A REPORT

ON

(Fundamental Analysis of Infosys)

BY

Satyajeet Chauhan

09BS0002101
 A REPORT

ON

(Fundamental Analysis of Infosys)

BY

Satyajeet Chauhan

09BS0000547

A report submitted in partial fulfillment of the requirements of MBA program of

The ICFAI University, Dehradun

Faculty Guide: Dr.Uma Sreedhar

IBS Bangalore

Date: 03/03/2011
 DECLARATION

I declare that the project entitled “Fundamental Analysis of Infosys” conducted at IBS Bangalore
is a record of independent analysis work carried out by me during the academic year 2010-11
under the guidance of my faculty guide Dr.Uma Sreedhar of Icfai Business School, Bangalore. I
also declare that this project is the result of my effort and has not been submitted to any other
university or institution for the award of any degree, or personal favor whatsoever. All the details
and analysis provided in the report hold true to the best of my knowledge.

Place: Bangalore
Satyajeet chauhan

Date;03/03/2011 IBS Bangalore

 ACKNOWLEDGEMENT

Gratitude takes three forms- “a feeling from heart, an expression in words, and giving a return”. I
hereby take this opportunity to thank all those who have helped me some way or the other in the
successful completion of this project work. The guidance and support of many people has been
immense throughout the project.

Our teacher always ensures that we do not quietly fade away into sunset, but that we are always
remembered for the brilliance shown in our work. I would like to thank Mrs. Lata Chakravarthy-
Director IBS, Bangalore for including Management Research Project (MRP) as a part of the
curriculum of Icfai Business School; which aims at overall development of the Student by
providing them with an opportunity to research in the area of interest and gain space to learn from
application of theoretical knowledge in Practice. I would specially thank my faculty guide
Dr.Uma Sreedhar for providing encouragement and indispensable feedback. He has guided me
not just during this project but also guided on how to leverage this experience as my strength to
make a successful career ahead.

This project would not have been possible without the untiring support provided by my friends
and all my well wishers who have helped me in a direct or indirect way.

Satyajeet Chauhan

IBS Bangalore
Table of Contents
Table of Contents........................................................................................................ 5
ABSTRACT...................................................................................................................6
Introduction................................................................................................................. 7
Objective:................................................................................................................. 7
Methodology:........................................................................................................... 7
Limitations of the Study:..........................................................................................7
EIC Model.................................................................................................................... 8
Economic analysis:...................................................................................................8
Sector analysis.......................................................................................................10
Information technology.......................................................................................12
Company Analysis..................................................................................................15
Ratio Analysis......................................................................................................16
Book Value..........................................................................................................27
Market Capitalization..........................................................................................29
Promoters Shareholding Pattern.........................................................................30
Edward Altman’s Z Score....................................................................................31
 ABSTRACT
In a country like India where service sector constitute more then 50% of GDP ,IT industry plays a
very significant role .Booming IT industry which is now close to $ 60 billion , is expected to
grow to 250 billion in next 5 years time. After 1992 reform Indian IT firms start growing with
world class quality and expertise. In recent times, 'Software Development and IT Enabled
fServices' have emerged as a niche opportunity for India in the global context. IT service industry
exports were estimated to be US $ 26.9 billion on 2008-09 as compared to US $ 23.1 billion in
2007-08, showing a growth rate of 16.5 percent in 2008-09, a year -on-year (Y-o-Y) growth of
over 17.4 percent.

Through this project we will obtain holistic knowledge of market, industry, there growth
prospective and in-depth knowledge of company specifics with the help of Financial Statements
of company concerned. Through this project we will look into fundamentals of the company and
try to find out the intrinsic value of stock. There are two type of analysis to examine the
performance of the particular stock and its future market price. One is trend analysis and second
is fundamental analysis. This project will provide the holistic view about the global economic
condition its impact on sector and particular stock. In fundamental analysis generally investors
analyze the financial statement of the company but to make this project more realistic and
relevant.
 Introduction
Fundamental analysis of a business involves analyzing its financial statements and health, its
management and competitive advantages, and its competitors and markets. When applied to
futures and forex, it focuses on the overall state of the economy, interest rates, production,
earnings, and management. When analyzing a stock, futures contract, or currency using
fundamental analysis. Fundamental analysis is performed on historical and present data, but with
the goal of making financial forecasts.

Fundamental analysis maintains that markets may misprice a security in the short run but that the
"correct" price will eventually be reached. Profits can be made by trading the mispriced security
and then waiting for the market to recognize its "mistake" and reprice the security.

