RATIO ANALYSIS FOR

INFOSYS

-Gaurav

Bhalgat (06) -Kshitij Kapoor (23) -Dipesh Nebhnani (39) -Shyamsundar K. (59)

PROFITABILITY RATIOS
Gross Profit Margin Operating Profit Ratio Net Profit Margin Return on Capital Employed Return on Assets

GROSS PROFIT MARGIN

o

It measures the proportion of money left over from revenues after accounting for the cost of goods sold.
Gross profit margin = Gross profit * 100 Net sales = 10671 *100 22742 = 46.92 %

SIGNIFICANCE
Higher Gross Profit margin indicates that 1) The companys cost of services is much lesser than the revenues earned 2)Business has enough money to invest R&D, marketing etc. Lower Gross profit indicates that 1) Higher cost of services OR 2) Under utilisation of capacity OR

TREND ANALYSIS
March 06 Gross profit 45.87 % margin (%) March 07 44.65 % March 08 43.28 % March 09 45.76 % March 10 46.92 %

COMPARISON WITH COMPETITORS

Company Infosys TCS HCL Wipro Gross profit margin 46.92 % 36.92 % 54.55 % 32.75 %

OPERATING PROFIT RATIO

A ratio used to measure the companys pricing strategy and operating efficiency Operating profit ratio = Operating profit * 100 Net sales Operating profit = Sales COGS SG&A expenses Operating profit ratio = 7861/22742 * 100 = 34.56 %

SIGNIFICANCE
Indicates how successful the management has been in generating income from operations Higher the ratio, the better High Operating profit means 1) The company has effective control over costs (efficient operations) OR 2) The sales are increasing faster than operating costs

TREND ANALYSIS
March 06 Operating profit ratio(%) 33.12 March 07 32.14 March 08 31.72 March 09 34.09 March 2010 34.56

COMPARISON WITH COMPETITORS

Company Infosys TCS HCL Wipro Operating profit ratio 34.56 % 28.93 % 26.70 % 24.00 %

NET PROFIT MARGIN

Indicates how effectively managers run the business Net profit margin = Net profit * 100 Net Sales = 6266 * 100 22742 = 27.55 % Significance: Higher the net profit margin, the better

TREND ANALYSIS
March 06 March 07 March 08 March 09 March 10

Net profit margin (%)

26.81

28.77

28.56

28.71

27.55

COMPARISON WITH COMPETITORS

Company Infosys TCS Wipro HCL Net profit margin (%) 27.55 24.13 20.97 20.12

COMPARISON OF RATIOS
60 50 40 Gross Profit 30 20 10 0 Operating profit Net profit

Infosys

TCS

HCL

Wipro

Company
Infosys TCS HCL Wipro

Gross profit margin (%)

46.92 36.92 54.55 32.75

Operating profit margin(%)

34.56 28.93

Net profit margin (%)

27.55 24.13

26.7
24

20.12
20.97

RETURN ON CAPITAL EMPLOYED

Indicates efficiency and profitability of the companys capital investments ROCE = EBIT * 100 Capital Employed = 7899/23049 * 100 = 34.27% Drawback: Measures returns against the book value of the asset

TREND ANALYSIS
March 06 ROCE Share Capital

March 07 37.86 286

March 08 36.80 286

March 09 38.79 286

March 10 29.87 287

43.35 138

Significance: Indicates the value a business gains from its assets and liabilities Higher ROCE implies good utilization of capital employed.

COMPARISON WITH COMPETITORS

Company Infosys TCS HCL Wipro ROCE (%) 29.87 44.00 21.41 23.69

RETURN ON ASSETS
Measures the earnings generated from assets ROA = Net profit * 100 Total assets = 6266/23281 * 100 = 26.91% Higher ROA means the company is earning more revenues from less investment in assets.

TREND ANALYSIS
March 06 March 07 March 08 March 09 March 10

ROA (%)

35.1 3888 876.00

33.89 7216 839.00

33.13 8595 964.00

32.67 12774 -

26.91 13782 3712

Current assets
Investments

COMPARISON WITH COMPETITORS

Company Infosys TCS HCL Wipro ROA(%) 26.91 37.08 16.68 21.09

RETURN ON SHAREHOLDERS EQUITY

It measures how much profit a company generates with the money shareholders have invested. Return on Shareholders Equity= Net profit /Average shareholders equity=6266/286=21.9

SIGNIFICANCE
o

Higher Return on equity indicates that 1) management is efficient in utilizing its equity base and gives a better return to its investors. Lower Return on equity indicates that 1) higher equity used in the business or equity base used inefficiently

RETURN ON SHAREHOLDERS EQUITY

Trend Analysis for INFOSYS

Ratio Return on Shareholders Equity(%) Mar06 Mar07 Mar08 Mar09 17.54 13.22 15.66 20.93 Mar10 21.9

Higher ratio in 2006 as profit was 2421 Cr. while share capital was only 138.

