NESS WADIA COLLEGE OF COMMERCE

TUTORIAL

NAME – SHIVRAJ VEER

CLASS – TYBBA
DIV - B
ROLL NO – 99
TOPIC – RATIO ANALYSIS
SUBMITTED TO – CA JAYSHREE VENKATES
 WHAT IS RATIO ANALYSIS?

 Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational efficiency,
and profitability by studying its financial statements such as the balance sheet and income statement. Ratio
analysis is a cornerstone of fundamental equity analysis.

 A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an
enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to
evaluate the overall financial condition of a corporation or other organization .
 TYPES OF RATIOS
1. Liquidity Ratios
Liquidity ratios measure a company's ability to pay off its short-term debts as they become due, using the
company's current or quick assets. Liquidity ratios include the current ratio, quick ratio, and working capital ratio.

2. Solvency Ratios
Also called financial leverage ratios, solvency ratios compare a company's debt levels with its assets, equity, and
earnings, to evaluate the likelihood of a company staying afloat over the long haul, by paying off its long-term debt
as well as the interest on its debt. Examples of solvency ratios include: debt-equity ratios, debt-assets ratios, and
interest coverage ratios.
3. Profitability Ratios
These ratios convey how well a company can generate profits from its operations. Profit margin, return on assets,
return on equity, return on capital employed, and gross margin ratios are all examples of profitability ratios.

4. Efficiency Ratios
Also called activity ratios, efficiency ratios evaluate how efficiently a company uses its assets and liabilities to
generate sales and maximize profits. Key efficiency ratios include: turnover ratio, inventory turnover, and days'
sales in inventory.
5. Coverage Ratios
Coverage ratios measure a company's ability to make the interest payments and other obligations associated with
its debts. Examples include the times interest earned ratio and the debt-service coverage ratio.

6. Market Prospect Ratios

These are the most commonly used ratios in fundamental analysis. They include dividend yield, P/E ratio, earnings
per share (EPS), and dividend payout ratio. Investors use these metrics to predict earnings and future performance.

For example, if the average P/E ratio of all companies in the S&P 500 index is 20, and the majority of companies
have P/Es between 15 and 25, a stock with a P/E ratio of seven would be considered undervalued. In contrast, one
with a P/E ratio of 50 would be considered overvalued. The former may trend upwards in the future, while the
latter may trend downwards until each aligns with its intrinsic value.
 INTRODUCTION OF COMPANY

Infosys Ltd. is a consulting, technology and outsourcing company, which provides end-to-end business solutions
thereby enabling clients to enhance business performance, delivered to customers globally operating in various
industry segments. The company’s industry segments are primarily financial services and insurance comprising
enterprises providing banking, finance and insurance services, manufacturing, enterprises in the energy, utilities,
communication and services and retail, consumer packaged goods, logistics and life sciences. Its offerings include
IT Services, Engineering Services, Consulting Services, BPO Services, and Products and Platforms. The
company’s IT services offerings create information technology-enabled business solutions for clients by leveraging
its domain and business expertise along with a complete range of services, including application, architecture,
independent validation and testing, information management, infrastructure, knowledge, learning services,
packaged application services, SOA and systems integration services. Its Engineering services provide concept-to-
market research and development and engineering services to improve customers’ product operations. These
operations include lifecycle management, manufacturing process and plant solutions and product engineering. The
company’s Consulting services include information and technology strategies, learning and complex change.
BALANCE SHEET OF INFOSYS
CASH FLOW OF INFOSYS
PROFIT AND LOSS OF INFOSYS
 RATIO ANALYSIS OF INFOSYS

• CURRENT RATIO: The current ratio is a liquidity ratio that measures a company’s ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can maximize the current
assets on its balance sheet to satisfy its current debt and other payables.

Formula – Current ratio = Current Assets/ Current liabilities

FY 22-23
Ratio MAR 23 MAR 22 Remark
Current ratio 1.81 2.00 MAR 23

 INTERPRETATION - From the above table, we can conclude that MAR 22 has a higher ratio
of current Assets as compared to MAR 23. A current ratio of 1.82 in 2023 suggests that the company may
have slightly reduced its short-term liquidity compared to 2022 when it was 2. While a ratio above 1
indicates the ability to cover short-term obligations, the decrease may indicate a shift in the company's
financial strategy or potential risks in managing its current assets and liabilities.
 RATIO ANALYSIS OF INFOSYS

• NET PROFIT MARGIN: Net profit is the profit that a company makes after meeting all its expenses. It is the
value derived after deducting the operating costs, other costs, interest, depreciation, and tax from total revenue.

