Management Accounting

Project

On

Analysis of a Company`s Annual Report

Submitted to: Prepared by:

Dr. Vibha jain Akshit vij 043007
Arpan sen gupta 043013
Chetan sharma 043017
Bhupesh khatter 043024
Irshad ali 043027
Rohan malik 043044
INFOSYS TECHNOLOGIES
BOARDS AND COMMITTEE
 OVERVIEW
• Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250.
Today, we are a global leader in the "next generation" of IT and consulting with revenues of
over US$ 4.8 billion (FY 10).
• Infosys defines, designs and delivers technology-enabled business solutions that help Global
2000 companies win in a Flat World. Infosys also provides a complete range of services by
leveraging our domain and business expertise and strategic alliances with leading technology
providers.
• Our offerings span business and technology consulting, application services, systems
integration, product engineering, custom software development, maintenance, re-engineering
independent testing and validation services, IT infrastructure services and business process
outsourcing.
• Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in
the industry leading to the rise of offshore outsourcing. The GDM is based on the principle of
taking work to the location where the best talent is available, where it makes the best
economic sense, with the least amount of acceptable risk.
• Infosys has a global footprint with 63 offices and development centers in India, China,
Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries
have 114,822 employees as on June 30, 2010.
• Infosys takes pride in building strategic long-term client relationships. Over 97% of our
revenues come from existing customers (FY 10).
INFOSYS TECHNOLOGIES
LTD.

FINANCIAL ANALYSIS
 Horizontal analysis: B/S
Consolidated b/s as at 31 march (in Rs. crores)
2010 2009 increase/decr %age change
ease over2009

SOURCES OF FUND
Share capital 286 286 - -
Reserve & surplus 22763 17968 4795 26.69
23049 18254 4795 26.27
Deferred tax liability 232 37 195 527
Minority interest - -

TOTAL 23281 18291 4990 27.28

APPLICATION OF FUND
Fixed assets 7839 7093 746 10.42
Less: depreciation (2893) (2416) 477 19.74
Net book value 4946 4677 269 5.75
Add: capital work in progress 409 677 (268) (39.59)
5355 5354 1 0.01
INVESTMENT 3712 - NA NA

DEFERRED TAX ASSTES 432 162 269 165

Current assets, loans & advances

S. debtors 3494 3672 (178) (4.85)

cash & bank balances 10556 9596 861 8.88
Loans & advances 4187 3279 908 27.7
TOTAL 18237 16646 1591 9.56
Less: current liabilities & provisions
current liabilities 2343 2004 339 16.92
provisions 2112 1868 24 13.06
NET CUREENT ASSETS 13728 12774 1008 7.89

TOTAL 23281 18291 4990 27.28

 Key points
• Net fixed assets grew by 5.75 while sales only by 4.83. However this does
not mean that they are not utilizing their assets optimally. It is just that for
an IT co. most of the sales come from software services and b/s process
mgt.
• The co. made an invt. Of 3712 cr. (about 16% of the net worth). Also
almost 98% of this invt. is current showing that the co. wants to maintain
high liquidity.
• Management of a/c’s receivable was efficient from the co. as S.debtor fell
by 4.85% despite a 4.8% increase in sales.
• Reserves & surplus also went up as a result of increase in profitability.
• Deferred tax liability increased by 527% as opposed to a 165% increase in
Deferred tax assets. However this does not pose a problem for the co. as
the DT assets are greater than DT liabilities by 20 cr.
 Horizontal analysis: P&L A/C
Particulars year ended 31st march
increase/decr %age CHANGE
2010 2009 ease over2009

Income : software services 22742 21693 1049 4.83

Software devt. Expenses (12071) (11765) 306 2.6
GROSS PROFIT 10671 9928 743 7.48

Selling & mkt.ing expense 1184 1104 80 7.25

General & admin. Expense 1626 1629 (3) (0.18)