COMPARISON WITH COMPETITORS

Company Infosys TCS HCL Wipro Return on shareholders equity 21.9 % 19.01 % 7.782 % 16.68 %

TURN OVER RATIO

Inventory Turnover Ratio Debtors Turnover Ratio

Assets Turnover Ratio

DEBTORS TURNOVER RATIO

o

The debtor turnover ratio throws lights on the collection and credit policies of the firm.

o
o

Indicator of the velocity of debt collection of a firm.

Debtors Turnover Ratio=Net Credit sales/Average Debtors = 22742/3596=6.324

Provision for doubtful debts shall not be deducted

DEBTORS TURNOVER RATIO

Trend Analysis for INFOSYS

Ratio Debtors Turnover Ratio Mar06 Mar07 Mar08 Mar09 6.17 5.95 5.77 6.204 Mar10 6.324

COMPARISON WITH COMPETITORS

Company Infosys TCS HCL Wipro Debtor turnover ratio 6.324 6.51 2.45 5.02

High ratio indicates efficiency in collection and Debts are being collected more promptly.

ASSETS TURNOVER RATIO

It measures how well a company is using its assets to produce revenue

Tool to keep managers mindful of the companys balance

sheet along with its profit and loss account.

Assets Turnover Ratio=Cost of Goods sold/Average total assets=12071/((5355+5354+13782+12774)/2)=0.647 8

Total assets = fixed assets after dep.+ current assets + intangible assets(goodwill , patent)

ASSETS TURNOVER RATIO

Investment not considered RATIO effective utilization of assets RATIO ineffective utilization of assets Companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover

ASSETS TURNOVER RATIO

Trend Analysis for INFOSYS

Ratio Mar06 Mar07 Mar08 Mar09 Mar10

Assets Turnover Ratio

0.38

0. 40

0.48

0.41

0.6478

During march 2009,Infosys increased the assets , hence although COGS increased , the asset turnover decreased.

COMPARISON WITH COMPETITORS

Company Infosys TCS HCL Wipro Asset turnover ratio 0.6478 2.51 1.26 1.67

Infosys has very large current asset hence asset turnover is less than industry average.

LIQUIDITY & SOLVENCY RATIOS

Current Ratio
Quick Ratio Debt Equity Ratio Interest coverage Ratio

CURRENT RATIO

Company's ability to pay back its short-term liabilities with its short-term assets. The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

CURRENT RATIO
Current Assets Inventories Sundry Debtors Cash & bank balances Other current assets Loans & advances Current Ratio = 18237 / 4455 = 4.09 Trends for Infosys Mar06 Mar07 4.96 Mar08 3.30 Mar09 4.71 Mar10 4.09

Current Liabilites Current Liabilities

Provisions

Current Ratio

2.75

CURRENT RATIO
Significance

A ratio under 1 suggests that company might have problems to pay-off its short-term obligations. A ratio too high means that company may not be efficiently using its current assets.

Comparison with competitors

March10 TCS Infosys Wipro HCL Tech 1.49 4.09 1.34 1.92

QUICK RATIO

Company's ability to meet its short-term obligations with its most liquid assets. Quick Current Assets : Cash/Bank Balances + Receivables upto 6 months + Quickly realizable securities such as Govt. Securities or quickly marketable/quoted shares and Bank Fixed Deposits Quick ratio = Quick current assets / Current liabilities Also known as Acid test ratio or simply Acid ratio

QUICK RATIO
Quick Assets Sundry Debtors Cash & Bank balances Current Liabilities Current liabilities Provisions

Quick Ratio = (18237-81-4187) / 4455 = 3.13 Trends for Infosys

Mar06 Quick Ratio 2.73

Mar07 4.91

Mar08 3.28

Mar09 4.67

Mar10 3.13

QUICK RATIO
Significance

A ratio under 1 suggests that company cannot currently pay back its current liabilities. Higher value of this ratio suggests that company has greater liquidity to meet its obligations A ratio of 1:1 or higher is considered satisfactory for a company.

Comparison with competitors

March10 TCS 1.48

Infosys
Wipro HCL Tech

3.13
2.29 2.19

DEBT EQUITY RATIO

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity Ratio indicating the relative proportion of shareholders equity & debt used to finance a companys asset. D/E Ratio = Total debt / Total shareholders equity Also, known as Risk, Gearing or Leverage ratio

DEBT EQUITY RATIO

Debt Secured Loans Unsecured Loans Debt-Equity Ratio = 0 Trend for Infosys Share Capital Reserves & Surplus Equity

Mar06 Debt-Equity ratio 0

Mar07 0

Mar08 0

Mar09 0

Mar10 0

DEBT EQUITY RATIO

Significance

A higher value indicates that a company has been aggressive in financing its growth with debt. D-E ratio depends on the industry in which the company operates. For IT companies, D-E ratio should be less than 0.5.

