stringent time as well as testing period for the firm as the
industry is in a slowdown and firm is into its expansion. So any delay in its expansion
plans will affect the firm as well as the debt providers in a negative manner.
The long term creditors who have provided unsecured loans are in under maximum
risk and should take effective steps to de-risk their respective investments.

REFERENCES:
The following are the references from where the relevant information and data for analysis
purposes have been extracted:

Annual Report of Infosys Limited 2009-2013

http://www.infosys.com
http://www.moneycontrol.com/
http://money.rediff.com
http://economictimes.indiatimes.com/
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