Operating profit before depn. & minority int. 7861 7195 666 9.26
depreciation 905 761 144 18.9
Operating profit before minority int. 6956 6434 522 8.11
Other net income 934 475 459 96.6
Provision for invt. (9) 2 (-11) (550)
NPBT, MINORITY INCOME, EXCEPTIONAL ITEM 7899 6907 992 14.06
Prov. For tax 1681 919 762 82.92
Income from sale of invt., net fo tax 48 - - -
Minority interest - - - -
 NET PROFIT AFTER TAX, EXCP. ITEM & MINORITY INT. 6266 5988 278 4.64

BALANCE B/F(previous yr.) 10560 6828 3732 54.7

less: residual dividend paid - 1 - -

AMT. AVAIL. FOR APPROPRIATION 16826 12815 4011 31.3

interim dividend 573 572 1 0.17

final dividend 861 773 773 11.38
total dividend 1434 1345 89 6.62
dividend tax 240 228 12 5.26
amt. t/f to general reserve 780 682 98 14.37
amt. t/f to capital reserve 48 - - -

BALANCE IN P&L A/C 14324 10560 3764 35.64

16826 12815 4011 31.3
 Key points
• Net sales grew by 4.83% as compared to an increase of 7.25% in
selling & mkting expenses. This does not speak well of the ability of
the form to convert mkting to sales, thus it should aim at bringing
down such expenses.
• The co. does not have any long term liability and hence no interest
thereof which in turn pushes up its profits and its tax liability.
• Non-operating income has grown by 96.6% which is mainly because
of gain of foreign currency and dividend received on invt. in liquid
mutual funds.
• Tax provision higher by 82.9%, thereby reducing growth rate of
NPBT from 14.36% to 3.84% of NPAT.
• 18.9% increase in depreciation as compared to a 4.35% increase in
sales, showing that the additions to the assets of the co. are not
contributing towards growth in sales.
1) COMMON-SIZED P&L A/C
Particulars Year ended 31.3.2010 Year ended 31.3.2009
(in Rs. crores) Common size (in Rs. crores) Common size
%age %age

Income : software services 22742 100 21693 100

Software devt. Expenses (12071) 53.07 (11765) 54.23
GROSS PROFIT 10671 46.92 9928 45.76

Selling & mkt.ing expense 1184 5.21 1104 5.09

General & admin. Expense 1626 7.15 1629 7.50

Operating profit before depn. & minority int. 7861 34.56 7195 33.16
depreciation 905 3.98 761 3.51
Operating profit before minority int. 6956 30.59 6434 29.65
Other net income 934 4.11 475 2.19
Provision for invt. (9) 0.04 2 0.01
NPBT, MINORITY INCOME, EXCEPTIONAL ITEM 7899 34.73 6907 31.83
Prov. For tax 1681 7.4 919 4.2
Income from sale of invt., net fo tax 48 0.21 -
Minority interest - -
NET PROFIT AFTER TAX, EXCP. ITEM & MINORITY INT. 6266 27.55 5988 27.6
 CONTD...
BALANCE B/F 10569 46.47 6827 31.48

less: residual dividend paid - - 1 0.005

AMT. AVAIL. FOR APPROPRIATION 16826 73.99 12815 59.07

interim dividend 573 2.52 572 2.63

final dividend 861 3.8 773 3.56
total dividend 1434 6.3 1345 6.2
dividend tax 240 1.1 228 1.05
amt. t/f to general reserve 780 3.4 682 3.14
amt. t/f to capital reserve 48 0.21 -

BALANCE IN P&L A/C 14324 62.98 10560 48.68

2) COMMON-SIZED B/SHEET
Consolidated b/s as at 31 march 2010 2009
(in Rs. crores) Common size (in Rs. crores) Common size
%age %age

SOURCES OF FUND
Share capital 286 1.23 286 1.56
Reserve & surplus 22763 97.77 17968 98.43
23049 99 18254 99.79
Deferred tax liability 232 0.01 37 0.21
Minority interest - -

