LIQUIDITY

ANALYSIS

Current Ratio
The current ratio helps us to understand the liquidity of a company and how easily that company will be able to pay off its current liabilities.
So a current ratio of 4 would mean that the company has 4 times more current assets than current liabilities. A higher current ratio is always
more favourable than a lower current ratio because it shows the company can more easily make current debt payments.
Infosys has a very favourable current ratio and hence can easily pay off its current liabilities. It has overall generally been an increasing
curve over the years; hence the company is doing well on this parameter.

Quick
Ratio

6
5
4
3
2
1

0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The quick ratio measures the liquidity of a company by showing its ability to pay off its current liabilities with quick assets. If a firm has
enough quick assets to cover its total current liabilities, the firm will be able to pay off its obligations without having to sell off any longterm assets.
Quick assets are current assets that can be converted to cash within 90 days or in the short-term. Higher quick ratios are more favourable for
companies because it shows there are more quick assets than current liabilities.
Infosys can pay off its current liabilities with quick assets as its current operations are making enough profits to pay off current liabilities. It
is a good sign for investors, but an even better sign to creditors because creditors want to know they will be paid back on time.

Super Quick
ratio

4
2
0
Mar-15 Mar-14

Mar13

Mar-12 Mar-11

Super quick ratio takes into account only the most liquid assets like cash and marketable securities. A high super quick ratio is good for the
company.
Infosys has a high super quick ratio, which is really good indicator.

Cash Ratio

4
3
2
1
0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11
The cash ratio shows how well a company can pay off its current liabilities with only cash and cash equivalents. A higher cash coverage
ratio means that the company is more liquid and can more easily fund its debt. Any ratio above 1 is considered to be a good liquidity
measure.
Infosys can pay off its liabilities easily with only cash and cash equivalents. Creditors will be happy with this ratio because they can be sure
their loans will be repaid.
Conclusion of analysis of Liquidity ratios
So, after analysing the liquidity ratios, we can say that Infosys has a very good liquidity status. It can easily pay off its current liabilities
using profits from its operations and cash and cash equivalents only. Creditors have the confidence that their loan will be repaid and
investors can expect good returns from the company.

PROFITABILITY
ANALYSIS

Profit Margin Ratio

42
41
40
39
38
37
36
35
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The profit margin ratio directly measures what percentage of sales is made up of net income. In other words, it measures how much profits
are produced at a certain level of sales. Outside users want to know that the company is running efficiently.
Infosys has high profitability margins. It can easily attract creditors and investors as a result.

PE Ratio

40
35
30
25
20
15
10
5
0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share
earnings.
Generally a high P/E ratio means that investors are anticipating higher growth in the future.
Infosys has a favourable P-E Ratio. Investors would be interested to invest in its shares as in future it is expected to have even higher
growths.

Operating ratio
0.36
0.34
0.32
0.3
0.28
0.26
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The ratio reveals the cost per sales of operating a business. A lower operating ratio is a good indicator of operational efficiency, especially
when the ratio is low in comparison to the same ratio for competitors and benchmark firms.
Infosys has a low operating ratio. It reveals that it is in good health with regards to its operations in terms of the costs incurred.

0.03
0.03
0.02
0.02
0.01
0.01
0
Mar-15

Dividend Yield
Ratio

Mar-14

Mar13

Mar-12

Mar-11

The dividend yield is a financial ratio that measures the amount of cash dividends distributed to common shareholders relative to the market
value per share. A company with a high dividend yield pays its investors a large dividend compared to the fair market value of the stock.

Tech companies rarely give dividends at all. Infosys follows the same trend and doesnt give a lot of dividend as a result. So, investors do not
get many returns for their investment.

Dividend Payout
Ratio
0.03
0.03
0.02
0.02
0.01
0.01
0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year.
Infosys has a downward trend with regards to this ratio which is alarming for the investors because investors are particularly interested in
the dividend payout ratio because they want to know if companies are paying out a reasonable portion of net income to investors. It
indicates poor operating returns.

Return on Capital employed

(ROCE)
0.5
0.4
0.3
0.2
0.1
0
Mar-15 Mar-14

Mar13

Mar-12 Mar-11

Return on capital employed or ROCE is a profitability ratio that measures how efficiently a company can generate profits from its capital
employed by comparing net operating profit to capital employed. Net operating profit is often called EBIT or earnings before interest and
taxes. A higher ratio would be more favourable because it means that more amounts of profits are generated by each unit of capital
employed.
Infosys has a relatively low ROCE though it has been rising with since the past few years indicating it is utilising its capital better now.

Net Profit Margin

0.28
0.26
0.24
0.22
0.2

Net profit margin is the percentage of revenue remaining after all operating expenses, interest, taxesand preferred stock dividends (but not
common stock dividends) have been deducted from a company's total revenue. Shareholders look at net profit margin closely because it
shows how good a company is at converting revenue into profits available for shareholders.
Infosys has a fairly good Net Profit Margin as it converts 20-25% of its sales into profits after due deductions. So, shareholders should
invest in Infosys as it gets them more profits.