Objective:
1. To conduct a company stock valuation and predict its probable price evolution,

2. To make a projection on its business performance,

3. To evaluate its management and make internal business decisions.

Methodology:

Investors can use either a top-down or bottom-up approach.The top-down investor starts his
analysis with global economics, including both international and national economic indicators,
such as GDP growth rates, inflation, interest rates, exchange rates, productivity, and energy
prices. He narrows his search down to regional/industry analysis of total sales, price levels, the
effects of competing products, foreign competition, and entry or exit from the industry. Only then
he narrows his search to the best business in that area. The bottom-up investor starts with specific
businesses, regardless of their industry/region.

Limitations of the Study:

The area of study of the project is extremely wide. Considering the nature of the project, domain
expertise knowledge and experience is very important. However given the time frame of only few
months the project would be more dependent on secondary information.
 EIC Model

Economic analysis:

Economic analysis deals with the macroeconomic factor like money supply, interest rate, GDP
and future prospective of different factors which are mentioned earlier. Economic analysis will
give overview about the mass scale market sentiments which can affect the valuation of the
company. Economic scenarios of any country have large impact on industry as well as on the
company valuation.

Analysis:

According to the estimates by the Ministry of Statistics and Programme Implementation, the
Indian economy has registered a growth of 7.4 per cent in 2009-10, with 8.6 per cent year-on-
year (y-o-y) growth in its fourth quarter. The growth is driven by robust performance of the
manufacturing sector on the back of government and consumer spending. GDP growth rate of 7.4
per cent in 2009-10 has exceeded the government forecast of 7.2 per cent for the full year.
According to government data, the manufacturing sector witnessed a growth of 16.3 per cent in
January-March 2010, from a year earlier.

Economic activities which showed significant growth rates in 2009-10 over the corresponding
period last year were mining and quarrying (10.6 per cent), manufacturing (10.8 per cent),
electricity, gas and water supply (6.5 per cent), construction (6.5 per cent), trade, hotels, transport
and communications (9.3 per cent), financing, insurance, real estate and business services (9.7
per cent), community, social and personal services (5.6 per cent). The Gross National Income is
estimated to rise by 7.3 per cent in 2009-10 as compared to 6.8 per cent in 2008-09. The per
capita income is estimated to grow at 5.6 per cent in 2009-10.

India’s industrial output grew by 17.6 per cent in April 2010. The manufacturing sector that
accounts for 80 per cent of the index of industrial production (IIP) grew 19.4 per cent in April
2010, as against 0.4 per cent a year-ago.

Capital goods production grew by 72.8 per cent against a contraction of 5.9 per cent a yearago.
Consumer durables output continued to grow at a fast pace of 37 per cent, mirroring higher
purchase of goods such as televisions and refrigerators.

The Economic scenario:

The number of registered foreign institutional investors (FIIs) was 1710 as on May 31, 2010 and
the total FII inflow in equity during January to May 2010 was US$ 4606.50 million while it was
US$ 5931.80 million in debt.

Net investment made by FIIs in equity between June 1, 2010 and June 14, 2010 was US$ 530.05
million while it was US$ 875.73 million in debt.
As on June 4, 2010, India's foreign exchange reserves totalled US$ 271.09 billion, an increase of
US$ 9.88 billion over the same period last year, according to the Reserve Bank of India's (RBI)
Weekly Statistical Supplement.

Moreover, India received foreign direct investment (FDI) worth US$ 25,888 million during
April-March, 2009-10, taking the cumulative amount of FDI inflows during August 1991 - March
2010 to US$ 1, 32,428 million, according to the Department of Industrial Policy and Promotion
(DIPP).

Growth potential story

• The data centre services market in the country is forecast to grow at a compound annual
growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2
billion by the end of 2011, according to research firm IDC India’s report published in March
2010. The report further stated that the overall India data centre services market in 2009 was
estimated at US$ 1.39 billion.
• According to a report by research and advisory firm Gartner published in March 2010, the
domestic BPO market is expected to grow at 25 per cent in 2010 to touch US$ 1.2 billion by
2011. Further, the BPO market in India is estimated to grow 19 per cent through 2013 and
grow to US$ 1.8 billion by 2013. According to the report, the domestic India BPO services
market grew by 7.3 per cent year-on-year in 2009.
• The BMI India Retail Report Quarter 3, 2010 released in May 2010, forecasts that total retail
sales will grow from US$ 353.0 billion in 2010 to US$ 543.2 billion by 2014.
• According to a report titled 'India 2020: Seeing, Beyond', published by domestic broking
major, Edelweiss Capital in March 2010, stated that India's GDP is set to quadruple over the
next ten years and the country is likely to become an over US$ 4 trillion economy by 2020.
• India will overtake China to become the world's fastest growing economy by 2018, according
to the Economist Intelligence Unit (EIU), the research arm of London-based Economist
magazine.
 Sector analysis

Service Sector

The services sector has been at the forefront of the rapid growth of the Indian economy.

