RESEARCH PROJECT REPORT

(BCOM (H)-1604)

On

“Analysis of Cash flow statement of

Infosys”

Towards partial fulfillment of

Bachelor of Commerce (Honours)

(BBD University, Lucknow)

Guided By: Submitted by:

Ms. Ritu Singh Madhumita Pal

(Assistant Professor) (Roll No. 1160678051)

Session 2018-2019

School of Management

Babu Banarasi Das University

Sector I, Dr. Akhilesh Das Nagar, Faizabad Road, Lucknow (U.P.) India
ii
 ACKNOWLEDGEMENT

Before I get into the thick of the things I would like to add a few heartfelt words for

the people who were part of this research report in numerous ways and people who

gave unending support right from the stage the project was started, appreciated and

encouraged.

In this context I would like to express my gratitude towards my parents and family

members who have constantly supported and played a pivotal role in shaping my

career.

I owe my sincere gratitude towards faculty guide Ms. Ritu Singh of BBDU,

Lucknow for extending the support towards the completion of the Report.

And finally I would like to thank my friends for their unending support.

(Madhumita Pal)

iii
 PREFACE

Research Report is an important part of the Management studies. It bears immense

important in the field of Business Management. It offers the student to explore the

valuable treasure of experience and an exposure to real work culture followed by the

industries and thereby helping the students to bridge gap between the theories

explained in the book and their practical implementations.

Research Report plays an important role in future building of an individual So that we

can understand the real world in which he has to work in future. The theories greatly

enhance our knowledge and provide opportunities to blend theoretical with the

practical knowledge where researcher gets familiar with certain aspect of research. I

feel proud to get myself to do research at topic “Analysis of Cash flow statement of

Infosys”.

iv
 TABLE OF CONTENT

Certificate
Declaration
Acknowledgement
Preface
1. Introduction
2. Company Profile
3. Objectives of the study
4. Research Methodology

5. Limitations of the study

6. Data Analysis & Interpretation
7. Findings
8. Suggestion
9. Conclusion
10. Bibliography
11. Annexure

v
INTRODUCTION

1
 INTRODUCTION TO THE TOPIC

A cash flow statement is essential to any business as it can be the basis of budgeting

by assessing the timing and fixing the future cash flows. The statement of cash flow

like other two key. A financial statement is a collection of reports presenting inflows

and outflows of cash in forms of receipt and payment. This involves various activities

of business including operating, investing and financing during a specific period.

A cash flow statement finds out the inward and outward flow of money in a business

and therefore acts as a bridge between the income statement and balance sheet. The

change in cash per period, as well as the beginning and ending balances of cash, are

present in a cash flow statement. While summarizing the amount of cash and cash

equivalents flowing in and out of the company, also measures to manage company‘s

cash position.

CASH FLOW STATEMENT FORMAT

The format of cash flow statement includes mainly three parts namely, cash from

working activities, cash from investing activities and cash from financing activities.

GAAP, a fourth part, the disclosure of non-cash activities is included when cash flow

statement is produce under the generally accepted accounting principles.

OPERATING CASH FLOW

Operating activities reflects the amount of cash generated from products and services

of a company and includes the primary revenue producing activities of the business.

There are two modes of presentation of operating cash flows-

1. Direct Presentation

2. Indirect presentation.

2
The direct presentation is a simple but rarely used method which presents operating

cash flows simply as a list of cash flows.

On the other hand, an Indirect method is widely used and hence a common

presentation of operating cash flows as a reconciliation from profit to cash flow.

Under the indirect method, amortization, deferred tax, depreciation, revenue received

from investing activities and profit or loss associated with a noncurrent asset are

included.

INVESTING CASHFLOW

The acquisition and disposal of non-current assets and any other sources of cash from

a company‘s investments are included in investing activities. Typically, investing cash

flows include the cash flow associated with buying and selling the property,

marketable securities and therefore cash changes from investing are ‗cash out‘ items.

For example, lending money is considered an investing activity.

FINANCING CASH FLOW

Borrowing and repaying the money, issuing stock and paying dividends are some of

the financing activities. These activities result in changes in the size of equity capital

and borrowings of the entity.

3
HOW TO PREPARE A CASH FLOW STATEMENT

To prepare a cash flow statement:

1. Information is considered from the income statement for the current year

2. Balance sheet for the past two years

3. Adjustments of net income for deferrals

4. Accruals take place

This is applied to convert the accrual basis income statement into a cash flow

statement. The statement of cash flow follows activity format and includes, operating

cash flows, investing cash flows and financing cash flows. There are two methods to

control the cash flow statement. For both the methods, investing cash flows and

financing cash flows remain identical. The operating section of the statement can be

produced through either direct or indirect method.

The direct method shows the major classes of gross cash receipts and gross cash

payments. On the other hand, the direct method follows net income and adjustment of

profit/loss by the effect of the transaction. The underlying accounting ideas remain the

same. Hence, working cash flows provide identical result under the direct or indirect

method of preparing the cash flow statement. The difference lies in the presentation.

Although the direct method is set by IASB, for providing useful information; more

than 90% of companies use the indirect method.

4
CASH FLOW STATEMENT: DIRECT AND INDIRECT METHOD

The direct and indirect method are two forms of producing a statement of cash flows.

The direct method involves tallying all instances of received and paid cash and the

total represents the resulting cash flow. However, in the indirect method, the

accounting line items are used to show cash flow.Below is a statement of cash

example :

DIRECT METHOD:

OPERATING ACTIVITIES

Cash received from customers – 800

Cash paid to suppliers – (150)

Employee compensations – (200)

Other operating expenses paid – (250)

Net Cash from operating activities – 200

INVESTING ACTIVITIES

Sale of land – 200

Purchase of equipment – (300)

Net cash from investing activities – 100

FINANCING ACTIVITIES

Common Share dividends – (200)

Payment on long-term debt – (300)

Net cash from financing activities – (500)

Beginning Cash balance – X

Ending Cash balance – Y

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INDIRECT METHOD :

OPERATING ACTIVITIES

Net income – 50,000

Add: Depreciation expense – 10,000

A decrease in AR – 2,000

Increase in inventory – 3,000

A decrease in prepaid expense – 4,000

Increase in accounts payable – 5,000

Net Cash from operating activities – XXX

INVESTING ACTIVITIES

Sale of land – 200

Purchase of equipment – (300)

Net cash from investing activities – 100

FINANCING ACTIVITIES

Common Share dividends – (200)

Payment on long-term debt – (300)

Net cash from financing activities – (500)

Beginning Cash balance – X

Ending Cash balance – Y

6
Cash flow statements show both positive and negative cash flow. While positive cash

flows are healthy, negative cash flow should not raise a red flag automatically.

Further analysis of cash flows over various periods enables an investor to assess a

company‘s performance.

An analysis of cash flow statements can reveal many things like the quality of

earnings through comparison of cash from operating activities to company‘s net

income. For example, earnings are said to be higher if cash from operating activities is

higher than net income.

The statement of cash flow is a significant measure of profitability and present and

future outlook for a company. It decides the strength of a company and provides data

whether a company has enough cash to pay its expenses or not.