Formula – Net profit/ Net Turnover x 100

Ratio MAR 23 MAR 22 Remark

Net Profit Margin 16.42 18.20 MAR 22

 INTERPRETATION – A high net profit ratio indicates that the company has more cash available to
distribute to shareholders or transfer to reserve and surplus. The net profit margin decreasing from 18.22% in
2022 to 16.42% in 2023 suggests that the company's profitability has slightly declined over the year,
potentially due to increased expenses or changes in revenue. It's important to analyze the reasons behind this
decrease to make informed financial decisions.
 RATIO ANALYSIS OF INFOSYS

• RETURN ON CAPITAL EMPLOYED RATIO: The term return on capital employed (ROCE) refers to a
financial ratio that can be used to assess a company’s profitability and capital efficiency. In other words, this
ratio can help to understand how well a company is generating profits from its capital as it is put to use .

Formula – Operating Profit/Capital Employed

Ratio MAR 23 MAR 22 Remark

ROCE 38.79 35.96 MAR 23

 INTERPRETATION – The increase in ROCE (Return on Capital Employed) from 35.96% in March 2022
to 38.79% in March 2023 indicates improved efficiency in utilizing capital to generate profits, reflecting
potentially better financial management or increased profitability in the business during this period. This
suggests a positive trend in the company's overall financial performance.
 RATIO ANALYSIS OF INFOSYS

• NET PROFIT SHARE : Net profit share refers to the portion of a company's profits that is distributed among its
shareholders or partners based on their ownership stakes or agreed-upon profit-sharing arrangements. It represents
the earnings that each shareholder or partner is entitled to after deducting all expenses, taxes, and other obligations
from the company's total profits.

Formula – Net Profit = Total Revenue – Total Expenses

Ratio MAR 23 MAR 22 Remark

NET PROFIT 58.26 52.78 MAR 23
SHARE

 INTERPRETATION- The net profit share for March 2023 increased to 58.26 from 52.78 in March 2022,
indicating improved profitability year-over-year. This growth may be attributed to various factors, such as
increased revenue, cost management, or operational efficiencies, contributing to a stronger financial
performance for the company. Shareholders or partners can expect higher returns or dividends as a result of
this improved net profit share. It reflects positively on the company's financial health and potential for
continued growth.
 RATIO ANALYSIS OF INFOSYS

• RETURN ON EQUITY: Return on Equity, called Return on Net Worth, shows a company’s profitability
by calculating how much shareholders earn for their investment in the firm.

Formula – Profit After Tax or Net Income/Shareholders’ Equity

Ratio MAR 23 MAR 22 Remark

RETURN ON 31.95 29.34 MAR 23
EQUITY

 INTERPRETATION – The increase in Return on Equity (ROE) from 29.34% in March 2022 to 31.95% in
March 2023 indicates that the company generated higher profits in relation to its shareholders' equity during
this period, suggesting improved efficiency in capital utilization and potentially a stronger financial position.
This reflects positively on the company's ability to provide returns to its shareholders .
 RATIO ANALYSIS OF INFOSYS

QUICK RATIO- Quick Ratio, also known as the Acid-Test Ratio, is a financial metric used to assess a company's
short-term liquidity and ability to cover immediate liabilities without relying on the sale of inventory. It is
calculated by subtracting current inventory from current assets and dividing the result by current liabilities. A
higher quick ratio indicates a company's better ability to meet its short-term obligations.

Formula- Liquid Assets/current liabilities

Ratio MAR 23 MAR 22 Remark

QUICK RATIO 1.81 2.00 MAR 22

 INTERPRETATION- The Quick Ratio for March 2023 decreased to 1.81 from 2.00 in March 2022,
indicating a slightly reduced ability to cover immediate liabilities without relying on inventory. While it's still
above 1, suggesting a healthy liquidity position, the decrease may be due to changes in cash, receivables, or
marketable securities, warranting further analysis of the company's short-term financial health.
Conclusion
Infosys is a fundamentally strong company. It has strong fundamentals, which can be seen in the Balance sheet,
Income sheet, and Cash flow statements, and the analysis above. It has higher profitability than its competitors. It
has a 74 million Market Capitalization which better than most of its competitors in the industry. Infosys is trying to
manage its debt better to finance it for operational activities, which would enhance its profitability and growth. As
an investor where people find it reasonably risky to invest due to volatility and the instability in the markets, it
could act as a pretty stable investment that could give profits in the longer run.
THANK YOU!