TOTAL 23281 100 18291 100

APPLICATION OF FUND
Fixed assets 7839 33.67 7093 38.78
Less: depreciation (2893) 12.4 (2416) 13.2
Net book value 4946 21.24 4677 25.5
Add: capital work in progress 409 1.7 677 3.7
5355 23 5354 29.27

investment 3712 15.9 -

Deferred tax assets 432 1.8 163 0.89
 CONTD….
Current assets, loans & advances

S. debtors 3494 33.1 3672 20.1

cash & bank balances 10556 45.34 9596 52.46
Loans & advances 4187 18 3279 17.9
TOTAL 18237 78.3 16646 91.01
Less: current liabilities & provisions
current liabilities 2343 10.1 2004 10.9
provisions 2112 9.1 1868 10.2
NET CUREENT ASSETS 13728 58.97 12774 69.8

TOTAL 23281 100 18291 100

TCS’ FINANCIAL
ANALYSIS
1) COMMON-SIZED B/S
2) COMMON-SIZED P&L
1)
Consolidated b/s as at 31 march 2010 2009
(in Rs. crores) Common size (in Rs. crores) Common size
%age %age

SOURCES OF FUNDS:
Share capital 295 1.55 198 1.19
Reserve & surplus 18171 95.6 15502 92.99
18466 97.19 15700 94.18
DEFERRED TAX LIABILITY 68 0.36 128 0. 77
MINORITY INTEREST 361 1.9 277 1.67
LOAN FUNDS (SECURED + UNSECURED) 103 0.54 563 3.38

TOTAL 19000 100 16669 100

APPLICATION OF FUND:
FIXED ASSETS 6419 33.78 5843 35.05
Less: depreciation (2897) (15.25) (2359) (14.15)
Net book value 3522 18.54 3484 20.90
Add: capital work in progress 1017 5.35 705 4.23
4539 23.89 4189 25.13

INVESTMENT 3682 19.38 1416

DEFERRED TAX ASSETS 168 0.90 60 0.89
GOODWILL ON CONSOLIDATION 3215 16.92 3261
CURRENT ASSETS, LOANS & ADVANCES

S. debtors 5855 30.81 6136 36.81

cash & bank balances 4718 24.83 2698 16.18
Loans & advances 3969 20.89 3160 18.95
inventory 18 0.095 37 0.22
int. accrued on invt. 26 0.14 1 0.006
unbilled revenues 1201 6.32 1481 8.9
15788 83.1 13511 81.04
Less: CURRENT LIABILITIES & PROVISIONS
current liabilities 4093 21.54 4340 26.03
provisions 4300 22.63 1627 9.7
NET CUREENT ASSETS 7395 38.92 7544 45.25

TOTAL 19000 100 16669 100

2)
Particulars Year ended 31.3.2010 Year ended 31.3.2009
(in Rs. crores) Common size (in Rs. crores) Common size
%age %age

INCOME : IT & consultancy services, Sale of equipment 30029 100 27813 100
& licences

Other income,(net) 272 .90 (427) (1.53)

30301 100.90 27386 100.08

EXPENDITURE : employee cost 10879 36.23 9910 35.63

Operation & other Expense 10454 34.81 10732 38.59
interest 16 .05 29 .10
depreciation 661 2.20 564 2.03
22011 73.30 21236 76.35
PROFIT BEFORE TAX 8289 27.60 6150 22.11
Provision for taxes:
Current tax 1710 5.69 1197 4.30
Deferred tax benefits (187) (.62) 39 .14
Fringe tax benefit (5) 26 .09
MAT credit entitlement (320) (1.06) (424) (1.52)
1196 3.98 839 3.02
Net profit before minority int. & associate profit 7093 23.62 5311 19.09
Minority interest 91 .30 54 .19
Associates share of loss 1 .70
Net profit for the year 7000 23.31 5256 18.90
Previous yr. balance 11835 39.41 8688 31.24

18835 62.72 13944 50.13

APPROPRIATIONS
Interim dividend on equity shares 1174 3.91 881 3.17
proposed final dividend 2740 9.12 489 1.76
dividend on redeemable pref. shares 17 .056 7
tax on dividend 663 2.21 236 .85
general reserve 636 2.12 496 1.78
BALANCE CARRIED TO BALANCE SHEET 13605 45.30 11835 42.55