CASH FLOW STATEMENT OVERVIEW

The cash flow statement shows a company's money flow in and out over a fixed

period of time. Most companies report their cash flow statement on a quarterly or

monthly basis. The cash flow is broken out into three reporting areas: (1) Operating,

(2) Investing, and (3) Finance. The cash flow statement was originally known as the

flow funds statement or statement of changes in financial position.

The statement of cash flow reports the movement of cash into and out of your

business in a given year. Cash is the lifeblood of your company. Cash includes

currency, checks on hand, and deposits in banks. Cash equivalents are short-term,

temporary investments such as treasury bills, certificates of deposit, or commercial

paper that can be quickly and easily converted to cash.

Your business will use cash to pay bills, repay loans, and make investments, allowing

you to provide goods and services to your customers. Your company will use cash to

generate even more cash as a result of higher profits. The cash flow statement reports

7
your business‘ sources and uses of cash and the beginning and ending values for cash

and cash equivalents each year. It also includes the combined total change in cash and

cash equivalents from all sources and uses of cash.

It is imperative that you, the business owner, be able to successfully prepare a

statement of cash flow. This discussion provides a detailed look into the various

sections of a cash flow statement. It also describes two methods used to calculate cash

flow from operating activities, indirect and direct with examples that will give you an

edge when it comes time to prepare a cash flow statement of your own.

PURPOSE OF THE CASH FLOW STATEMENT

The cash flow statement is intended to provide information on a firm's liquidity or

solvency. The cash flow provides a clear understanding of a company's financial

resources at a given point in time.

The cash flow statement shows cash coming into a company (from sales, income from

investments, asset sales) and going out (payments to suppliers, investment), the

raising of capital (money borrowed or raised from shareholders) and the payment of

returns of capital (interest and dividends) and tax.

Like profit, cash flow can be measured at a number of levels. For example, operating

cash flow roughly corresponds to operating profit with the effects on non-cash items

stripped out.

The main items in a typical cash flow statement are (in order):

 Cash flow from operating activities

 Returns on investments and servicing of finance

 Taxation

 Capital expenditure and financial investments

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 Acquisitions and disposals

 Equity dividends paid

 Management of liquid resources

 Financing

The returns on investments and servicing of finance includes dividends received (e.g.

from subsidiaries) and interest from fixed interest securities and bank deposits. It will

also show payments to lenders: both banks and holders of a company's fixed interest

securities.

Capital investments and financial investments will show the cashflow relating to the

purchase and disposal of fixed assets. Liquid resources are cash and liquid, short term,

investments.

All items in the cash flow statement can be significantly different from equivalent

items on the P & L. This is what makes the cash flow so valuable (it is not susceptible

to manipulation), but it can also make it less meaningful (there are good reasons for

accruing in the other accounting statements).

Operating cash flow is very often looked at by investors. The capital expenditure item

is a quicker way of finding out how heavily the company is investing than looking at

the balance sheet (and then correcting for depreciation etc.) but it has two weaknesses:

it does not record purchases not yet paid for and it does not allow one to separate

capital expenditure on operating assets from long term financial investments.

A more complex use of the cash flow statement is the calculation of free cash flow,

which can be used in valuation ratios and DCF valuations. All the items in the cash

flow statement provide a useful check on items in the other accounting statements and

are a vital input to the financial models used for forecasting.

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The bulk of the positive cash flow stems from cash earned from operations, which is a

good sign for investors. It means that core operations are generating business and that

there is enough money to buy new inventory. The purchasing of new equipment

shows that the company has cash to invest in inventory for growth. Finally, the

amount of cash available to the company should ease investors' minds regarding the

notes payable, as cash is plentiful to cover that future loan expense.

Of course, not all cash flow statements look this healthy, or exhibit a positive cash

flow. But a negative cash flow should not automatically raise a red flag without some

further analysis. Sometimes, a negative cash flow is a result of a company's decision

to expand its business at a certain point in time, which would be a good thing for the

future. This is why analyzing changes in cash flow from one period to the next gives

the investor a better idea of how the company is performing, and whether or not a

company may be on the brink of bankruptcy or success.

TYING THE CFS WITH THE BALANCE SHEET AND INCOME

STATEMENT

As we have already discussed, the cash flow statement is derived from the income

statement and the balance sheet. Net earnings from the income statement is the figure

from which the information on the CFS is deduced. As for the balance sheet, the net

cash flow in the CFS from one year to the next should equal the increase or decrease

of cash between the two consecutive balance sheets that apply to period that cash flow

covers.

10
CONCEPT OF CASH FLOW ANALYSIS

Cash flow is essentially the movement of money into and out of your business; it's the

cycle of cash inflows and cash outflows that determine your business' solvency.

Cash flow analysis is the study of the cycle of your business' cash inflows and

outflows, with the purpose of maintaining an adequate cash flow for your business,

and to provide the basis for cash flow management.

Cash flow analysis involves examining the components of your business that affect

cash flow, such as accounts receivable, inventory, accounts payable, and credit terms.

By performing a cash flow analysis on these separate components, you'll be able to

more easily identify cash flow problems and find ways to improve your cash flow.

Cash-flow in financial analysis means net income or profit obtained after adding back

expense items which currently do not use cash such as depreciation. It may also

exclude revenue items, which do not currently provide funds. It comes in two

varieties — gross and net.

Depreciation is not a tangible expense which is paid for by drawing a cheque but is a

sum set aside each year, whether there is profit or not, for the replacement of an asset

when it is worn-out. Such sums of money can be used to buy new plant or they can be

kept in a bank, invested in gilt-edged securities or used in any way that the directors

may choose. They, in fact form part of the ―cash-flow‖ which is the amount retained

in the business after paying off all expenses including taxes and dividends.

Gross cash-flow is the net profit after tax plus the provision for depreciation. Net

cash-flow is obtained from the gross figure by deducting the amount distributed as

dividend on preference and ordinary shares. Of the two, net cash-flow is the more

important and commonly used because it represents the actual amount of cash

retained in the business after all outgoings including dividends.

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It is frequently assumed that there will always be a cash-flow at least equal to the

provision for depreciation or other adjustments not involving cash. This will be true

only if the total revenue (sales and other income) for a period fully covers all of the

expenses including depreciation and other write-offs. If the operations for a period

result in a loss and if the loss exceeds the ―non-cash‖ adjustments, the cash-flow will

be negative instead of being positive.

CONCEPT OF CASH FLOW STATEMENT

CASH FLOW STATEMENT

Cash flow statement may provide considerable information about what is really

happening in a business beyond that contained in either the income statement or the

balance sheet. Analyzing this statement should not present an intimidating task;

instead it will quickly become obvious that the benefits of understanding the sources

and uses of a company‘s cash far outweigh the costs of undertaking some very

straightforward analyses.

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FORMAT OF THE CASH FLOW STATEMENT

The cash flow statement is divided into three sections:

 Cash flow from operating activities: shows the results of cash inflows and

outflows related to the fundamental operations of the basic line or lines of

business in which the company engages. (Example: cash receipts from the sale of

goods or services and cash outflows for purchasing inventory and paying rent and

taxes.)

 Cash flow from investing activities: associated with purchases and sales of non-

current assets (Example: building and equipment purchases or sales of

investments or subsidiaries.)