As per the Central Statistical Organisation (CSO), Ministry of Statistics and Programme
Implementation:

• Trade, hotels, transport and communication grew 12.2 per cent in April-June 2010 over
the corresponding quarter from a year earlier
• Similarly, financing, insurance, real estate and business services grew at 8 per cent in the
first-quarter of 2010-11
• Community, social & personal services grew by 6.7 per cent during April-June 2010-11

Indicators

Lead indicators suggest that the pace of expansion in the services sector activity is likely to be
sustained.

• Foreign tourist arrivals (FTAs) during January to September 2010 were 3.84 million, an
increase of 10 per cent, over 3.49 million over the corresponding period in 2009, as per the
Ministry of Tourism data.
• According to the Telecom Regulatory Authority of India (TRAI), the number of telephone
subscribers in the country reached 706.37 million as on August 31, 2010, an increase of 2.61
per cent from 688.38 million in July 2010. With this the overall tele-density (telephones per
100 people), touched 59.63.
• According to the Indian Ports Association data major ports in India handled 271.29
million tonnes (MT) traffic during April-September 2010-11, as compared to 267.98 MT
handled during the same period last year, registering a growth of 1.23 per cent
• According to the Central Statistical Organisation, the key indicators of railways, namely,
the net tonne kilometres and passenger kilometres have shown growth rates of 4.7 per cent
and 5.6 per cent, respectively in the first-quarter of 2010-11
• Production of commercial vehicles has registered a growth rate of 57 per cent whereas
cargo handled by civil aviation has grown by 25.6 per cent and passengers handled by civil
aviation has grown by 19.1 per cent in the first-quarter of 2010-11

Exports

According to World Trade Organisation's (WTO) "International Trade Statistics 2009" released
in March 2010, India ranks twelfth in commercial service exports.

According to the Economic Survey 2009-10, the services sector grew by 8.7 per cent in 2009-10.
The services exports reached US$ 102 billion in 2008-09 registering a growth of 12.5 per cent
over 2007-08. The miscellaneous services category share has increased by 16.1 percentage points
to 76.4 per cent in 2008-09 as compared to 2000-01. While the share of software services
increased by 6.5 percentage points to 45.5 per cent, the share of non-software services increased
by 9.6 percentage points to 30.9 per cent in 2008-09.

According to the Department of Information Technology, the share of information technology

enabled services (ITeS) and business process outsourcing (BPO) exports has expanded. The total
ITeS-BPO exports is estimated to have risen from US$ 1.5 billion in 2001-02 to US$ 12.7 billion
in 2008-09, a CAGR of about 39.2 per cent. BPO now accounts for about 27 per cent of total
exports.

Investments

According to data released by the Department of Industrial Policy and Promotion, the services
sector (financial and non-financial) attracted foreign direct investments (FDI) worth US$ 1.26
billion between April and August 2010 while the cumulative FDI between April 2000 and August
2010 has been US$ 24.86 billion, accounting for 21 per cent of the total FDI inflow.

Some of the investments in the service sector include:

• Denmark-based ISS, a facility services provider, has acquired a 49 per cent stake in
Chennai-based security firm SDB CISCO.
• Travel, transport and logistics major IBS Software has entered into a five-year deal with
TUI Group Airlines to provide support services.
 Information technology

Electronics and Information Technology is the fastest growing segment of the Indian Industry
both in terms of production and export. Today, the electronics industry is completely de-licensed
with the exception of aerospace and defence electronics. Along with the liberalization in foreign
investment and export-import policies of the entire economy, this sector is attracting considerable
interest not only as a vast market but also as a potential production base by/for international
companies.

In recent times, 'Software Development and IT Enabled Services' have emerged as a niche
opportunity for India in the global context. The Government is taking all necessary steps to make
India, a global information technology superpower and a front-runner in the age of information
revolution. The Government has announced promotion of Information Technology as one of the
top five priorities of the country and has constituted a National Task Force on Information
Technology and Software Development.

The year 2008-09 was marked by unprecedented global economic crisis. In spite of this uncertain
global outlook, the Indian Information Technology-Business Process Outsourcing (IT-BPO)
industry was able to achieve sustainable growth in the fiscal year 2008-09. The revenue aggregate
of IT-BPO industry is expected to grow by over 12 per cent and reach US $ 71.7 billion in 2008-
09 as compared to US $ 64 billion in 2007-08. Industry performance was marked by sustained
double-digit revenue growth, steady expansion into newer service-lines and increased geographic
penetration.

The Indian software and services exports including ITES-BPO exports is estimated at US $ 47
billion in 2008-09, as compared to US $ 40.4 billion in 2007-08, an increase of 16.3 per cent. The
IT services exports is estimated to be US $ 26.9 billion on 2008-09 as compared to US $ 23.1
billion in 2007-08, showing a growth of 16.5 percent in 2008-09, a year -on-year (Y-o-Y) growth
of over 17.4 percent.

