How Infosys Differs from Other Software Companies in India

Topics: Investment, Corporate finance, Finance Pages: 2 (700 words) Published: November 11, 2012
2. The case describes how Infosys differs from other software companies in India. To what degree is Infosys’ performance show this fact. Please cite numbers and examples.

The first difference of Infosys from other software companies is its financial policy. Infosys’s CEO and other founders are frugal because of their backgrounds and therefore have avoided to use debt. This results in a conservative financial policy as the followings. The first one is to have liquidity of up to 25% of revenue in the form of cash and liquid assets to ensure that the firm can cover the next eight months of expenses. Second, The firm pays dividend only if it has a cash surplus and the dividend payout should be no more than 20% of a year’s profits. The last one is the company funds all of its capital expenditures and working capital needs out of its cash flow. Infosys’s conservative, financial policy, together with its tight cost control and low capital expenditures, help increase the firm’s profit and generate more cash for the company to finance its operation in the future.

Second, Infosys take advantage of the capital markets with one of the first market-priced IPO in 1993. The IPO allows Infosys to realize the value of the investment by the employees and to contribute to the creation of wealth in India. Also, the company is able to take advantage of tremendous growth opportunity in India through investment in the business. After the IPO, Infosys’s revenue increased from Rs. 95 million in 1992 to Rs. 145 million in 1993, and it then had a stock split in 1994. All in all, the investment enables Infosys to generate sufficient cash flow for all of its capital needs and the IPO crates funds allowing the company to do so without constraining its liquidity.

Third, Infosys is considered one of the most desirable places of employment among Indian students. Infosys wants to create a sustainable business and finds “employees” as a key to success. It tries to get people to work...
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