 Cash flow from financing activities: associated with financing the firm (Example:

selling and paying off bonds and issuing stock and paying dividends)

EXCEPTIONS

 Short-term marketable securities are treated as long-term investments and appear

in cash flow from investing activities

 Short-term debt is treated as long-term debt and appears in cash flow from

financing activities

 Although dividends are handled as a cash outflow in the cash flow from financing

activities section, interest payments are considered an operating outflow, despite

the fact that both are payments to outsiders for using their money.

13
BENEFITS OF THE CONCEPT

Critics point out that the term cash-flow, meaning net profit inclusive of the provision

for depreciation and similar non-cash transactions, is a misnomer since it implies that

because of the write-back of expense items like depreciation which do not currently

use cash, additional cash has flown into the business when nothing of the sort has

really happened. All that has been achieved by adding back to the net profit the

provision for depreciation and other non-cash transactions is to put on a cash basis the

annual accounts originally written on the accrual basis.

The critics, nevertheless, admit that cash-flow is a valid analytical tool which, when

correctly used, helps explain:

1. How companies are able to finance large-scale expansion or modernization, or

repay heavy borrowings without resorting to fresh equity financing, and

2. Reconcile the difference in the net profit of companies operating within the same

industry and otherwise comparable on the basis of their capitalizations, product-

mix, and over-all management policies.

The revenue earned by a company from its operations appears on its profit and loss

account for the year as ―Sales and Other Income‖. After deducting from this the

expenses of the business including depreciation and income tax, there is left a balance

commonly termed the net profit (or loss) for the year.

But, unlike the out of pocket expenses like raw material costs, salaries, wages,

etcetera, depreciation and similar provisions do not represent current outlays of cash.

To arrive at the true spending power generated through operation it is necessary to

add back to the net profit the items which do not constitute either a source or a

disposition of cash such as depreciation which is one of the heaviest ―expense‖ items

listed on the profit and loss account.

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PREPARATION AND PRESENTATION OF CASH FLOW

STATEMENT

The presentation of cash flow statement is carried out in two alternative formats that

are either through direct method or indirect method. The difference in these two

methods lies in their presentation of ‗Cash flows from operating activities‘. In the

direct method, operating cash receipts and payments are reported directly. In the

indirect method, cash flows from operating activities are reported by way of

adjustments of the reporting period‘s net profit reported in the profit and loss account.

DEFINITIONS:

The following terms are used in this statement with the meanings specified:

CASH comprises cash on hand and demand deposits with banks.

CASH EQUIVALENTS are short term, highly liquid investments that are

readily convertible into known amounts of cash and which are subject to an

insignificant risk of changes in value.

CASH FLOWS are inflows and outflows of cash and cash equivalents.

OPERATING ACTIVITIES are the principal revenue-producing activities of

the enterprise and other activities that are not investing or financing activities.

INVESTING ACTIVITIES are the acquisition and disposal of long-term assets

and other investments not included in cash equivalents.

FINANCING ACTIVITIES are activities that result in changes in the size and

composition of the owner‘s capital and borrowings of the enterprise.

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CASH AND CASH EQUIVALENTS:

Cash equivalents are held for the purpose of meeting short-term cash commitments

rather than for investment or other purposes. For an investment to qualify as a cash

equivalent, it must be readily convertible to a known amount of cash and be subject to

an insignificant risk of changes in value. Therefore, an investment normally qualifies

as a cash equivalent only when it has a short maturity of, say, three months or less

from the date of acquisition. Investments in shares are excluded from cash equivalents

unless they are, in substance, cash equivalents; for example, preference shares of a

company acquired shortly before their specified redemption date.Cash flows exclude

movements between items that constitute cash or cash equivalents because these

components are part of the cash management of an enterprise rather than part of its

operating, investing and financing activities. Cash management includes in

investment of excess cash in cash equivalents.

PRESENTATION OF A CASH FLOW STATEMENT

The cash flow statement should report cash flows during the period classified by

operating, investing and financing activities. An enterprise presents its cash flows

from operating, investing and financing activities in a manner which is most

appropriate to its business. Classification by activity provides information that allows

users to assess the impact of those activities on the financial position of the enterprise

and the amount of its cash and cash equivalents. This information may also be used to

evaluate the relationships among those activities. A single transaction may include

cash flows that are classified differently.

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OPERATING ACTIVITIES

The amount of cash flows arising from operating activities is a key indicator of the

extent to which the operations of the enterprise have generated sufficient cash flows

to maintain the operating capability of the enterprise, pay dividends, repay loans and

make new investments without recourse to external sources of financing. Information

about the specific components of historical operating cash flows is useful, in

conjunction with other information, in forecasting future operating cash flows.

Cash flows from operating activities are primarily derived from the principal revenue-

producing activities of the enterprise. Therefore, they generally result from the

transactions and other events that enter into the determination of net profit or loss.

Examples of cash flows from operating activities are:

(a) Cash receipts from the sale of goods and the rendering of services;

(b) Cash receipts from royalties, fees, commissions and other revenue;

(c) Cash payments to suppliers for goods and services;

(d) Cash payments to and on behalf of employees;

(e) Cash receipts and cash payments of an insurance enterprise for premiums and

claims, annuities and other policy benefits;

(f) Cash payments or refunds of income taxes unless they can be specifically

identified with financing and investing activities; and

(g) Cash receipts and payments relating to futures contracts, forward contracts, option

contracts and swap contracts when the contracts are held for dealing or trading

purposes.

Some transactions, such as the sale of an item of plant, may give rise to a gain or loss

which is included in the determination of net profit or loss. However, the cash flows

relating to such transactions are cash flows from investing activities

17
An enterprise may hold securities and loans for dealing or trading purposes, in which

case they are similar to inventory acquired specifically for resale. Therefore, cash

flows arising from the purchase and sale of dealing or trading securities are classified

as operating activities. Similarly, cash advances and loans made by financial

enterprises are usually classified as operating activities since they relate to the main

revenue-producing activity of that enterprise.

INVESTING ACTIVITIES

The separate disclosure of cash flows arising from investing activities is important

because the cash flows represent the extent to which expenditures have been made for

resources intended to generate future income and cash flows. Examples of cash flows

arising from investing activities are:

(a) Cash payments to acquire fixed assets (including intangibles).

These payments include those relating to capitalized research and development costs

and self-constructed fixed assets;

(b) Cash receipts from disposal of fixed assets (including intangibles); Cash Flow

Statements

(c) cash payments to acquire shares, warrants or debt instruments of other enterprises

and interests in joint ventures (other than payments for those instruments considered

to be cash equivalents and those held for dealing or trading purposes);

(d) cash receipts from disposal of shares, warrants or debt instruments of other

enterprises and interests in joint ventures (other than receipts from those instruments

considered to be cash equivalents and those held for dealing or trading purposes);

(e) Cash advances and loans made to third parties (other than advances and loans

made by a financial enterprise);

18
(f) Cash receipts from the repayment of advances and loans made to third parties

(other than advances and loans of a financial enterprise);

(g) cash payments for futures contracts, forward contracts, option contracts and swap

contracts except when the contracts are held for dealing or trading purposes, or the

payments are classified as financing activities; and

(h) Cash receipts from futures contracts, forward contracts, option contracts and swap

contracts except when the contracts are held for dealing or trading purposes, or the

receipts are classified as financing activities.

