Financial Statement Analysis of Infosys Ltd.

Objectives:
- To analyze key financial ratios to assess Infosys' performance.
- To prepare common size and comparative statements to study financial trends.
- To prepare a cash flow statement to evaluate the company’s financial position.

Period under Study:

To analyse the financial statements for the year ended 31st March 2023 and 2024 of
Infosys Ltd.

Analytical Tool:
- Comparative Income Statement
- Common Size Income Statement
- Ratio Analysis
- Cash Flow Statement

Source Material:
Infosys Ltd. audited standalone Financial Statements under Indian Accounting
Standards (Ind AS) for the year ended March 31, 2024 was the source material for the
study

Introduction:
Infosys Ltd. is an Indian multinational company providing IT consulting,
technology, and outsourcing services. Founded in 1981 by N.R. Narayana Murthy and a
team of six engineers, Infosys is headquartered in Bengaluru, India. It offers services like
application development, business process management, and cloud computing.

The company has a global presence with offices and development centers in over 50
countries. Its flagship product, Finacle, is widely used in the banking sector for core
banking operations. Infosys is recognized for its ethical practices, innovation, and
commitment to sustainability.

This project delves into the financial statements of Infosys Ltd. and analyzes its financial
position using various methods, including ratio analysis, comparative and common size
statements, and cash flow analysis. As a publicly traded company on the BSE and NSE,
Infosys continues to deliver value to shareholders and shape the future of
technology-driven solutions.
Board of Directors:

Nandan M. Nilekani
Co- founder and Chairman of the Board

Salil Parekh
Chief Executive Officer and Managing Director

D. Sundaram
Lead Independent Director
INDEPENDENT DIRECTORS

Michael Gibbs

Bobby Parikh

Chitra Nayak
Govind Iyer

Helene Auriol Potier

Nitin Paranjpe

Financial Statement:
Financial statements are a set of documents that show your company’s financial
status at a specific point in time. They include key data on what your company owns and
owes and how much money it has made and spent.

Types of Financial Statements:

1. Income Statement
2. Balance Sheet
3. Cash Flow Statement

1. Income Statement

The Income Statement, also known as the Profit and Loss Statement,
provides a summary of the company’s revenues, expenses, and profits or losses
over a specific period. It is divided into sections like gross profit (revenue minus
cost of goods sold), operating profit (gross profit minus operating expenses), and
net profit (operating profit minus taxes and interest). This statement helps
stakeholders understand the company’s operational efficiency and profitability. It is
crucial for assessing whether the company generates sufficient revenue to cover its
costs and achieve its financial goals.

Importance of Profit & Loss Statement:

- The profit-and-loss statement is an important financial measure that reveals

the company's profitability and financial health.
- It helps management identify strengths and weaknesses, enabling strategic
decision-making for future corporate operations.
- Stakeholders and investors use P/L figures to evaluate the company's
profitability and investment risks.
- Companies use historical profit and loss statements to set goals and
benchmarks for future financial planning.
- P/L statements help identify areas for improvement and facilitate trend
analysis by assessing financial performance over time.
Statement of Profit & Loss for the year ended March 31,2024

2. Balance Sheet

The Balance Sheet gives an overview of a company’s financial position at a

specific point in time. It consists of three main components: assets (what the
company owns), liabilities (what the company owes), and equity (the owners’
residual interest). Assets are classified as current (e.g., cash, accounts receivable)
and non-current (e.g., property, equipment). Similarly, liabilities are divided into
current (e.g., accounts payable) and non-current (e.g., long-term loans). The
balance sheet follows the accounting equation:
Assets = Liabilities + Equity
It helps stakeholders evaluate the company’s solvency, liquidity, and overall
financial health.

Importance of Balance Sheet:

➢ Understanding Financial Health: A balance sheet shows a company's

financial position at a specific time, helping assess its ability to meet
short-term obligations. For example, current assets exceeding liabilities
indicate stability.
 ➢ Benchmarking: It allows businesses to compare performance with
competitors and improve strategies by analyzing ratios like debt-to-equity
and quick ratio.
➢ Tracking Growth: Regular reviews help monitor trends in assets and debts,
guiding informed decisions for future operations.
➢ Investment Decisions: Investors use balance sheets to evaluate financial
stability and potential, relying on key ratios to assess profitability and
long-term success.

Balance Sheet of Infosys Ltd for the year ended March 31, 2024
Financial Statement Analysis:
The process of analysing a company’s financial statements for decision making
purposes. The financial statements of a company record important financial data on every
aspect of a business’s activities. As such, they can be evaluated on the basis of past,
current, and projected performance.