18835 13944
 COMPARATIVE ANALYSIS
Profit & Loss Account
• Net Sales of Infosys is 75.73 % of the Sales of TCS during 2009-10
and 78% during 2008-09. Size of both the companies is quite big
despite being in the same industry.
• Net Sales : Growth in Infosys 4.83%, while for TCS is 7.9%
• Total Expenses as a percentage of Sales:
Companies 2009-10 2008-09
Infosys 65.43 66.82
TCS 71.09 74.32
This shows that both the companies have been able to reduce their
expenses marginally during 2009-10
• Other Income as a percentage of Sales has incresed for both the
companies. In case of Infosys it increased from 2.19% to 4.11 % &
in case of TCS it increased from (1.53)% to .90%
• Result : PBDIT increased for both the companies
but the rise was more in case of TCs where it
risen from 24.24% to 29.86% & in case of Infosys
it increased from 33.16% to 34.56%
• Both Depreciation cost as a percentage of Sales &
the increase in depreciation cost percentage is
more in case of Infosys where it increased from
3.51% to 3.98% & for TCS it increased from 2.03%
to 2.20%. TCS scares over Infosys here also a its
Depreciation costs to Net Sales is lower.
• No Interest & Finance charges in case of Infosys
whereas it is negligible in case of TCS, it is 0.05%
during 2009-10 & .10% during 2008-09.
• The percentage of PBT is more in case of Infosys
but the percentage increase in PBT is more in
case of TCS. In xase of Infosys, it increased from
31.83% to 34.73% whereas in case of TCS, it
increased from 22.11% to 27.60% during the year.
This shows that the profit margin percentage of
Infosys is higher as compared to TCS.
• The PAT percentage in terms of Sales is nearly the
same in both the years for Infosys, whereas in
case of TCS it rises from 18.90% to 23.31% during
2009-10. This is because of the higher tax liability
which Infosys has to pay which is about 7.4% of
Sales as against 3.89% of TCS.
 COMPARATIVE ANALYSIS
Balance Sheet
• Infosys is a bigger company than TCS. Its balance
sheet size is Rs. 23281cr as against Rs. 19000cr of
TCS.
• Infosys is one of those company’s that does not
have a long term debt whereas TCS has a long
term debt which had been reduced significantly
from Rs. 563cr to Rs. 103cr during 2009-10, and
TCS had also increased its Equity Share Capital
from Rs. 198cr to Rs. 295cr, which shows that
both the companies are neck to neck.
• Both the companies had piled on their
accumulated profits. As a result, their Reserves &
Surplus have increased. Incase of Infosys,
reserves & Surplus contributes about 97.78% of
the Sources of Funds as against 95.60% of TCS.
This shows that both the companies are
financially very strong.
• Tax management for bth the cpmpanies is very
efficient. As for both the companies, defferred tax
assets is more than the deferred tax liability
during 2009-10. This shows that there will be no
drainage of Resoiurces for paying the Tax by both
the companies.
• In case of Infosys, Re. 1 of Fixed Asset is
contributing Sales of Rs. 4.59 as against Rs. 8.53
of TCS. So both the companies are sitting on a
war chest & will be able to encash any business
opportunity, particularly the acquisitions that
come its way, immediately.
• In case of Net current Assets, Infosys is far ahead
of TCS. For TCS it is 38.93% during 2009-10 &
45.25% during 2008-09 as against 58.97% of
Infosys during 2009-10 & 69.8% during 2008-09.
Clearly none of the companies is making money
out of the non – interest bearing outstanding of
its suppliers.
• Ultimately, TCS emerges to be a highly efficiently
managed company, but Infosys is not far behind.
They are closing in the gap between them.
INFOSYS
Trend analysis
2003-2010
 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PARTICULARS

