financial statements analysis of infosys annual report 2007-08

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

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.

YEAR AT A GLANCE

Contd….

MANAGEMENT’S DISCUSSION AND ANALYSIS

Future growth projections

Factors critical for successful, sustainable and scalable technology service of Infosys.

Financial Condition Authorized Share capital 300 Cr. ( 60 Cr. X Rs. 5 ) The issued, subscribed and paid up capital as on 31Mar 08,

286 Cr.

Year 2006 2011Services 226 328BPO 144 234

GLOBAL

Factors

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.

OPPORTUNITIES AND THREATS

Year 2006 2011Services 226 328BPO 144 234

GLOBAL

OPPORTUNITY THREAT AND RISKHighly competitive and rapidly changing marketDifficult to predict revenue and expensesHigh dependence on clients located at USA and Europe. Ability to hire, attract and retain skilled technological personsWage pressure in IndiaDollar and Money relation

STRENGTHInfosys strength Global Delivery modelSuperior quality Status as an employer of choiceInnovation and leadership Long Standing Client relationshipStrategy•Increasing business from existing and new clients•Investment in Infrastructure and Employee•Expand geographically•Deep industry Knowledge.•Enhance Brand Visibility

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

Ratio Analysis of Financial Statements

Ratio AnalysisShows Mathematical Relationship between

one variable & anotherGroups 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.

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

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

Analysis of Financial Ratios• Sales amount 19% but Cost of sales 22%

(bcoz salaries paid to software development employees 26% ). This has resulted in a less proportionate in Gross profit (15%)

• Sales 19% but debtors - significant 35%. It is due to the in Debtors collection period from 64

to 72 days i.e. debtors are given more credit period. This has resulted in of Debtors turnover ratio.

• As it is a Service oriented company , it does not have any stock kept with it. So there is no amount blocked 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) .

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.

• As we will see further there is a healthy % increase in Net profit amount by approx 18% (as compared to

Gross Profit Amount by approx 15% ). This improvement in its performance is majorly due to improvement in Extra-ordinary items like interest received on deposits from banks ( by 257 % ).

• Funds available with the company has approx 21% . In 2007-08 company has not issued any new equity or debt . Therefore the company has raised its funds only through its Reserves & Surplus which is approx 21%.

• Now the company has employed these funds in following ways:1) Acquired new fixed assets . This has resulted in more

depreciation charged to profits in P & L a/c. This has ultimately the Operating profit ratio.

Contd….

2) used to finance the working capital requirements. 3) has also made some new Investments in the current

year ( by 15 % )

• There is a in Fixed assets turnover ratio. At first look it may appears that the company has utilized

its Fixed assets less efficiently. However it has acquired New Fixed assets worth Rs 1050 crores in the year 2007-08 which may help the

company in Future growth.

• Company has no Debt and Preference capital which means that there is no Capital Gearing ratio, no Debt-Equity ratio and no Interest Coverage 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.

• The Company is currently paying approx 17% of its Current Earnings as Dividend ( D/P ratio is 16.93% ). From shareholders Long term point of view it is good that company is retaining its approx 83% of its present earnings for its future growth.

• Therefore (through Fixed Assets turnover ratio &

D/P ratio) it seems that company is retaining significant amount for its future .

• The Return on Equity (ROE) & Return on Investment (ROI) both has .

It shows that the company has utilize the shareholders funds less efficiently.

This is unfavorable for Company's image as it may result in decrease in the confidence in the investor’s mind for company’s performance.

SUGGESTIONS

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

2. Company needs to have stringent credit policy, to reduce the funds required for working capital.

Contd….

3. Do efficient utilization of shareholders funds to improve its ROI & ROE to maintain its goodwill in investors mind.

4. May go for some Debt borrowing to increase E.P.S. for shareholders.

Thank-You.

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)