Tools of Financial Statement Analysis:

1. Comparative Statements

Comparative financial statements present the financial data of a company for

two or more accounting periods side by side, allowing for easy comparison. This
tool helps identify trends, growth, or decline in various financial aspects such as
revenues, expenses, profits, and financial position over time. By analyzing the
changes in absolute terms as well as in percentages, stakeholders can assess the
company’s financial progress and stability. It also aids in making informed
decisions by highlighting strengths and weaknesses in performance across periods.

Importance of Comparative Statement:

The importance of Comparative Financial Statements lies in their ability to simplify
data by presenting figures for multiple years in a comparable format, making it easier to
evaluate a company's operational and financial performance. They help identify the
strengths and weaknesses of the business, enabling management to address areas of
concern and take corrective actions. These statements also highlight trends in key metrics
like revenue, expenses, and profits over time, offering insights into the company’s
financial health. Moreover, they allow businesses to benchmark their performance against
industry averages and aid in forecasting future profitability and financial stability, thereby
supporting better decision-making.

Comparative Statement of Profit & Loss for the years ended 31st March, 2023 and 2024

Particulars March 31, March 31, Absolute Percentage

2024 2023 Change (%)

Revenue from operations 1,28,933 1,24,014 4,919 3.97%

Other income, net 7,417 3,859 3,558 92.20%

Total income 1,36,350 1,27,873 8,477 6.63%

Employee benefit expenses 65,139 62,764 2,375 3.78%

Cost of technical sub-contractors 18,638 19,096 -458 -2.40%

Travel expenses 1,372 1,227 145 11.82%

Cost of software packages and 6,891 5,214 1,677 32.16%

others

Communication expenses 489 502 -13 -2.59%

Consultancy and professional 1,059 1,236 -177 -14.32%

charges

Depreciation and amortization 2,944 2,753 191 6.94%

expenses

Finance cost 277 157 120 76.43%

Other expenses 3,588 3,281 307 9.36%

Total expenses 1,00,397 96,230 4,167 4.33%

Profit before tax 35,953 31,643 4,310 13.62%

Current tax 7,306 8,167 -861 -10.54%

Deferred tax 1,413 208 1,205 579.33%

Profit for the year 27,234 23,268 3,966 17.04%

 2. Common Size Statements

Common size statements express each item in a financial statement as a

percentage of a common base. In the income statement, items are typically shown
as a percentage of total revenue, while in the balance sheet, they are expressed as a
percentage of total assets or liabilities. This standardization allows for easier
comparison across different companies, regardless of their size, and over multiple
periods. It is particularly useful for analyzing cost structures, profit margins, and
financial stability while identifying significant deviations or anomalies.

Importance of Common Size Statements:

The importance of Common Size Statements lies in their ability to present

financial data as a percentage of a base figure, making it easier to analyze the
relative proportions and relationships within financial statements. They help in
comparing the financial performance of a company across different time periods
and with other companies, regardless of their size. Common Size Statements
highlight trends in revenue, expenses, and profits, enabling management to identify
changes in cost structures and operational efficiency. They also simplify complex
financial data, allowing stakeholders to understand the company’s financial position
and performance.

Particulars Absolute Amounts Percentage of Revenue from

Operations (Net Sales)

March 31, March 31, March 31, March 31,

2023 (₹) 2024 (₹) 2023 (%) 2024 (%)

Revenue from operations 1,24,014 1,28,933 100.00 100.00

Other income, net 3,859 7,417 3.11 5.75

Total income 1,27,873 1,36,350 103.11 105.75

Employee benefit expenses 62,764 65,139 50.61 50.52

Cost of technical sub-contractors 19,096 18,638 15.40 14.46

Travel expenses 1,227 1,372 0.99 1.06

Cost of software packages and 5,214 6,891 4.20 5.34

others

Communication expenses 502 489 0.40 0.38

Consultancy and professional 1,236 1,059 1.00 0.82

charges

Depreciation and amortization 2,753 2,944 2.22 2.28

expenses

Finance cost 157 277 0.13 0.21

Other expenses 3,281 3,588 2.65 2.78

Total expenses 96,230 1,00,397 77.60 77.87

Profit before tax 31,643 35,953 25.52 27.89

Current tax 8,167 7,306 6.59 5.67

Deferred tax 208 1,413 0.17 1.10

Profit for the year 23,268 27,234 18.76 21.12

3. Ratio Analysis

Ratio analysis involves the computation and interpretation of financial ratios

derived from the financial statements. These ratios provide insights into various
aspects of the company’s performance, such as liquidity, profitability, solvency, and
efficiency. For instance, liquidity ratios assess the firm’s ability to meet short-term
obligations, while profitability ratios evaluate its ability to generate earnings. By
comparing these ratios with industry benchmarks or historical data, stakeholders
can evaluate the company’s strengths, weaknesses, and overall financial health.