When a contract is accounted for as a hedge of an identifiable position, the cash

flows of the contract are classified in the same manner as the cash flows of the

position being hedged.

FINANCING ACTIVITIES

The separate disclosure of cash flows arising from financing activities is important

because it is useful in predicting claims on future cash flows by providers of funds

(both capital and borrowings) to the enterprise.

Examples of cash flows arising from financing activities are:

(a) Cash proceeds from issuing shares or other similar instruments;

(b) Cash proceeds from issuing debentures, loans, notes, bonds, and other short or

long-term borrowings; and

(c) Cash repayments of amounts borrowed.

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REPRTING OF CASH FLOWS

Reporting Cash Flows from Operating Activities

An enterprise should report cash flows from operating activities using either:

(a) The direct method, whereby major classes of gross cash receipts and gross cash

payments are disclosed; or

(b) the indirect method, whereby net profit or loss is adjusted for the effects of

transactions of a non-cash nature, any deferrals or accruals of past or future

operating cash receipts or payments, and items of income or expense associated

with investing or financing cash flows.

The direct method provides information which may be useful in estimating future

cash flows and which is not available under the indirect method and is, therefore,

considered more appropriate than the indirect method. Under the direct method,

information about major classes of gross cash receipts and gross cash payments may

be obtained either:

(a) From the accounting records of the enterprise; or

(b) By adjusting sales, cost of sales (interest and similar income and interest expense

and similar charges for a financial enterprise) and other items in the statement of

profit and loss for:

i) changes during the period in inventories and operating receivables and payables;

ii) Other non-cash items; and

iii) Other items for which the cash effects are investing or financing cash flows.

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Under the indirect method, the net cash flow from operating activities is determined

by adjusting net profit or loss for the effects of:

(a) Changes during the period in inventories and operating receivables and

payables;

(b) Non-cash items such as depreciation, provisions, deferred taxes and unrealized

foreign exchange gains and losses; and

(c) All other items for which the cash effects are investing or financing cash

flows.

Alternatively, the net cash flow from operating activities may be presented under the

indirect method by showing the operating revenues and expenses excluding non-cash

items disclosed in the statement of profit and loss and the changes during the period in

inventories and operating receivables and Payables.

REPORTING CASH FLOWS FROM INVESTING AND

FINANCING ACTIVITIES

An enterprise should report separately major classes of gross cash receipts and gross

cash payments arising from investing and financing activities, except to the extent that

cash flows described in paragraphs A1 and A3 are reported on a net basis.

Reporting Cash Flows on a Net Basis

A1. Cash flows arising from the following operating, investing or financing activities

may be reported on a net basis:

(a) Cash receipts and payments on behalf of customers when the cash flows reflect the

activities of the customer rather than those of the enterprise; and

(b) Cash receipts and payments for items in which the turnover is quick, the amounts

are large, and the maturities are short.

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A2. Examples of cash receipts and payments referred to in paragraph A2(a) are:

(a) The acceptance and repayment of demand deposits by a bank;

(b) Funds held for customers by an investment enterprise; and

(c) Rents collected on behalf of, and paid over to, the owners of properties.

Examples of cash receipts and payments referred to in paragraph A2(b) are advances

made for, and the repayments of:

(a) Principal amounts relating to credit card customers;

(b) The purchase and sale of investments; and

(c) Other short-term borrowings, for example, those which have a maturity period of

three months or less.

A3. Cash flows arising from each of the following activities of a financial

enterprise may be reported on a net basis:

(a) Cash receipts and payments for the acceptance and repayment of deposits with a

fixed maturity date;

(b) The placement of deposits with and withdrawal of deposits from other financial

enterprises; and

(c) Cash advances and loans made to customers and the repayment of those advances

and loans.

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EXTRAORDINARY ITEMS

The cash flows associated with extraordinary items should be classified as arising

from operating, investing or financing activities as appropriate and separately

disclosed.

The cash flows associated with extraordinary items are disclosed separately as arising

from operating, investing or financing activities in the cash flow statement, to enable

users to understand their nature and effect on the present and future cash flows of the

enterprise. These disclosures are in addition to the separate disclosures of the nature

and amount of extraordinary items required by Accounting Standard (AS) 5, Net

Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

INTEREST AND DIVIDENDS

Cash flows from interest and dividends received and paid should each be disclosed

separately. Cash flows arising from interest paid and interest and dividends received

in the case of a financial enterprise should be classified as cash flows arising from

operating activities. In the case of other enterprises, cash flows arising from interest

paid should be classified as cash flows from financing activities while interest and

dividends received should be classified as cash flows from investing activities.

Dividends paid should be classified as cash flows from financing activities.

The total amount of interest paid during the period is disclosed in the cash flow

statement whether it has been recognized as an expense in the statement of profit and

loss or capitalized in accordance with Accounting Standard (AS) 10, Accounting for

Fixed Assets.

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Interest paid and interest and dividends received are usually classified as operating

cash flows for a financial enterprise. However, there is no consensus on the

classification of these cash flows for other enterprises. Some argue that interest paid

and interest and dividends received may be classified as operating cash flows because

they enter into the determination of net profit or loss. However, it is more appropriate

that interest paid and interest and dividends received are classified as financing cash

flows and investing cash flows respectively, because they are cost of obtaining

financial resources or returns on investments.

Some argue that dividends paid may be classified as a component of cash flows from

operating activities in order to assist users to determine the ability of an enterprise to

pay dividends out of operating cash flows. However, it is considered more appropriate

that dividends paid should be classified as cash flows from financing activities

because they are cost of obtaining financial resources.

TAXES ON INCOME

Cash flows arising from taxes on income should be separately disclosed and should be

classified as cash flows from operating activities unless they can be specifically

identified with financing and investing activities.

Taxes on income arise on transactions that give rise to cash flows that are classified as

operating, investing or financing activities in a cash flow statement. While tax

expense may be readily identifiable with investing or financing activities, the related

tax cash flows are often impracticable to identify and may arise in a different period

from the cash flows of the underlying transactions. Therefore, taxes paid are usually

classified as cash flows from operating activities. However, when it is practicable to

identify the tax cash flow with an individual transaction that gives rise to cash flows

that are classified as investing or financing activities, the tax cash flow is classified as

24
an investing or financing activity as appropriate. When tax cash 5 Pursuant to the

issuance of AS 16, Borrowing Costs, which came into effect in respect of accounting

periods commencing on or after 1-4-2000, accounting for borrowing costs is governed

by AS 16 from that date.

INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT

VENTURES

When accounting for an investment in an associate or a subsidiary or a joint venture,

an investor restricts its reporting in the cash flow statement to the cash flows between

itself and the investee/joint venture, for example, cash flows relating to dividends and

advances. Acquisitions and Disposals of Subsidiaries and Other Business Units

The aggregate cash flows arising from acquisitions and from disposals of subsidiaries

or other business units should be presented separately and classified as investing

activities.

