ACCOUNTS

ASSIGNMENT ON RATIO
ANALYSIS

INFOSYS LTD.

Infosys was co-founded in 1981 by N. R. Narayana Murthy, Nandan

Nilekani, N. S. Raghavan, S. Gopalakrishnan, S. D. Shibulal, K. Dinesh
and Ashok Arora after they resigned from Patni Computer Systems.
Infosys ranked among the most innovative companies in a Forbes
survey, leading technology companies in a report by
The Boston Consulting Group and top ten green companies in
Newsweek's Green Rankings.
Infosys was voted India's most admired company in
The Wall Street Journal Asia every year since 2000

Mr. K.V. Kamath is the chairman of the board and Mr. S.D. Shibulal is
the CEO and Managing director as per Annual Report 2011-12

CONSOLIDATED BALANCE SHEET OF INFOSYS

CONSOLIDATED KEY FINANCIAL

RATIOS OF INFOSYS

GROSS PROFIT RATIO IS THE RATIO OF GROSS PROFIT TO NET SALES I.E. SALES LESS SALES
RETURNS. THE RATIO THUS REFLECTS THE MARGIN OF PROFIT THAT A CONCERN IS ABLE TO EARN
ON ITS TRADING AND MANUFACTURING ACTIVITY. IT IS THE MOST COMMONLY CALCULATED RATIO.
IT IS EMPLOYED FOR INTER-FIRM AND INTER-FIRM COMPARISON OF TRADING RESULTS.
GP RATIO =GROSS PROFIT / (NET SALES 100)

INTERPRETATION OF GROSS
PROFIT MARGIN
The gross profit margin of Infosys reduces in
the year 2009 but it increase tremendously in
the year 2009 & 2010 as compare to previous
years. The reason being the company is
getting more efficient in production because of
increase in demand. But it slightly decrease in
the year 2011 reason could be the company
has to cut price to generate sales.

NET PROFIT MARGIN IS NET PROFIT DIVIDED BY SALES AND EXPRESSED AS A PERCENTAGE. NET
PROFIT IS EQUAL TO SALES MINUS THE COST OF GOODS SOLD, OPERATING EXPENSES, INTEREST
AND TAXES. FINANCIAL RATIOS, SUCH AS NET PROFIT MARGIN, EXPRESS RELATIONSHIPS BETWEEN
FINANCIAL STATEMENT ITEMS. THESE RATIOS ARE USEFUL FOR ASSESSING PERFORMANCE OVER
TIME AND COMPARING THE FINANCIAL RESULTS OF COMPANIES IN THE SAME INDUSTRY. HOWEVER,
THEY ARE USUALLY NOT VERY MEANINGFUL AS STANDALONE NUMBERS.
GROSS PROFIT MARGIN = GROSS PROFIT TOTAL REVENUE

INTERPRETATION OF NET
PROFIT MARGIN
The net profit margin of Infosys
decreased over the period from 20072011 because sales has been increasing
but profit after tax is increasing at much
slower rate

OPERATING MARGIN OR OPERATING PROFIT MARGIN MEASURES WHAT PROPORTION OF

A COMPANY'S REVENUE IS LEFT OVER, AFTER DEDUCTING DIRECT COSTS AND
OVERHEAD AND BEFORE TAXES AND OTHER INDIRECT COSTS SUCH AS INTEREST.
OPERATING MARGIN FORMULA IS: EBIT/NET SALES*100

INTERPRETATION OF OPERATING
PROFIT MARGIN
The operating profit margin increases from the
year 2008 to 2010. This is due to sales are
increasing faster than costs, which is the
optimal situation for the company. But in the
year 2011 operating profit margin decreases
which is not a good sign for a company.

RETURN ON CAPITAL EMPLOYED (ROCE) IS THE RATIO OF NET OPERATING PROFIT OF A

COMPANY TO ITS CAPITAL EMPLOYED. IT MEASURES THE PROFITABILITY OF A COMPANY
BY EXPRESSING ITS OPERATING PROFIT AS A PERCENTAGE OF ITS CAPITAL EMPLOYED.
ROCE =NET OPERATING PROFIT/CAPITAL EMPLOYED
WHERE CAPITAL EMPLOYED IS THE SUM OF STOCKHOLDERS' EQUITY AND LONG-TERM FINANCE.