Importance of Ratio Analysis:

1. Financial Performance Evaluation

Ratio analysis helps assess a company’s overall financial health, identifying
 strengths and areas for improvement.

2. Profitability Assessment
Ratios like ROE, and profit margins evaluate how efficiently a company generates
profit from its assets and sales.

3. Liquidity Analysis
Liquidity ratios show if a company can meet its short-term obligations, ensuring
financial stability.

4. Risk Identification
Analyzing leverage and fixed cost ratios helps identify business risks, guiding
smarter decision-making.

5. Future Planning and Forecasting

Ratio analysis helps predict future financial performance, enabling better
budgeting and strategic planning.

Types of Ratios:

1. Current Ratio: Measures the company's ability to cover short-term liabilities with
short-term assets. Higher is better.
March 2024: 2.6.

2. Debt-Equity Ratio: Indicates the proportion of debt to equity in the company's

capital structure. A lower ratio means less reliance on debt.
March 2024: 0.0 (no debt).

3. Debt Service Coverage Ratio: Shows how easily a company can pay off its debt
obligations from its earnings. A higher ratio indicates better debt coverage.
March 2024: 36.4.

4. Return on Equity (ROE): Reflects the profitability for shareholders, showing how
much profit the company earns per unit of shareholder equity.
March 2024: 36.6%.

5. Trade Receivables Turnover Ratio: Indicates how efficiently a company collects

receivables from its customers. A higher ratio implies better efficiency.
March 2024: 5.6.

6. Trade Payables Turnover Ratio: Measures the company's efficiency in paying its
suppliers. A higher ratio shows quicker payment of liabilities.
 March 2024: 12.7.

7. Net Capital Turnover Ratio: Shows how effectively a company uses its working
capital to generate revenue.
March 2024: 2.9.

8. Net Profit Ratio: Represents the percentage of revenue converted into profit after
all expenses. Higher is better.
March 2024: 21.1%.

9. Return on Capital Employed (ROCE): Indicates the efficiency and profitability

of a company’s capital investments.
March 2024: 42.0%.

10. Return on Investment (ROI): Measures the profitability of investments. The

return is calculated for unquoted (private) and quoted (public) investments
separately.

○ Unquoted: 8.5%.
○ Quoted: 7.2%

The ratios for the year ended March 31, 2024 and March 31, 2023 are as follows:
4. Cash Flow Statements

The Cash Flow Statement tracks the inflows and outflows of cash and cash
equivalents across three activities:

● Operating Activities: Cash generated or used in the company’s core

operations (e.g., revenue collection, payment to suppliers).
● Investing Activities: Cash flows from the acquisition or sale of assets like
property or equipment.
● Financing Activities: Cash transactions related to debt, equity, or dividend
payments.
This statement is essential for understanding the company’s liquidity,
ensuring it has sufficient cash to meet short-term obligations and invest in
growth opportunities.

Importance of Cash Flow Statements:

1. Assessing Liquidity
The cash flow statement shows the cash available to meet immediate
expenses and liabilities. It helps stakeholders understand whether the
company can maintain smooth day-to-day operations without facing a cash
crunch.
2. Understanding Cash Position
It provides an overview of cash inflows and outflows, giving clarity
on how much cash is available at a given time. This information is essential
for making decisions about reinvestment, dividends, or handling
emergencies.
3. Evaluating Solvency
Cash flow statements reveal whether a company generates enough
operational cash to cover its debts. This helps in assessing long-term
financial stability and the ability to survive economic downturns.
4. Investment Decisions
Positive cash flow indicates strong financial health, encouraging
investors to fund or invest in the company. Conversely, consistent negative
cash flow might deter investment.
5. Planning and Forecasting
Businesses use cash flow data to plan for upcoming expenses and to
predict future financial scenarios. This ensures they can allocate resources
efficiently, avoid overspending, and prepare for potential financial
challenges.
Cash Flow Statement for the year ended March 31, 2024 and 2023 are as Follows
Bibliography:
- investopedia.com
- infosys.com
- bdc.ca
- byjus.com
- geeksforgeeks.org
- chase.com
- testbook.com