An enterprise should disclose, in aggregate, in respect of both acquisition and disposal

of subsidiaries or other business units during the period each of the following:

(a) The total purchase or disposal consideration; and

(b) The portion of the purchase or disposal consideration discharged by means of cash

and cash equivalents.

The separate presentation of the cash flow effects of acquisitions and disposals of

subsidiaries and other business units as single line items helps to distinguish those

cash flows from other cash flows. The cash flow effects of disposals are not deducted

from those of acquisitions.

25
NON-CASH TRANSACTIONS

Investing and financing transactions that do not require the use of cash or cash

equivalents should be excluded from a cash flow statement. Such transactions should

be disclosed elsewhere in the financial statements in a way that provides all the

relevant information about these investing and financing activities.

Many investing and financing activities do not have a direct impact on current cash

flows although they do affect the capital and asset structure of an enterprise. The

exclusion of non-cash transactions from the cash flow statement is consistent with the

objective of a cash flow statement as these items do not involve cash flows in the

current period. Examples of non-cash transactions are:

(a) The acquisition of assets by assuming directly related liabilities;

(b) The acquisition of an enterprise by means of issue of shares; and

(c) The conversion of debt to equity.

COMPONENTS OF CASH AND CASH EQUIVALENTS

An enterprise should disclose the components of cash and cash equivalents and should

present a reconciliation of the amounts in its cash flow statement with the equivalent

items reported in the balance sheet.

In view of the variety of cash management practices, an enterprise discloses the policy

which it adopts in determining the composition of cash and cash equivalents.

The effect of any change in the policy for determining components of cash and cash

equivalents is reported in accordance with Accounting Standard (AS) 5, Net Profit or

Loss for the Period, Prior Period Items and Changes in Accounting Policies.

26
OTHER DISCLOSURES

An enterprise should disclose, together with a commentary by management, the

amount of significant cash and cash equivalent balances held by the enterprise that are

not available for use by it.

There are various circumstances in which cash and cash equivalent balances held by

an enterprise are not available for use by it. Examples include cash and cash

equivalent balances held by a branch of the enterprise that operates in a country where

exchange controls or other legal restrictions apply as a result of which the balances

are not available for use by the enterprise.

Additional information may be relevant to users in understanding the financial

position and liquidity of an enterprise. Disclosure of this information, together with a

commentary by management, is encouraged and may include:

a) The amount of undrawn borrowing facilities that may be available for future

operating activities and to settle capital commitments, indicating any restrictions

on the use of these facilities; and

b) The aggregate amount of cash flows that represent increases in operating capacity

separately from those cash flows that are required to maintain operating capacity.

The separate disclosure of cash flows that represent increases in operating capacity

and cash flows that are required to maintain operating capacity is useful in enabling

the user to determine whether the enterprise is investing adequately in the

maintenance of its operating capacity. An enterprise that does not invest adequately in

the maintenance of its operating capacity may be prejudicing future profitability for

the sake of current liquidity and distributions to owners.

27
LITERATURE
REVIEW

28
 LITERATURE REVIEW

Accrual Accounting Basis is an accounting method that measures the

performance and status of a company regardless of when cash transactions occur;

financial transactions and events are recognized by matching revenues to expenses

(the matching principle) at the time when the transaction occurs rather than when

payment actually is made (or received). This allows current cash inflows and outflows

to be combined with expected future cash inflows and outflows to provide a more

accurate picture of a company's current financial condition. Accrual accounting is the

standard accounting practice for most big companies; however, its relative complexity

makes it more expensive to implement for small companies. This is the opposite of

cash accounting, which recognizes transactions only when there is an exchange of

cash.

Ball and Brown et al (1968) have searched the relationship between

accounting earnings and stock price and suggested that earning have an implication

for future cash flows of companies.

Ashton et al (1974) suggested that accounting information from financial

statements is useful in predicting future cash flow of a company. Consequently, the

usefulness of accounting information has been investigated in terms of their ability to

predict future cash flows.

FASB (1978) the important of cash flow prediction is supported by statement

of accounting standard. Both the Financial Accounting Standard Board (FASB) and

the International Accounting Standard Committee (IASC) provided a fundamental

guideline for preparing and presenting financial statements, that the objective of

29
reporting financial statements is to provide financial information for users to predict

the amount, timing and uncertainty of the future cash flow of a company.

The primary objective of accounting data is to provide information to help

present and potential investors; creditors and other things like assess the amount,

timing and uncertainty of prospective net cash inflows to the related enterprise.

Thornton (2008) indicated that FASB 95 requires a statement of cash flows to classify

cash receipts and cash payments in accordance with the prescribe format whether they

start from operating activities, investing activities, or financing activities. The

provisions given by FASB are as follows on the presentation of cash flow statement

are:

– it provides that the cash flows statement should be prepared under either direct or

indirect method and provides examples of how to use each method when preparing

statements.

– It also provides that under the core concept, cash is stated as ―cash and cash

equivalents‖. while cash is the most liquid assets within the asset portion of a

company‘s balance sheet including currency and bank deposit, in the other hand cash

equivalents are asset that are ready to be converted into cash such as money market

holding, short term government bond, bills, marketable securities and commercial

paper. Other sources of investments such as stocks, bonds, futures contracts, and so

forth are not considered cash.

A cash flow statement is an important indicator of financial health because it is

possible for a company to show profits while not having enough cash to sustain

operations. It is a financial report that shows to the user the source of a company‘s

cash and how it was spent over a specific period of time. A cash flow statement

counters the ambiguity regarding a company‘s solvency that various accrual

30
accounting measures create. It also categorizes the sources and uses of cash to provide

the reader with an understanding of the amount of cash a company generates and uses

in its operations, as opposed to the amount of cash provided by sources outside the

company, such as borrowed funds or funds from stockholders. The cash flow

statement also tells the reader how much money was spent for items that do not

appear on the income statement, such as loan repayments, long-term asset purchases,

and payment of cash dividends (Ryan 2007).

Cash flow is an index of the money that is received in or paid out by a firm for a

particular period of time, which is required to keep the business running on a

continuous basis (Ijeoma, 2016).Every business operations require cash as the basic

input and without it, the firm‘s operations will disrupt and can even lead to insolvency

(Akinyomi, 2014). A firm can become insolvent when it is not capable either of

generating enough cash from internal sources or obtain from external sources for

sustaining operating, investment and financing activities of the firm (Keige,1991).For

this reason, proper monitoring, management and accurate determination of cash

movement is needed to enable the business to make important financial decisions

(Olowe, 1998).

The study by Greenberg et al (1986) provides evidence which supporting FASB‗s

assertion regarding the superiority of earnings over cash flow from operations on

future cash flows. The study concluded that earnings are more powerful in predicting

future operating cash flows. Similarly, Kim and Kross (2005) used similar regression

model previously used by Dechow et al (1998) and cross-sectional approach and

concluded earnings is more powerful than cash flow from operations in predicting

future cash flows and coefficients on earnings increased over the time period. In

contrast, Bowen, Burgstahler, and Daley (1986) showed that earnings are weak in

31
predicting future cash flows, instead of working capital from operations and earnings

plus depreciation and amortization are more powerful. The results are in line with the

general conclusions of Murdoch and Krause (1990) and Percy and Stokes

(1992).However, Jordan and Waldron (2010) concluded that earnings plus

depreciation and amortization achieve superior results than other predictor

variables used in the study.