While US & UK remained the largest export markets (accounting for about 60 per cent and 19
percent respectively, in 2007-08), the industry is steadily increasing its exposure to other
geographies. Exports to Continental Europe in particular have witnessed steady growth. Over 600
multinational companies are known to be sourcing product development and engineering services
from their centres in India. The growing nature of responsibilities and ownership assumed by
these India-based resources are helping India evolve into a strategic hub for R&D.

The industry has enhanced India's credibility as a business destination by creating a

fundamentally new model of global 24X7 service delivery, forging relationship with 75 per cent
of the Fortune 500 companies, generating immense savings for customers (savings from global
sourcing for customers amounted to an estimated US $ 20 billion to US $ 25 billion in 2008) and
promoting a focus on quality (65 per cent of all Capability Maturity Model Level 5 firms are
based in India) in addition, the industry has fostered the emergence of a large number of first
generation entrepreneurs.
With the BPO going strong for the past few years, the Knowledge Process Outsourcing (KPO) -
which may be called the highest level of the BPO - is still at a nascent stage of development in
the country. This evolution of the market to the KPO will drive trends that will ensure very high-
value service. in off shoring. These opportunities in the KPO will help the Indian market climb
the global value and knowledge chain.

Though the IT-BPO sector is export-driven, the domestic market is also significant. The revenue
from the domestic market (IT Services and ITES-BPO) is also expected to grow to about US $
12.5 billion in the year 2008-09 as compared to US $ 11.7 billion in 2007-08 an anticipated
growth of about 6.8 per cent. BPO demand in the domestic market has witnessed noticeable
growth over the past few years.

The phenomenal growth of the Indian IT Software & Services and ITES-BPO sector has had a
perceptible multiplier effect on the Indian economy as a whole. It has created immense
opportunities for employment and has contributed to the growth of national income. It has also
spawned the mushrooming of several ancillary industries such as transportation, real estate,
catering and has created a rising class of young consumers with high disposable incomes,
triggered a rise in direct-tax collections and propelled an increase in consumer spending.

The total IT Software and Services employment is expected to reach 2.23 million in 2008-09
(excluding employment in hardware sector), as against 2.01 million in 2007-08, a growth of 10.9
percent end of year. This represents a net addition of 226,000 professionals to the industry
employee base in 2008-09. The indirect employment attributed to the sector is estimated to be
about 8.0 million.

The industry has also set a precedent for talent practices in India. It has created career
opportunities for the youth, provided global exposure and offered extensive training and
development. Furthermore, the industry has been a front runner in diversity at the workplace
(over 30 per cent of employees are women; over 60 per cent of industry players employ
differently-abled people).

The IT-ITES industry's contribution to the national GDP is estimated to increase from 5.5.
percent in 2007-08 to 5.8 per cent in 2008-09.
Major initiatives

Community Information Centres:

Department of Information Technology (DIT) had taken up an initiative in February 2002 for
setting up of Community Information Centres (CICs) in the hilly, far-flung rural areas of the
country to bring the benefits of ICT (Information and Communication Technologies) to the
people for socio-economic development of these regions and to alleviate the digital divide
between urban and non-urban areas. The initiative which was as a follow up to the special
package announced by PM (Prime Minister) to the North Eastern States has been extended to
Jammu & Kashmir (J&K) in February 2004, Andaman & Nicobar Islands, and Lakshadweep
Islands in February 2005. These CICs are a citizen interface for IT enabled e-Government
services and training.

During 2006, CIC at Nathula Pass in Sikkim near the Indo-China border has been commissioned
which is the highest internet kiosk. 124 CICs in Jammu & Kashmir, 38 CICs in Andaman &
Nicobar Islands, and 30 CICs in Lakshadweep Islands have been made operational.

The social cost benefit analysis of the CICs set up in the 8 North-Eastern States was carried out
by National Council for Applied Economic Research (NCAER). Interim provision has been made
for financial assistance up to 2 years beyond February 2007 for management of existing 555 CICs
of North-Eastern States as a gap bridging arrangement to facilitate their merger into Community
Service Centres (CSCs) under the NeGP (National e-Governance Plan). The financial assistance
would be available to State Governments agreeing for integration of CICs with CSC Scheme and
submit the RFP for CSC Scheme
 Company Analysis
Infosys technologies

Infosys Technologies Ltd. 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 US$ 5.7 billion.

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 65 offices and 59 development centers in India, China,
Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries
have 127,779 employees as on December 31, 2010.

Infosys takes pride in building strategic long-term client relationships. Over 97% of our revenues
come from existing customers (FY 10).

