Financial Analysis of Infosys Technologies Ltd.

Topics: Financial ratios, Financial ratio, Generally Accepted Accounting Principles Pages: 26 (7412 words) Published: October 4, 2010
Table of Contents
IT Industry at a glance – Sector Analysis4
Rise of Services as a whole:4
IT Services: A major part of the services sector5
Infosys Technologies Ltd – Financial Ratio Analysis7
Liquidity Ratio:7
Quick Ratio:7
Current Ratio:8
Leverage Ratio:9
Debt-Equity Ratio:9
Interest Coverage Ratio:10
Profitability Ratio:11
Return on Equity: ROE12
Return on Capital Employed: ROCE12
Valuation Ratio:13
Dividend Yield:14
Operating Income Growth (%):15
The Competitors18
Per Share Ratios18
Cash Earnings Per Share - Cash EPS18
Book Value18
Dividend per share (DPS)18
Operating profit per share18
Profitability Ratios18
Operating Profit Margin19
Net Profit Margin19
Liquidity ratios19
Turn Over Ratios19
Sales/Assets Ratio:19
Sales to Fixed Assets Ratio20
Infosys vis-à-vis its competitors26
Measures for evaluating the current market price of common stock:30 Conclusion & Recommendations31
The Income Statement of Infosys for 6 yrs is given below.33 Cash Flow statement of Infosys for the last 6 yrs35
Balance Sheet for the last 5 yrs of Infosys38

IT Industry at a glance – Sector Analysis

Rise of Services as a whole:
Since the early 1990s, the world has witnessed the spectacular growth of the economy of India (at the average annual rate of 6.2 per cent during the period 1992-2005 respectively). Associated with this growth is the dramatic development of the service sector in the country. The graphs below clearly indicate the changing percentage share of different sectors in the GDP of the country between 1990 and 2006.

We can also see the year on year rise in the graph below:

IT Services: A major part of the services sector

The IT Services sector is considered to be an important area for its contribution to the Indian Economy. The annual growth rate for the sector has been above 50% since 1991. The growth has been more robust since 1998 and IT Services has become the most emerging sector in India today by creating huge employment opportunities. For FY’07 this Industry performance was marked by sustained double-digit revenue growth, steady expansion into newer service-lines and increased geographic penetration, and an unprecedented rise in investments by Multi-national Corporations (MNCs) – in spite of lingering concerns about gaps in talent and infrastructure impacting India’s cost competitiveness. The sector looks closed the year at record levels, with the revenue aggregate growing by nearly ten times over the past ten years.

The GDP contribution to the economy by the sector and the employment in the sector has risen tremendously in the past 15 years.

Data Source: NASSCOM Annual Analysis Report, 2007

Data Source: NASSCOM Annual Analysis Report, 2007
Though some of the critics say that the growth in the segment has been majorly ‘jobless’ and will not be sustained for long due to the same reason, there is no concrete proof to support such hypothesis. The present statistics is a clear indicator of the tremendous growth in the sector.

The export potential of the industry is tremendous which is seen in a clear rise of export revenue from 7.8 billion dollar in 2001 to 23 billion dollars in 2007. The total revenue of the industry has increased from 10.25 billion dollar in 2000-01 to 39.6 billion dollar presently. Even the domestic segment is not lagging behind and grew by 23% to register revenues of USD 8.2 billion in FY 06-07 up from USD 6.7 million.

The sector has over 1000 companies listed in the NASSCOM list, but the major portion of the revenue is generated by the top 20 companies (TCS, Infosys and Wipro being the top 3 in the NASSCOM report).

Projections for the FY’08 estimate...
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