Many studies concluded that working capital from operations and net income

before extraordinary items and discontinued operations plus depreciation and

amortization are powerful than other cash flow measures (Arnold, Clubb, Manson &

Wearing, 1991; Quirin, O‘Bryan, Wilcox & Berry,1999; Quirin, O‘Bryan &

Berry,2000)

Study by Jordan, Waldron, and Clark (2007) in USA compared ability of cash flow

from operations, earnings and sales in predicting future cash flow of 100 companies

of the Fortune 1000 companies and finds that sales are a better predictor of future

cash flow than cash flow from operations and earnings.

Al Attar and Hussein (2004) predicted future cash flow of UK firms by using cash

flow from operations, earnings, and its components and reported that the cash flow

from operations alone outperform earnings in predicting future cash flows.Mc Beth

(1993) findings rejected the above conclusions and claimed that neither earnings nor

cash flows provide a better power in predicting future cash flows of USA listed firms.

These results do not support FASB's assertion of the superiority of earnings as a

predictor of future cash flow.

Finger (1994) presents findings suggesting that cash flow from operations appear to

be the best predictor of future cash flow than earnings. Lorek and Willinger (1993)

also predicted future cash flow of USA firms by using quarterly cash flow data. They

32
developed their own model and compared with Wilson‘s model and other time

series model. They concluded that their model which was based on quarterly cash

flow data is more powerful than other models. Lorek and Willinger (1996) also

predicted future cash flow of USA firms from 1990 to 2004 and found that cash flow

from operations outperforms earnings. Similar results reported by Lev, Li, and

Sougiannis (2010) in the USA. Farshadfar et al.(2008) and Habib (2010) predicted

future cash flows by using a sample of listed Australian firms and found that cash

flow from operations has more power in predicting future cash flows compared to

other predictor variables used in their study.Al Debie (2011) also provide

evidence for the superior ability of cash flow from operations in predicting future

cash flows of listed firms at Amman stock exchange. Similar conclusions were drawn

in India, Iran, and Malaysia by Mulenga (2015); A.Ahmadi and V.Ahmadi (2012);

Mooi (2007) respectively. On the other hand, the conclusion is in line with the

findings of Shubita (2013), who reports that earnings plus depreciation and

amortization are a better predictor of future cash flow.

Another study by Takhtae and Karimi (2013) and Moeinaddin, Ardakani, &

Akhoondzadeh (2013) predicted future cash flow of Iranian firms and report different

results. A study by Takhtae and Karimi (2013) find that earnings outperform cash

flow from operations which support FASB assertion on the superiority of earnings in

predicting future cash flows. While Moeinan et al (2013) concluded that earnings

and earnings plus depreciation and amortization outperform other predictor variables

in the prediction of future cash flows.

Arnedo and Lizarraga (2011) predicted future cash flow of Spanish companies by

using three different prediction models i.e. cash flow model, accrual based

33
model (aggregated) and accrual based model (disaggregated) and research results

reports that accruals are more powerful in predicting future cash flows better

than other variables.

Li, Mountinho, Opong and Pang (2015) predicted future cash flow of South African

firms and found that accruals (depreciation and change in inventory) do not appear to

enhance prediction of future cash flow.

In India, Varun (2015) predicted future cash flows of Shariah companies listed

on NSE.The study used panel regression model to statistically compare the

predictive ability of each predictor variables on future cash flows. The results of the

study show that cash flows from operations outperform earnings in predicting future

cash flow. The results do not clearly support the FASB‘s assertion of the superiority

of earnings as a predictor of future cash flow.

Ebaid (2011) predicted future cash flow of Egyptian firm by using prediction models

previously developed by Barth et al (2001) and find that earnings are more powerful

in predicting future cash flow than cash flow from operation.

Further, the study finds that the disaggregation of earnings into two components

(cash flow from operations and accruals) enhances the ability of earnings in

predicting future cash flows.

Bagheri, Pouraghajan, Emmgholipour, Mansourinia and Adrang (2012) studied the

ability of cash flows, earnings, and its components to predict future cash flow of

Iranian firms. The study found that the disaggregated earnings model has greater

power in predicting future cash flows, over the period of 2006 to 2010.

Jemaa, Toukabri, and Jilani (2015) predicted future cash flow of listed Tunisian

companies and find that earnings are a better predictor of future cash flow than

cash flow from operations. Further, the results show that, the disaggregation of

34
earnings into two components (cash flow from operations and total accruals)

and the disaggregation of total accruals into its major components (change in

accounts receivable; change in inventory; change in accountants payable,

amortization, and other accruals) significantly enhance ability of earnings in

predicting future cash flows. Dechow et al. (1998) predicted future cash flow of USA

firms and finds that earnings are a better predictor of future cash flow than the cash

flows.

35
COMPANY
PROFILE

36
 COMPANY PROFILE

Infosys Technologies Limited (Infosys), incorporated on July 2, 1981, is a global

technology services firm that defines, designs and delivers information technology

(IT)-enabled business solutions to its clients. The Company provides end-to-end

business solutions that leverage technology for its clients, including consulting,

design, development, software re-engineering, maintenance, systems integration,

package evaluation, and implementation and infrastructure management services.

Infosys also provides software products to the banking industry. Infosys BPO

(formerly Progeon Limited) is a majority owned subsidiary. Infosys Australia, Infosys

China and Infosys Consulting are the Company's wholly owned subsidiaries. In June

2006, Infosys acquired the shares in Infosys BPO held by Citicorp International

Finance Corporation (CIFC). As a result, Infosys effectively holds 99.98% of the

equity share capital of Infosys BPO as of March 31, 2007.

The Company complements its service offerings with specialist support for clients

using its domain competency group that has expertise in areas, such as securities,

insurance, telecommunication, banking and cash management, supply chain

management, manufacturing, retail and distribution, energy and utilities, healthcare,

and travel and tourism. It also uses its software engineering group and technology lab

to create customized solutions for its clients. In addition, it continually evaluates and

trains its professionals in new technologies and methodologies.

CORE SERVICES

CUSTOM APPLICATION DEVELOPMENT

 The Company provides customized software solutions for its clients. Infosys creates

new applications and enhances the functionality of its clients' existing software

applications. The Company's projects vary in size and duration.

37
 The Company's application development services span the entire range of mainframe,

client server and Internet technologies. An increasing proportion of Infosys'

applications development engagements are related to emerging platforms, such as

Microsoft's .NET or open platforms, such as Java 2 Enterprise Edition (J2EE) and

Linux

MAINTENANCE AND PRODUCTION SUPPORT

Infosys provides maintenance services for its clients' large software systems that

cover a range of technologies and businesses, and are typically critical to a client's

business. The Company focuses on long-term functionality, stability and preventive

maintenance to avoid problems that typically arise from incomplete or short-term

solutions. While Infosys performs most of the maintenance work at its global

development centers using secure and redundant communication links to its client's

systems, it also maintain a team at the client's facility to coordinate certain key

interface and support functions

SOFTWARE RE-ENGINEERING

The Company's software re-engineering services assist its clients in converting their

existing IT systems to newer technologies and platforms developed by third-party

vendors. Infosys' re-engineering services include Web-enabling its clients' existing

legacy systems, database migration, implementing product upgrades, and platform

migrations, such as mainframe to client-server and client-server to Internet platforms.