Sales & other income 4975 7254 9660 14265 17396 22166 23685

INDEX 1.0 1.46 1.94 2.87 3.5 4.45 4.76

Profit after tax 1243 1891 2458 3856 4659 5988 6266

INDEX 1.0 1.52 1.98 3.10 3.75 4.81 5.04

Profit before tax 1471 2172 2792 4247 5344 6907 7899

INDEX 1.0 1.47 1.9 2.9 3.63 4.7 5.37

Equity dividend 862 310 1238 649 1902 1345 1434

INDEX 1.0 0.36 1.43 0.75 2.20 1.56 1.66

Gross block 1634 2287 2983 4642 5439 7093 7839

INDEX 1.0 1.4 1.82 2.84 3.33 4.34 4.8

 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PARTICULARS

Net block 823 1256 1655 2806 3453 4677 4946

INDEX 1.0 1.52 2.01 3.40 4.2 5.7 6.01

Net worth 3249 5255 6966 11259 13795 18254 23049

INDEX 1.0 1.61 2.14 3.46 4.24 5.61 7.1

Net current assets 1326 2489 3988 7371 8827 12774 13728

INDEX 1.0 1.87 3.00 5.56 6.65 9.63 10.4

No. of employees 26673 36750 52715 72241 91000 119321 146870

INDEX 1.0 1.38 1.97 2.71 3.41 4.47 5.50

No. of clients 379 499 643 803 973 1129 1270

INDEX 1.0 1.31 1.7 2.12 2.57 4.05 4.56

 KEY POINTS
• Growth rate of PBT is greater than that of sales in the years
after 2006-07, implying that the co. is operating on heavy
profit margins.
• PAT shows the same pattern from 2004-05.

PAT (Rs. crores)

7000

6000

5000

4000

3000

2000

1000

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
• Quantitative details: consistent rise on no. of
clients from 267 to 1270 in 2010. most
importantly there is a 33.3% increase in co.’s
multi billion $ clients.
No. of Clients
1400

1200

1000

800

600

400

200

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
• Consistent Growth in the net worth of the
company. In almost all the years, the growth
of net equity is more than the growth of gross
block.
Net Worth(Rs. crores)
25000

20000

15000

10000

5000

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
• Dividend payout increased every alternate year due to
the following reasons;
2003-04- co. declared a one time special dividend
of 100 cr., paying out 862 cr. as dividend that year.
2005-06- silver jubilee special dividend of 827 cr.
2007-08- largest dividend payout in Indian
corporate history under a one time special dividend.
• 2008-09 onwards the co. turned to 30% payout ratio.
Equity Dividend(Rs. crores)
2000
1800
1600
1400
1200
1000
800
600
400
200
0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
 • Position at year end: neck-to-neck growth in
gross block and sales.
Consistent rise in net current assets as a
result of increase in WC.

Sales(Rs. crores) Net Current Assets(Rs. crores)

16000
25000
14000
20000 12000
10000
15000
8000
10000 6000
4000
5000
2000
0 0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
 INFOSYS
technologies ltd.
RATIO analysis
 ROI RATIOS
2010 2009

RATIOS FORMULA
(Rs crores) result (Rs. crores) result

(6266-0)/ 27.18 (5988-0)/ 32.8

RONW Adjusted PAT * 100/ (286+22763-0) (268+179680)
NET WORTH

Adjusted PAT/
weighted ave. no. 6266-0/ 109.84 59,88/ 104.60
EPS of equity shares 57.04 57.24
o/s

PAT+ non cash

charges/ 6266+905/ 125.93 5988+761/ 117.92
CEPS weighted ave. no. 57.04 57.2
of equity shares
o/s
 NOTES
1. Adjusted PAT

2010 2009

PAT as reported 6266 5988

Less: exceptional income 0 0

Adjusted PAT 6266 5988

 BRIEF ANALYSIS
• RONW: this ratio declined by 5.62% despite an
increase in PAT implying a rise in income tax and amt.
discharged on borrowings.
• EPS: went up by Rs. 5.24, as a result of increase in PAT
by 278 cr. and a fall in no. of shares. Thus the
shareholders of the co. are better off as compared to
2009.
• CEPS: has increased by Rs. 8.01 implying that the co.
can meet its obligation towards its shareholders and
also meet its operating expenses better than it did in
2009.
 INFOSYS
technologies ltd.
SOLVENCY RATIOS
 2010 2009
RATIOS FORMULA
(Rs crores) Results (Rs crores) results