The company analysis is done on base of fundament analysis which is done on the bases of:

• Ratio analysis

• Earning Per Share

• Book Value

• Market Capitalization

• Promoters’ Shareholding Pattern

• Edward Altman’s Z score

Ratio Analysis

Ratio analysis involves establishing financial relationship between components of financial

statements. Ratios are relationships expressed in mathematical terms between the items of
financial statements.

We are doing the fundamental analysis for the shareholders or investors’ perspectives so many
other ratios described below will help them to get better investment ideas.

To do the fundamental analysis we had taken 12 ratios, Z Score Model, books values, earning per
shares and market capitalization of the last 5 financial year starting from April 2005 to end on
March 2010. Ratios can be classified into the following categories.:

 Investment Valuation Ratios

• Dividend per Share

• Net Operating Profit per Share
• Bonus in Equity Capital

 Profitability Ratios

• Net Profit Margin

• Return on Capital Employed
• Return on Assets
• Return on Long Term Funds

 Liquidity and Solvency Ratios

• Current Ratio
• Quick Ratio
• Debt Equity Ratio

 Debt Coverage Ratios

• Total Debt to Owners Fund

 Cash Flow Indicator Ratios

• Dividend Payout Ratio Net Profit

• Earning Retention Ratio
• Adjusted Cash Flow Times
INVESTMENT VALUATION RATIOS

This analysis looks at a wide array of ratios that can be used by investors to estimate the
attractiveness of a potential or existing investment and get an idea of its valuation.

This ratio help the investors to value the firm (returns) in terms of bonus, dividend, Net Profit per
share their face values free reserves etc. In short the return given or amount given to the
shareholders or investors, shown by this ratio.

Dividend per Share or Dividend Yield

Dividend Yield= Annual Dividend per Share/Stock Price per Share

A stock's dividend yield is expressed as an annual percentage and is calculated as the company's
annual cash dividend per share divided by the current price of the stock. The dividend yield is
found in the stock quotes of dividend-paying companies. Investors should note that stock quotes
record the per share dollar amount of a company's latest quarterly declared dividend. This
quarterly dollar amount is annualized and compared to the current stock price to generate the per
annum dividend yield, which represents an expected return.

Income investors value a dividend-paying stock, while growth investors have little interest in
dividends, preferring to capture large capital gains. Whatever your investing style, it is a matter
of historical record that dividend-paying stocks have performed better than non-paying-dividend
stocks over the long term .
Profitability Ratio
This section of the tutorial discusses the different measures of corporate profitability and
financial performance. These ratios, much like the operational performance ratios, give users a
good understanding of how well the company utilized its resources in generating profit and
shareholder value.

The long-term profitability of a company is vital for both the survivability of the company as well
as the benefit received by shareholders. It is these ratios that can give insight into the all
important “Profit”.

In this section, we will look at four important profit margins, which display the amount of profit a
company generates on its sales at the different stages of an income statement. We'll also show
you how to calculate the effective tax rate of a company. The last three ratios covered in this
section - Return on Assets, Return on Equity and Return on Capital Employed - detail how
effective a company is at generating income from its resources.
Net Profit Margin (%) :

Net Profit Margin= Net Income/Net Sales (Revenue)

Often referred to simply as a company's profit margin, the so-called bottom line is the most often
mentioned when discussing a company's profitability. While undeniably an important number,
investors can easily see from a complete profit margin analysis that there are several income and
expense operating elements in an income statement that determine a net profit margin. It behooves
investors to take a comprehensive look at a company's profit margins on a systematic basis.

Return on Capital Employed (ROCE):

Return on Capital Employed (ROCE)= Net Income/Capital Employed Capital Employed =

Average Debt Liabilities + Average Shareholders’ Equity

The return on capital employed (ROCE) ratio, expressed as a percentage, complements the return
on equity (ROE) ratio by adding a company's debt liabilities, or funded debt, to equity to reflect a
company's total "capital employed". This measure narrows the focus to gain a better
understanding of a company's ability to generate returns from its available capital base. By
comparing net income to the sum of a company's debt and equity capital, investors can get a clear
picture of how the use of leverage impacts a company's profitability. Financial analysts consider
the ROCE measurement to be a more comprehensive profitability indicator because it gauges
management's ability to generate earnings from a company's total pool of capital.

As such company don’t have any Debt so Debt component become Zero.

Return on Total Asset

Return on Total Asset= Profit after Tax/Average Total Assets

This ratio indicates the return from the asset means not only from selling of assets but also from
the investments, debtors, cash and bank, amounts to be received etc. We take this ratio because
we can study the half of the balance sheet of the companies.

ROTA of Infosys technology is increasing year on year this means company is becoming more
efficient day by day and utilizing its assets .