PACKAGE EVALUATION AND IMPLEMENTATION

 Infosys assists its clients in the evaluation and implementation of software packages

developed by third-party vendors. It also provides training and support services in the

course of their implementation.

38
 The Company specializes in enterprise resource planning packages developed by

vendors, including Oracle, PeopleSoft, Retek and SAP; supply chain management

packages developed by vendors, including i2, Manugistics and Oracle; customer

relationship management packages developed by vendors, including PeopleSoft

(Vantive) and Siebel; business intelligence packages developed by vendors, such as

Business Objects and Cognos, and enterprise application integration packages

developed by vendors, such as IBM and TIBCO.

INFORMATION TECHNOLOGY CONSULTING

 The Company's IT consulting professionals assist its clients by providing technical

advice in developing and recommending appropriate IT architecture, hardware and

software specifications to deliver IT solutions designed to meet specific business and

computing objectives.

 Infosys offers IT consulting in the areas of migration planning, institution-wide

implementation and overall project management involving multiple vendors under a

common architecture; IT infrastructure assessment, which includes assessing its

clients' IT capabilities against existing and future business requirements and

recommending appropriate technology infrastructure, and technology roadmap

 development, which allows clients to evaluate emerging technologies and develop the

standards and methodologies for applying those emerging technologies.

39
 OTHER SOLUTIONS

 Infosys' service offerings including testing services, engineering services, business

process management, systems integration, infrastructure management, and operational

and business process consulting. The Company offers end-to-end validation solutions

and services, including enterprise test management, performance benchmarking, test

automation and product certification.

 For each particular client, Infosys focuses on developing a framework for ongoing

testing in order to seek continuous improvement in the predictability of its client's

internal systems. The Company's service professionals are trained in test management

tools from developers, such as Mercury Interactive, IBM-Rational and Segue.

FINACLE

 Finacle®, the universal banking solution from Infosys, helps banks by enabling them

to shift their strategic and operational priorities. It maximizes their opportunities for

growth ,while minimizing the risks that come with large-scale business transformation

 Finacle® currently powers 91 banks across 54 countries, helping them serve over 100

million customers, 150 million accounts, 80,000users and supporting over 36 million

peak banking transactions per day spread across multiple installations

40
 KEY INDUSTRIES

Infosys serves various industries through its vertical business units, such as:

 Aerospace and Automobile (ANA)

 Banking & Capital Markets (BCM)

 Communication Service Providers (CSP)

 Resources, Energy & Utilities (REU)

 Hi Tech & Discrete Manufacturing (HTDM)

 Insurance, Healthcare & Life Sciences (IHL)

 Media and Entertainment

 Product Lifecycle and Engineering Solutions (PLES)

 Retail, Distribution & CPG (RETL)

 Transportation & Services (TNS)

 Independent Validation Solutions (IVS) - provides software testing services.

 IT Infrastructure Management Services (IMS) - manages core networks, data centers

and servers of clients.

 Real Estate

 Life science

In addition to these, there are business units aligned to clients' geographies, such as

EMEA (Europe, Middle East & Africa), APAC (Asia-Pacific) and CAND (Canada).

There are also horizontal business units such as ES (Enterprise Solutions), which

specializes in ERP and package implementation and works with clients across

industries and geographies and SI (Systems Integration), which provides integration

services to clients.

41
INDUSTRY SEGMENTATION

2007 2006 2005 2004 2003

Services 21.0 20.2 23.2 25.7 32.1

Development 29.3 30.2 29.9 30.1 28.2

Maintenance 17.5 16.2 15.2 14.5 11.0

Package implementation 6.9 5.9 5.8 5.3 3.4

Testing 2.1 4.7 6.2 6.0 5.5

Re-engineering 3.6 3.5 3.6 3.7 4.3

Consulting 4.7 4.0 2.7 1.6 0.5

Business process 1.6 1.8 2.0 2.2 2.6

management

Engineering services 9.4 9.7 8.4 8.1 7.8

Other services 96.1 96.2 97.0 97.2 95.4

Total services 3.9 3.8 3.0 2.8 4.6

Products 100.0 100.0 100.0 100.0 100.0

Total

42
SERVICE OFFERING

2007 2006 2005 2004 2003

Manufacturing 13.5 13.9 14.4 14.8 16.4

Banking financial 37.4 36.0 34.6 36.6 37.6

service and insurance

Banking and financial 30.2 28.5 25.2 23.7 23.3

service

Telecom 7.2 7.5 9.4 12.9 14.3

Retail 19.3 16.5 18.5 16.6 15.2

Energy and utilities 10.0 10.1 9.8 11.6 11.4

Transportation 5.3 4.7 3.2 3.0 2.9

Others 2.4 5.1 7.6 7.1 6.8

Total 12.1 13.7 11.9 10.3 9.7

100.0 100.0 100.0 100.0 100.0

43
 KEY COMPETITORS

 Offshore Technology services firms such as Cognizant Technologies, Satyam

Computer Services, Tata Consultancy Services and Wipro

 Consulting firms as Accenture , Cap Gemini

 IT Outsourcing firms such as EDS ,CSC

KEY CLIENTS

ABN AMRO

AIRBUS

AETNA INC

44
GOLDMAN SACHS

During fiscal 2007, 95.3% of revenues came as repeat business and during 2006,

95.0% revenues came from repeat business from existing clients

45
FUTURE STEPS

1. More keen on large deals. The margin dilution from large deals has been a point of

concern in the past at Infosys. However, while the initial margin profile can be

extremely wavy, it is possible to improve margins later in the life of the contract

through reduced G&A overheads. Infosys, in its recent analyst meet, mentioned that a

dedicated team was now working on large deals. We expect greater focus ahead in

this area.

2. Increased focus on solution based offerings in both IT services and BPO. Infosys

has developed ~50 solution based offerings in the IT services space and believes that

some of these can help break the linearity between revenue and manpower growth in

the business. In BPO as well, its first platform based BPO offering is likely to be

launched soon.

3. Willingness to explore new deal structures. The market was surprised when Infosys

paid an upfront $28m for the $250m/7-year Phillips BPO deal. While TCS had made

such a payment in the case of Pearl BPO earlier, Infosys‘ willingness to do so was

certainly a shift from the past.

46
 COMPANY STRATEGY FOR FUTURE

 Increase businesses from existing and new clients

 Expand geographically

 Continue to develop deep industry knowledge

 Enhance brand visibility

 Pursue alliance and strategic acquisitions

 Continue to invest in infrastructure and employees

INFOSYS'S HIRING PLANS FOR THE YEAR (2019):

Most of the companies rapidly cutting their losses by employing massive

retrenchment drive, firing thousands of employees or offering them early separation

schemes. However, despite the massive economic turmoil across the globe, there are

still some companies that are looking to hire skilled candidates. One of these

companies is Infosys. The company intends to stick to its plan of hiring 25,000 people

this fiscal year.