Comparison with Competitors

March10 TCS Infosys Wipro HCL Tech 0.0023 0 0.31 0.28

INTEREST COVERAGE RATIO

A measure of how easily a company can pay interest on outstanding debt. Indicator of its safety margin when deciding if the business is a good credit risk. Interest coverage ratio = Earning before interest & tax(EBIT) / Interest expense Also, known as time interest earned (TIE).

INTEREST COVERAGE RATIO

Interest to be paid by Infosys = 0 Ratio is irrelevant for Infosys.

Comparison with competitors

March10 TCS 717.95

Infosys
Wipro HCL Tech

Infinity
58.82 15.07

CASH FLOW INDICATOR RATIOS

Dividend payout ratio

Earning retention ratio

DIVIDEND PAYOUT RATIO

A measure of earning paid to shareholders in dividends. It gives us the extent to which earning per share have been used for paying dividend & to know what extent of earnings has been used back in the business. Dividend payout ratio = Dividend per equity share / Earnings per share

DIVIDEND PAYOUT RATIO

Dividend payout ratio calculation

Dividend per equity share Equity dividend = 1434 crores No. of shares in issue = 5738.25 lakhs Dividend per equity share = 1434 / 5728.30 = Rs.25 Earnings per share Net profit = 5803.00 EPS = 5803.00 / 5728.30 = Rs.101.30

Dividend payout ratio = 25 / 101.30 = 24.6%

DIVIDEND PAYOUT RATIO

Trends for Infosys
Mar06 Dividend payout ratio 51.11% Mar07 17.15% Mar08 42.54% Mar09 Mar10

23.11% 24.71%

Comparison with Competitors

March10 TCS Infosys Wipro HCL Tech 69.88% 24.71% 17.98% 25.59%

EARNINGS RETENTION RATIO

Complement of Dividend payout ratio The proportion of net income that is not paid out as dividends. Earnings retention ratio = (Net income dividends) / Net income Also, known as simply retention ratio.

EARNINGS RETENTION RATIO

Earning retention ratio Net profit = 5803 crores Equity dividend = 1434 crores Earning retention ratio = (5803 1434) / 5803 = 75.28%

Trends for Infosys

Mar06 Earnings retention ratio Mar07 Mar08 57.19% Mar09 Mar10

48.86% 82.84%

76.88% 75.28%

EARNINGS RETENTION RATIO

Comparison with competitors
March10 TCS Infosys Wipro 30.12% 75.29% 82.02%

HCL Tech

74.41%

INVESTMENT VALUATION RATIOS

Earnings Per Share Operating Profit Per Share Dividend Per Share

INVESTMENT VALUATION RATIOS

Earnings Per Share Operating Profit Per Share Dividend Per Share

EARNINGS PER SHARE (RS.)

Company Mar06 Mar07 Mar08 Mar09 87.86 Infosys TCS HCL Wipro 55.53 19.74 38.39 16.60 46.07 11.72 47.92 14.88 28.62 15.77 66.23 78.15 101.58 Mar10 109.30

14.17

19.48

20.96

20.30

33.36

EPS = Net Profit / Outstanding share

REASONS FOR IRREGULARITY IN EPS

EPS Guidance is lower in 2007 due to equity dilution by 3% as ESOP and similar things happened to all the IT majors offering ESOP. This is because they had to pay the FBT on exercise price and market price difference. Decision taken by SEBI in order to protect normal shareholders from equity dilution.

DIVIDEND PER SHARE (%OF FACE VALUE)

Company Mar06 900 Infosys TCS 1350 1150 1400 1400 2000 Mar07 230 Mar08 665 Mar09 470 Mar10 500

HCL

800

400

450

350

200

Wipro

250

300

300

200

300

DIVIDEND YIELD
IT IS CALCULATED AS DIVIDEND IN RUPEES TO STOCK PRICE ON BOOK CLOSURE DATE.
Company name Infosys TCS HCL Tech Wipro Tech Dividend Yield for 2010 (%) 0.82 1.92 0.96 1.34

EMPLOYEE COST
Company Mar06 4274 Infosys TCS 5114 6187 6015 7370 7883 Mar07 6316 Mar08 7771 Mar09 9975 Mar10 10356

HCL

1124

1323

1621

1874

2188

Wipro

4280

5768

7410

9250

9063

EMPLOYEE COST TO TOTAL EXPENSE FOR COMPETITORS FOR MARCH 2010.

INFOSYS HAS HIGHEST EMPLOYEE COST

Company Name

Employee cost to total expense (%) 48.00 51.69 59.67

TCS Wipro HCL Tech

Thank You