Return on long term funds:

RETURN ON LONG TERM FUNDS= PROFIT AFTER TAX/LONG TERM FUND

This ratio indicates the returns of the company from its funds, securities, shares, scripts, mutual
funds which are for more than three years.
Liquidity and Solvency Ratio
Liquidity ratios attempt to measure a company's ability to pay off its short-term debt obligations.
This is done by comparing a company's most liquid assets (or, those that can be easily converted
to cash), its short-term liabilities.

In general, the greater the coverage of liquid assets to short-term liabilities the better as it is a
clear signal that a company can pay its debts that are coming due in the near future and still fund
its ongoing operations. On the other hand, a company with a low coverage rate should raise a red
flag for investors as it may be a sign that the company will have difficulty meeting running its
operations, as well as meeting its obligations.

The biggest difference between each ratio is the type of assets used in the calculation. While each
ratio includes current assets, the more conservative ratios will exclude some current assets as they
aren’t as easily converted to cash.

The ratios that we'll look at are the current, quick and cash ratios and we will also go over the
cash conversion cycle, which goes into how the company turns its inventory into cash.

Current Ratio:

Current Ratio= Current Assets/Current Liabilities

The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as
its current or working capital position) by deriving the proportion of current assets available to
cover current liabilities.

The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash
equivalents, marketable securities, receivables and inventory) are readily available to pay off its
short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and
taxes). In theory, the higher the current ratio, the better.

Current Ratio of Infosys technology is decreased in March2010 as compare to march 2009 but if
we look at the last five year we can say that company need not to bother about liquidity.
QUICK RATIO:

Quick Ratio=cash Equivalents +Short term Investment +Accounts Receivable/Current Liabilities

The quick ratio - aka the quick assets ratio or the acid-test ratio - is a liquidity indicator that
further refines the current ratio by measuring the amount of the most liquid current assets there
are to cover current liabilities. The quick ratio is more conservative than the current ratio because
it excludes inventory and other current assets, which are more difficult to turn into cash.
Therefore, a higher ratio means a more liquid current position.

Company is in good position liquidity of company is neither too high nor too low.
Debt Equity Ratio:

Debt Equity Ratio=Total Liabilities/Shareholders’ Equity

The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its
total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and
obligors have committed to the company versus what the shareholders have committed.

To a large degree, the debt-equity ratio provides another vantage point on a company's leverage
position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets
in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using
less leverage and has a stronger equity position.

There is no debt component in balance sheet .

Debt Coverage Ratio:

It shown the debt recovery every year by the company how much amount of debt is paid to
creditors and banks and also received from the debtors are shown with the help of this ratio This
ratio also indicates the debt of the company which is levied on the investors or the owner or the
shareholder or three of all.

Total Debt to Owner’s fund :

Total Debt to Owner′s fund= Total Debt/Owners Fund

Owner’s fund = Total Assets - Current Liabilities - Long Term Loans

Total debt includes current liabilities and loans outstanding

This ratio indicates the liabilities and outstanding on the share capital or share holder’s fund the
more the ratio the less preference for investment is given by the share holders and portfolio
manager.
Infosys tec. Have no debt part in its financial statement so there is no need of servicing of debt.

Cash flow indicator Ratios:

This section of the financial ratio tutorial looks at cash flow indicators, which focus on the cash
being generated in terms of how much is being generated and the safety net that it provides to the
company. These ratios can give users another look at the financial health and performance of a
company.
At this point, we all know that profits are very important for a company. However, through the
magic of accounting and non-cash-based transactions, companies that appear very profitable can
actually be at a financial risk if they are generating little cash from these profits. For example, if a
company makes a ton of sales on credit, they will look profitable but haven't actually received
cash for the sales, which can hurt their financial health since they have obligations to pay.
The ratios in this section use cash flow compared to other company metrics to determine how
much cash they are generating from their sales, the amount of cash they are generating free and
clear, and the amount of cash they have to cover obligations. We will look at the operating cash
flow/sales ratio, free cash flow/operating cash flow ratio and cash flow coverage ratios.

Dividend Payout Ratio:

Dividend Payout Ratio: Total Dividend Payment/Net Profit

This ratio shows the yearly dividend paid by the company out of their net profit. With the help of
this ratio we can get the idea how much company keep the profit for their own expansion and
how much they give it to their shareholders.
More the dividend payout it is better for the investors. They get the money physically after giving
dividend. Although if company did not give dividend it is the amount of investors keep by them
but yet not given to them and used for the company.

DPS
100

0 DPS
6-Mar 7-Mar 8-Mar 9-Mar 10-Mar
DPS of this company is decreasing year on year. Reason for this can be company have expansion
plan so they want to increase their reserve surplus.
Earning Per Share
EPS=Profit After Tax/Weighted avg. no of Equity Share

Earnings per share shown the earning for the investor means per share how much profit is earned
by the investor shown with the help of this indicator. Profit of the company divided to each
equity shares holder and how much part of the profit one share holder receives can be shown
from Earning per Share.