INTERPRETATION OF RETURN OF
CAPITAL EMPLOYED
The Return on Capital Employed of Infosys
increases smoothly from the year 2007 to
2009 which means company generates
more earnings per rupee of capital
employed. It decreases in the year 2010
which indicates lower profitability. But in
the year 2011 it again increases reason
could be the company reduces its capital
investment.

CURRENT RATIO:
IT IS USED TO APPRAISE THE ABILITY OF THE COMPANY TO SATISFY ITS CURRENTDEBTS
OUT OF THE CURRENT ASSETS. GENERALLY, 2 TO 1 CURRENT RATIO IS
CONSIDERED.THE SATISFACTORYMINIMUM CURRENT RATIO= CURRENT
ASSETS/CURRENT LIABILITIES

INTERPRETATION OF
CURRENT RATIO
The current ratio of Infosys is almost
increasing over the years except for the
year 2008 because the current liablities in
2008 grew proportionally more in
comparison to current asset in the same
year. But overall its current ratio is healthy
enough which shows companys current
assets to meet its obligation is increasing

QUICK RATIO/ACID TEST RATIO:

THE QUICK RATIO IS THE STRINGENT TEST TO LIQUIDITY. IT IS FOUNDED BY DIVIDING THE MOST LIQUID CURRENT
ASSETS BY CURRENT LIABILITIES. INVENTORY IS NOT INCLUDED SINCE THE LENGTH OF TIME NEEDED TO CONVERT
TO CASH IS LONG. PREPAID EXPENSES ARE ALSO NOT AN ELEMENT SINCE THEY ARE NOT CONVERTIBLE IN CASH.
GENERALLY ACCEPTABLE RATIO IS 1 TO 1.
QUICK RATIO=QUICK ASSETS/CURRENT LIABILITIES

INTERPRETATION OF QUICK
RATIO
In all 5 years the Quick Ratio of Infosys is above 1
which is good. If the company's liquidity ratio has
increased that indicates that a company is
experiencing solid top-line growth, quickly
converting receivables into cash, and easily able to
cover its financial obligations.If increased that
means the company does not manage their asset
that well or probably has more short term
obligations. However, the company does not seem
to face any financial distress in thefuture years.

DEBTORS TURNOVER RATIO:

IT INDICATES THE VELOCITY OF DEBT COLLECTION OF A FIRM. IN SIMPLE WORDS IT INDICATES THE
NUMBER OF TIMES AVERAGE DEBTORS (RECEIVABLE) ARE TURNED OVER DURING A YEAR. TRADE
DEBTORS ARE EXPECTED TO BE CONVERTED INTO CASH WITHIN A SHORTPERIOD OF TIME AND
ARE INCLUDED IN CURRENT ASSETS. HENCE, THE LIQUIDITY POSITION OFCONCERN TO PAY ITS
SHORT TERM OBLIGATIONS IN TIME DEPENDS UPON THE QUALITY OF ITS TRADE DEBTORS.
DEBTORS TURNOVER RATIO = NET CREDIT SALES /AVERAGEDEBTORS

INTERPRETATION OF DEBTORS
TURNOVER RATIO
The debtors turnover ratio of Infosys decreased in the
year 2008, it is because the huge difference in
increase of sales and debtors. Debtors increase
significantly compare to sales. It is due to decrease in
debtors collection period. This has result in decrease
in debtors turnover ratio. Thereafter we can see an
increasing trend from year 2008 to 2011 which
indicates that a short lapse of time between sales
and the collection of cash or its extension of credit
and collection of accounts receivable are efficient .

ASSET TURNOVER MEASURES A FIRM'S EFFICIENCY AT USING ITS ASSETS IN GENERATING SALES
OR REVENUE - THE HIGHER THE NUMBER THE BETTER. IT ALSO INDICATES PRICING STRATEGY:
COMPANIES WITH LOW PROFIT MARGINS TEND TO HAVE HIGH ASSET TURNOVER, WHILE THOSE
WITH HIGH PROFIT MARGINS HAVE LOW ASSET TURNOVER.
ASSET TURNOVER= NET SALES/AVERAGE TOTAL ASSET

INTERPRETATION OF ASSET
TURNOVER RATIO
The asset turnover Ratio of Infosys decreases
from the year 2008-2010. It may appears that
the company has utilised its assets less
effectively. But we can see enormous increase
in the year 2011 reason being it has increased
its assets which may help in increase in
companys future growth.