REPORT ON FINANCIAL ANALYSIS OF INFOSYS

20112012

PREPARED BY:SHRUTI PATIL (30) AMI THAKKAR (34)

SUBMITTED TO:PROF. (DR.) SURENDRA SUNDARARAJAN

RATIO ANALYSIS
(figures in Rs. cr except per share data) A. PROFITABILITY RATIOS 2010-11 1. Gross profit margin Net profit margin Operating profit ratio Return on equity Gross Profit/ Sales Profit after tax/ Sales Operating profit/sales Profit after tax/ net worth 11118/25385 43.79% 2011-12 11890/31254 38.04%

2.

6443/25385

25.38%

8470/31254 27.10%

3.

8414/25385

33.14%

10061/31254

32.19%

4.

6443/24501

26.29%

8470/29757

28.46%

B. ACTIVITY RATIOS & LEVERAGE RATIO 5. Debtors turnover Total assets turnover ratio Fixed asset turn over ratio Avg. Collection period (days) Sales/Debtors 25385/3728 6.81 31254/5404 5.78

6.

sales/total assets 25385/24667 sales/fixed assets 25385/4555

1.03

31254/35815 0.87

7.

5.57

31254/4649

6.72

8.

360/Debtors Turnover

360/6.81

52.86

360/5.78

62.28

C. LIQUIDITY RATIOS 9. Current Ratio Quick ratio C.A / C.L 22744/4353 5.22 28465/6037 4.72

10.

Liquid assets/C.L

22495/4353

5.17

27877/6037

4.62

D. MARKET- VALUE RATIOS 11. Earnings Per Share (Rs.) (Basic) Dividend Per Share (Rs.) Price/earning ratio PAT/ no of shares

6443/574,013,650

112.26

8470/574199094

147.50

12.

Total dividend/ no of shares Share price/earnings per share PAT/total assets

3445/574,013,650 3170.15/112.26

60.02

3455/574199094

60.17

13.

28.23

2864.95/147.5

19.42

14.

Return on investment

6443/24667

26.11

8470/35815

23.65

Interpretation:
Gross profit ratio measures the relative operating efficiency of the firm. There is a negative growth of 13.13% for FY 2012 relative to FY 2011. The reason is :- sales has increased by 23.11% but the increase in gross profits is only by 6.94 %. The net profit ratio shows an increase because the net profit has increased by 31.46 % which is more than the % increase in sales. Here the firm may have a large amount of non operating income in the form of dividend and interest which represents a major proportion of the companys net profit. Hence although the net profit ratio shows high efficiency the operating efficiency has reduced as non operating income has no relation with operating efficiency of the management. There is an increase of 8.25% in return on equity which indicates better utilization of owners funds and higher productivity. The increase in the average collection period indicates the leniency of credit policy of the firm. The decrease in the total asset turnover ratio indicates inefficient utilization of assets which has resulted in a decline in the return on investment. Higher current ratio indicates poor planning as excessive amount of funds are lying idle. Since the EPS has increased in FY 12 relative to FY 11 it indicates that the wealth of each share holder on a per share basis has increased. Lower P/E ratio indicates undervaluation of the stock. P/E ratio also measures future growth expectation for stocks and investors risk aversion. Since it has decreased in FY 12 it means that growth expectations have thereby increasing in vestors risk. The debt to equity ratio is low for both the years which indicates that the owners have invested more than the creditors and owners would suffer more in the times of distress.

TREND IN SALES:

TREND IN EPS:

SALES
40000 30000 20000 10000 0 2008-09 2009-10 2010-11 2011-12 SALES 200 150 100 50 0

EPS

EPS

2008-09 2009-10 2010-11 2011-12

TREND IN PAT:

PAT
10000 8000 6000 4000 2000 0 2008-09 2009-10 2010-11 2011-12 PAT

TREND IN STOCK PRICE OF INFY OVER LAST 5 YEARS:

Source: www.way2wealth.com

WHAT EXPLAINS THE DIVIDEND POLICY OF INFOSYS? Infosys typically announces special dividends once every two years and has done so in 2004, 2006 and 2008. In 2010, it paid out 30 per share to celebrate its 30th anniversary. The latest dividend (%) of Infosys is 640 % announced on 13-04-2012 effective from 24-05-2012. Infosys has announced a final dividend of Rs 22 per share (440 %) and special dividend of Rs 10 per share. (Source: http//:www.moneycontrol.com) Infosys has therefore decided to hand back some of its $4-billion ( 20,500 crore) cash pile as a special dividend. As we have seen in our ratio analysis the operating efficiency has reduced for FY 2012 indicating a decline in managerial efficiency i.e. (the build-up of cash and no clarity from the management on how it will be used) the company has therefore realized that it may be time to return some of the money to shareholders through a special dividend.) Also the increase in return on equity from 26.29 % to 28.46 % (FY 11 and FY 12 respectively) also explains the companys increased capacity to pay dividends. Firms with high debt to equity ratio ought to pay lower dividends as they have precommitted their cash flows to debt payments. But Infosys has a low debt to equity ratio are 0.22, 0.25 for FY11 & FY12 resp. which again substantiates its decision to pay handsome dividends this year.

CAPITAL ASSET PRICING MODEL (CAPM):Expected Investors required rate of return: E(Ri) = Rf + [(E (Rm) Rf ) ] =8.77 + [(-10.50 8.77)(0.96)] = - 9.7292 % where, Rf = Risk Free Rate = 8.77 % (364 days T-Bills) (Source: http://www.finmin.nic.in/stats_data/nsdp_sdds/index.html) E(Rm) = -10.50 % (Source: http://www.bseindia.com/about/abindices/betavalues.asp) =Index of Systematic Risk= 0.96 (Source: http://www.bseindia.com/about/abindices/betavalues.asp) (Beta value of Infosys stock () = 0.96)

References:
www.infosys.com www.rbi.com www.moneycontrol.com www.bseindia.com www.economictimes.com