So, it is obvious that the more the Earning per share more investors are interested and better the
company give to their shareholder.

As we can see that EPS of this company is quit stable except 07-08 because of Subprime crisis.
 Book Value
Definition:

The value of an asset as it appears on a balance sheet, equal to cost minus accumulated
depreciation.

What Does Book Value Mean?

1. The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset
minus the accumulated depreciation.

2. The net asset value of a company, calculated by total assets minus intangible assets (patents,
goodwill) and liabilities.

3. The initial outlay for an investment. This number may be net or gross of expenses such as
trading costs, sales taxes, service charges and so on.

4. It is also known as "net book value (NBV)".

Book value is the accounting value of a firm. It has two main uses:

1. It is the total value of the company's assets that shareholders would theoretically receive if a
company were liquidated.

2. By being compared to the company's market value, the book value can indicate whether a
stock is under- or overpriced.

3. In personal finance, the book value of an investment is the price paid for a security or debt
investment. When a stock is sold, the selling price less the book value is the capital gain (or loss)
from the investment.

As per graph Book Value for this firm is increasing year-on –year, it shows that value of assets is
increasing.

So we can say that it is good for the company as well as share holder.
 Market Capitalization
Market Capitalization shown the amount of investment done every day in the share prices means
every day’s turn over in the share prices in terms of values shown with the help of market
capitalization.

It is daily shown and changes as per the buying and selling of that particular shares. We take the
average of last month’s from 1st Jan 2010 to 29th Jan 2010 amount and divided by the number of
days in that month (i.e. 20 days ). So that we can get how much turnover is there daily for that
particular shares.

Its fluctuation is done on the basis of the buying and selling so the more buying and selling the
more favorites and better stock than the others stocks for the investors.

So, we rank the high turnover as favorable and give first preference to that company’s share over
the others.
 Promoters Shareholding Pattern
In this we take promoters’ portion in the shareholding. As promoters are main owners or
controllers of any company, they have in-depth knowledge of every activity of the company.

Shareholding pattern available financial statement 1

Corporate:

Infosys was incorporated in Pune, in 1981, as Infosys Consultants Private Limited, a private
limited company under the Indian Companies Act, 1956. We changed our name to Infosys
Technologies Private Limited in April 1992 and to Infosys Technologies Limited in June1992,
when we became a public limited company. We made an initial public offering in February 1993
and were listed on stock exchanges in India in June 1993. Trading opened at Rs. 145 per share,
compared to the IPO price of Rs. 95 per share. In October 1994, we made a private placement of
5,50,000 shares at Rs. 450 each to Foreign Institutional Investors (FIIs), Financial Institutions
(FIs) and body corporate. In March 1999, we issued 20,70,000 American Depositary Shares
(ADSs) (equivalent to 10,35,000 equity shares of par value of Rs. 10/- each) at US $34 per ADS
under the ADS Program and the same were listed on the NASDAQ National Market. All the
above data is unadjusted for issue of stock split and bonus shares. In July 2003, June 2005 and
November 2006, we successfully completed secondary ADR issues of US $294 million, US $1.1
billion and US $1.6 billion respectively.

1
http://www.infosys.com/investors/reports-filings/Pages/index.aspx
 Edward Altman’s Z Score
The Z-score is a formula involving multiple variables that measures the financial health of a
company. The formula may be used to predict the probability that a firm will go into bankruptcy
within two years. Z-scores are still used occasionally as an easy-to-calculate control measure for
the financial distress status of companies in academic studies about other topics.

Original Z-Score Formula:

Z = 1.2T1 + 1.4T2 + 3.3T3 + .6T4 + .999T5.

Where,

T1 = Working Capital / Total Assets.

It measures liquid assets in relation to the size of the company.

T2 = Retained Earnings / Total Assets.

It measures profitability that reflects the company's age and earning power.

T3 = Earnings before Interest and Taxes / Total Assets.

It measures operating efficiency apart from tax and leveraging factors. It recognizes operating
earnings as being important to long-term viability.

T4 = Market Value of Equity / Book Value of Total Liabilities.

It adds market dimension that can show up security price fluctuation as a possible red flag.

T5 = Sales/ Total Assets.

It is standard measure for turnover (varies greatly from industry to industry).

Altman found that the ratio profile for the bankrupt group fell at -0.25 avg, and for the non-
bankrupt group at +4.48 avg.