Earning
Yield

6
5
4
3
2
1
0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The earnings yield is the ratio of a company's last twelve months (LTM) of earnings per share (EPS)to its stock price. It is the inverse of the
price-to-earnings (P/E) ratio. It is a way to measure returns, and it helps investors evaluate whether those returns commensurate with
an investment's risk.
Infosys has a Varying Earnings Fields ratio as it values between 2-5(fluctuating) returns for the shares invested. So, shareholders should be
a bit careful for investing in Infosys shares as it constitutes a bit of a risk in terms of returns.

Conclusion of Analysis of Profitability ratios

So, after analysing the Profitability ratios, we conclude that Infosys is in very good shape as it produces high returns with minimum
operating costs. Its growth is expected to increase with time in future. But, investors will feel let down with low amounts of dividends that
they get from the company and it does not adequately covers the risk.

VALUATION
RATIO

Price To

10
8
6
4
2
0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The price-to-sales ratio is an indicator of the value placed on each unit of a companys sales or revenues. A low ratio may indicate possible
undervaluation, while a ratio that is significantly above the average may suggest overvaluation.
Infosys has a balanced P-S ratio that is neither high/low. It therefore has appropriately valued its sales unit.

Price to Book
Value
20
15
10
5
0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

Price to book ratio (P/B Ratio) is a ratio used to compare a stock's market value to its book value. A lower P/B ratio could mean that the
stock is undervalued. However, it could also mean that something is fundamentally wrong with the company.
Infosys has a relatively high P/B ratio means it is in sound health.

Price to Earnings
ratio
40
30
20
10
0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share
earnings.
Infosys has a very balanced Price to earnings ratio. It keeps a low earning margin per share sold.

Fixed Asset
turnover

7
6.5
6
5.5
5
Mar-15

Mar-14

Mar13

Mar-12

Mar-11

The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant
and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using
the investment in fixed assets to generate revenues.

Infosys has a high ratio here. Investors keenly observe this ratio to judge how effective was the investment in the fixed assets of the previous
year .They should invest in Infosys.
Conclusion of Analysis of Valuation ratios
So, after analysing the valuation ratios, we conclude that the pricing of Infosys shares is reasonable and the companys health is sound.
Hence, investors should invest in Infosys.

RONW
0.3
0.28
0.26
0.24
0.22

The amount of net income

returned as aEFFICIENCY
percentage of shareholders equity. Return on equity measures a corporation's profitability by
MARKET
revealing how much profit a company generates with the money shareholders have invested. It is also known as "return on net worth"
ANALYSIS
(RONW).
Infosys has a reasonable amount Asset
of RONW which is very balanced, signalling good news for shareholders.

Turnover

1.2
1
0.8
0.6
0.4
0.2
0
Mar-15 Mar-14 Mar13 Mar-12 Mar-11

The asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales from its assets by comparing net sales with
average total assets. This ratio shows how efficiently a company can use its assets to generate sales.
Infosys has a very favourable ratio in this regard but it has been decreasing over the years.
Conclusion of analysis of market efficiency analysis
So, after analysing the market efficiency analysis, we can say that Infosys is very effective in generating sales from its assets. But, its
performance has been diminishing in this indicator which is a cause of concern.

DU PONT ANALYSIS
1.
2.

3.
4.

We know that ROE is affected by 3 factors broadly i.e. Profit Margin, Total Asset Turnover and Financial Leverage. Graphs for
the same have also been shown.
We can see that the value of Financial Leverage is increasing over the course of 5 years. Though on in-depth analysis we find that
this leverage is brought in from the large amount of cash that the company possesses and the company does not take any
loan/debt.
Over the years the value of Profit margin has been going up and down and Total Asset Turnover has been decreasing, this points
out questions on the management of the company.
Infosys has been in news of late for its Management issues also and the fluctuating values of Profit Margin and decreasing Total
asset turnover can be attributed to that.
Overall the company can still be said to be good investment and not a risky proposition to invest in because the company still has
no debt and with the change of the CEO and last year ratios the company has shown improvement. This is a good indicator for
the future. Hence Infosys is a good company to invest into.

ECONOMIC VALUE ADDED

From the calculated value of Economic Value added for the 5 years, we find that the value of EVA is negative for all the 5 years.
This shows that the company is not making enough profit to cover its cost of capital. This points fingers on the management of
the company. Which if we see the managerial crisis in Infosys is correct also. So the EVA figures correctly depict the poor
management performance on Infosys.

MARKET VALUE ADDED

1.
2.
3.

From the figures calculated for Market Value added we see that they are positive for all the 5 years.
This shows that the company has created wealth for its shareholders.
However the source of this creation of wealth is a bit questionable because the company has lots of cash in hand and it is
utilising that to pay higher dividends to the shareholders.

CEO COMMENTS
1.
2.

The company has shown a good revenue growth.

The Operating margin of the company has increased compared to the previous year.

3.
4.
5.
6.

Infosys has zero debt.

The dividend yield and dividend payout ratio have increased compared to previous year, which is a good indicator for the
investors.
The liquidity position of the company has also improved to Rs. 32585 crore from Rs. 30251 crore.
The company is looking towards investing in new technology which is a good indicator for the future.