net worth/
NAV no. of equity shares 23049/ 403.6 18254/ 318.6
o/s 57.09 57.28

DEBT long term debt/ - - - -

EQUITY total net worth

INTEREST PAT+ non cash charges+ - - - -

COVER int. on l/t debt/
Int. on l/t debt
PAT+ non cash charges+
DSCR int. on l/t debt/ - - - -
Int. on l/t debt +repayt.
Of principal
 BRIEF ANALYSIS
• As can be seen the NAV has increased by Rs.
85 implying an increase in retained earnings
by the co. i.e. after paying off the dividend.
• An increase implies greater capacity of the co.
to raise capital- borrowed as well as equity, as
the investor sentiment is in favor of the co.
• Rest of the ratios can’t be calculated due to
absence of any long term debt.
 INFOSYS
technologies ltd.
LIQUIDITY RATIOS
 2010 2009
RATIOS FORMULA (Rs crores) Result (Rs. crores) Result

Current assets, loans 18237+3708/ 4.92 16646+0/ 4.30

Current advances +s/t invt./ 4455 (times) 3872 (times)
ratio C. Liabilities +s/t debt
Current assets, loans 18237+3708/ 4.92 16646+0/ 4.30
Quick ratio advances +s/t invt. - 4455 (times) 3872 (times)
inventory/C. Liabilities +s/t
debt –working k borrowing

Receivables*365/ 56 days 3672* 365/ 62 days

Consumers’ Total sales 3494* 365/ 21693
credit 22742

Payable*365/ (10+8) *365/ 17.4 (27+11)*365/ 36.2

Suppliers’ purchases (353+25) days (361_220 days
credit

Inventory Inventory*365/ - - - -
holding COGS
period
 Brief analysis
• Current ratio increased by .62 times implying an
increase in the co.’s ability to pay off day-day bills. This
increase is a result of a 3708 cr. Invt. by the co.
• Quick ratio same as current, as the co. holds no
inventory. Registered a decline of 062 times.
• Customer credit:
Assumptions- all sales are credit, gross sales equal net sales de to
absence of excise duty.
A decline in receivables is a result of improvement in this
ratio, which improved from 62 day to 56 day credit.
 Contd…
• Supplier credit:
Assumptions- the ‘others’ in current liabilities is assumed as
payable to suppliers.
The suppliers credit has almost halved from 36 days to 17 days,
which might have then led the co. to cut down on its
customer credit period.

• Inventory holding period can’t be calculated as a

software co. does not have a need for it.
 INFOSYS
technologies ltd.
Turnover ratio
 2010 2009
RATIO FORMULA (Rs. crores) result (Rs. crores) result

Fixed
asset Net sales/
22741/ 4.60 21693/ 4.64
turnover Net block of 4946 times 4677 times
ratio fixed assets
Net worth
Net sales/
turnover 22742/ 0.97 21693/ 1.19
ratio Net worth 23049 times 18254 times
 Brief analysis
• Fixed asset turnover ratio is almost the same
implying thereby no change in turnover generated by
fixed assets.

• Net worth turnover ratio has declined by 0.22

times as a result of increase in net worth implying
thereby a decline in efficiency of resource utilization
from point of view of equity shareholders.
DU PONT ANALYSIS
This analysis establishes a relationship between
NET PROFIT MARGIN and NET WORTH TURNOVER.
DU PONT ANALYSIS….
= Net profit margin Net worth turnover
RONW *

(PAT – P. DIV.)*100/ = (PAT – P. DIV.)*100/ * NET SALES/

NET WORTH NET SALES NET WORTH

(6266-0)/ 6266*100/ 22742/

2010

(286+22763-0) = 22742 * 23049

27.28% 27.65% 0.98 TIMES

(5988-0)/ 5988*10/ 21693/

2009

(268+179680) = 21693 * 18254

32.8% 27.6% 1.19 TIMES
 SUMMARY
• DECREASE IN RONW is mainly because of
its 2 determinants- decline in its net
worth turnover (which shows that the co.
must try to increase its sales) and an
almost negligible change in net profit
margin.