Accuracy and Effectiveness:

Some studies measuring the effectiveness of the Z-score have shown the model to be accurate
with >70% reliability (Eidleman). What is usually meant by accuracy is the percentage of firms
that are classified correctly, within the estimation sample, when the Z-score values for firms are
translated into yes/no predictions for whether each turns out to be bankrupt. Because the
parameters of the model are estimated based on the same sample, and because the sample itself is
not randomly selected, it is not reasonable to project that the formula will achieve similar
accuracy when applied for making predictions about other firms.
From about 1985 onwards, the Z-scores gained wide acceptance by auditors, management
accountants, courts, and database systems used for loan evaluation (Eidleman). The formula's
approach has been used in a variety of contexts and countries, although it was designed originally
for publicly held manufacturing companies with assets of more than $1 million. Later variations
by Altman take into account the book value of privately held shares, and the fact that turnover
ratios vary widely in non-manufacturing industries.

The Altman Z-Score model is not recommended for use with financial firms; because these firms
often have off-balance sheet liabilities that aren't captured by the financial statement data used in
the Altman Z-Score model. There are market-based formulas used to predict the default of
financial firms (such as the Merton Model), but these have limited predictive value because they
rely on market data (fluctuations of share and options prices to imply fluctuations in asset values)
to predict a market event (default, i.e., the decline in asset values below the value of a firm's
liabilities).

Original Z-Score Component Definitions Variable Definition Weighting Factor:

T1 = Working Capital / Total Assets

T2 = Retained Earnings / Total Assets

T3 = Earnings before Interest and Taxes / Total Assets

T4 = Market Value of Equity / Total Liabilities

T5 = Sales/ Total Assets

Z score Bankruptcy Model:

Z = 1.2T1 + 1.4T2 + 3.3T3 + .6T4 + .999T5

Zones of Discrimination:

Z > 2.99 -“Safe” Zone

1.8 < Z < 2.99 -“Grey” Zone

Z < 1.80 -“Distress” Zone

 Z-Score Estimated For Private Firm:
T1 = (Current Assets-Current Liabilities) / Total Assets

T2 = Retained Earnings / Total Assets

T3 = Earnings before Interest and Taxes / Total Assets

T4 = Book Value of Equity / Total Liabilities

T5 = Sales/ Total Assets

Z' Score Bankruptcy Model:

Z' = .717T1 + .847T2 + 3.107T3 + .420T4 + .998T5

Zone of Discrimination:

Z' > 2.9 -“Safe” Zone

1.23 < Z’ < 2. 9 -“Grey” Zone

Z' < 1.23 -“Distress” Zone

 Z-SCORE ESTIMATED FOR NON-MANUFACTURER INDUSTRIALS &

EMERGING MARKET CREDITS

T1 = (Current Assets-Current Liabilities) / Total Assets

T2 = Retained Earnings / Total Assets

T3 = Earnings before Interest and Taxes / Total Assets

T4 = Book Value of Equity / Total Liabilities

Z-Score Bankruptcy Model:

Z = 6.56T1 + 3.26T2 + 6.72T3 + 1.05T4

Zones of Discrimination:

Z > 2.6 -“Safe” Zone

1.1 < Z < 2.6 -“Grey” Zone

Z < 1.1 -“Distress” Zone

IT Sector

Infosys Technologies
Z score Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar’10
model
T1 = (Current 0.180 0.182 0.162 0.168 0.149
Assets-
Current
Liabilities) /
Total Assets
T2 = 0.304 0.172 0.281 0.190 0.251
Retained
Earnings /
Total Assets
T3 = 0.426 0.395 0.371 0.378 0.377
Earnings
Before
Interest and
Taxes / Total
Assets
T4 = Book 1.000 1.000 1.000 1.000 1.000
Value of
Equity /
Total
Liabilities
Z = 6.56T1 + 6.052 5.436 5.493 5.293 5.356
3.26T2 +
6.72T3 +
1.05T4

Z Score of Infosys Technologies

Findings and Conclusion: The finding and conclusion of this project is as follows:
 Company is in good position financially and strategically also.

 Company’s debt is ZERO but this can affect the Tax Structure of the company, so Infosys
should think about it.

 Fundamentals of Infosys are quit strong and will have a good growth in near future.

 Due to Efficient use of assets company is able to make year on year profit.

 Corporate governance is very good in Infosys.

 Due to Subprime Crisis Infosys get affected but still able to make money for
Shareholders.
Book Referred:

1. Financial Statement Analysis –ICMR

2. Fundamental Analysis, Behavioral Finance and Technical Analysis of stock-Timo

Schlichting

3. Financial Management-ICMR

4. P.Chandra

Websites Referred:

• http://www.ibef.org/industry/informationtechnology.aspx

• www.investopedia.com

• http://stocks.about.com/od/evaluatingstocks/a/Fundanatools1.htm

• www.infosys.com

• http://stockcharts.com/school/doku.php?id=chart_school:overview:fundamental_analysis

• www.moneycontrol.com