47
 KEY CHALLENGES FACED BY INFOSYS ARE :

 RISE IN WAGE LEVELS ON INDIAN IT WORKERS.

Infy can overcome this risk by growing up the value chain so that it can afford to

increase its billing rates and still add value to its customers .Second thing it can do is

to move their operations to second level cities in India that have low cost of living and

where wage pressure is less. One of the good steps Infy has taken to this regard was

by opening its Bhubaneswar center. Its cost of living is way less than that of

Bangalore. Another good example is Gandhinagar where a Patni computer was one of

the first big IT companies to open its office.

 CHANGE IN EXCHANGE RATES.

Infosys should grow its client base in India and China where the impact of foreign

exchange is negligent. TCS is a good example with this regard. Its 2006 revenues had

12.5% revenues generated from India. This is around $300 mn. With the present

Indian IT market valued at $5bn (obtained from TCS's 2006 annual report) and

expected to grow at 11%, Infy has scope of getting a good market share.

 RISE IN INFRASTRUCTURE COSTS

Infosys 2016 capital expenses was $246mn compared to that of $185mn in 2005. This

is an increase of over 30%. In order to continue this pace the company needs to invest

a large amount of capital in building new facilities. With recent surge in real estate

prices in India, Infosys would face challenges in controlling its capital expenditures

towards expanding its facilities

48
 INABILITY TO ACQUIRE FOREIGN COMPANIES

The present Reserve Bank of India guidelines state that in ceratin cases Indian

companies have to take the central bank's permission to acquire a foreign company.

This increases the lead time required to acquire a company.

 BACKLASH TOWARDS OUTSOURCING IN FOREIGN

COUNTRIES

One way is to employ local talent.Another way can be employing virtual classroom

techniques by which a person sitting in India can get US experience that he would

otherwise get by being physically present in USA. Multinational companies like

Accenture are doing a great job in this front and are not so much dependent on wok

visas as the Indian companies like Infosys.

 PRESENT TAX BENEFITS ARE LIMITED TILL 2019

Most Indian IT companies are enjoying a tax holiday which exempts them from taxes

on exports performed from designated export promotion zones. This helps Indian IT

companies to reduce their tax rate .But this benefit is only applicable till fiscal 2009.

After that the Indian IT companies would be taxed the same way as other Indian

companies

49
SWOT ANALYSIS

STRENGTHS

LEADERSHIP IN SOPHISTICATED SOLUTIONS THAT

ENABLE CLIENTS TO OPTIMIZE THE EFFICIENCY OF

THEIR BUSINESS:

The company bring together expertise in consulting, IT services and business process

outsourcing to create solutions that allow clients to increase their customer loyalty

through faster innovation, restructure their cost base, and help them achieve greater

success through shifting business cycles. Expertise helps our clients improve their

own efficiencies, create better value for their end customers and become more

competitive. They‘re able to capture a greater share of our clients‘ technology

budgets.

PROVEN GLOBAL DELIVERY MODEL:

Highly evolved Global Delivery Model represents a key competitive advantage. Over

the past decade, they have developed our onsite and offshore execution capabilities to

deliver high quality and scalable services. In doing so, Infosys have made substantial

investments in processes, infrastructure and systems, and have refined our Global

Delivery Model to effectively integrate onsite and offshore technology services. The

Global Delivery Model provides clients with seamless, high quality solutions in

reduced time frames enabling them to achieve operating efficiencies.

50
COMMITMENT TO SUPERIOR QUALITY AND PROCESS

EXECUTION:

Infosys have developed a sophisticated project management methodology to ensure

timely, consistent and accurate delivery of superior quality solutions to maintain a

high level of client satisfaction.

STRONG BRAND AND LONG-STANDING CLIENT

RELATIONSHIPS:

They have long-standing relationships with large multinational corporations built on

successful prior engagements with them.

STATUS AS AN EMPLOYER OF CHOICE:

Infosys has among the best talent in the Indian technology services industry and are

committed to remaining among the industry‘s leading employers. We have a presence

in 13 cities in India, allowing us to recruit technology professionals with specific

geographic preferences. We have a diverse workforce which includes employees from

70 nationalities.

ABILITY TO SCALE:

Infosys have successfully managed their growth by investing in infrastructure and by

rapidly recruiting, training and deploying new professionals. We currently have 52

global development centers.

51
INNOVATION AND LEADERSHIP:

A pioneer in the technology services industry. We are one of the first Indian

companies to achieve a number of significant milestones, which has enhanced our

reputation in the marketplace.

WEAKNESSES

Revenues and expenses are difficult to predict and can vary significantly from period

to period, which could cause share Price to decline 26 May not be able to sustain our

previous profit margins or levels of profitability. The economic environment, pricing

pressure and rising wages in India and overseas could negatively impact revenues and

operating results. Revenues are highly dependent on clients primarily located in the

United States and Europe, as well as on clients concentrated in certain industries.

Economic slowdowns or factors that affect the economic health of the United States,

Europe or these industries may affect our business. Any inability to manage growth

could disrupt our business and reduce our profitability may face difficulties in

providing end-to-end business solutions for our clients, which could lead to clients

discontinuing their work. Revenues are highly dependent upon a small number of

clients, and the loss of any one of our major clients could significantly impact the

business

Failure to complete fixed-price, fixed-time frame contracts within budget and on time

may negatively affect our profitability client contracts can typically be terminated

without cause and with little or no notice or penalty, which could negatively impact

our revenues and profitability

The engagements with customers are singular in nature and do not necessarily provide

for subsequent engagements

52
OPPORTUNITIES

Huge untapped potential for in the global market as IT will become the need of almost

every industry

The IT industry can be the reason for India being a global leader of tomorrow

THREATS

Legislation in certain of the countries, in which Infosys operates, including the United

States and the United Kingdom, may restrict companies in those countries from

outsourcing work overseas

Intense competition in the market for technology services could affect cost

advantages, which could reduce the share of business from clients and decrease the

company‘s revenues

Our client contracts are often conditioned upon our performance, which, if

unsatisfactory, could result in less revenue than previously anticipated

Some of our long-term client contracts contain benchmarking provisions which, if

triggered, could result in lower future revenues and profitability under the contract.

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GOALS

INITIAL GOALS

They started off with one client and right from the beginning understood the concept

of an offshore delivery model. Conceptually, they tried to leverage globalization for

customized software development - producing where it is most cost-effective, and

selling where it is most profitable, all without being constrained by national

boundaries. Infosys believed that the key to success is to ensure that it executes our

engagements well every time. We have based our whole operation on a foundation of

strong value systems. We were careful never to compromise on that despite many

challenges.

PRESENT GOALS OF INFOSYS

AREA OF GOVERNANCE

To define and implement a training module and create awareness about sustainability.

Status-It was achieved by providing sustainability training for seniors

PRODUCT RESPONSIBILITY

Sustain customer satisfaction in the annual customer survey Status- It was achieved;

the overall customer satisfaction was at 81 %

ENERGY

Monitor energy consumption to become energy efficient.

Status- This was achieved by implementing new monitor mechanisms

Reduce per capita energy consumption by 5 %.

Status- This was partially achieved by reducing the per capita electricity consumption

to 10%.

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ENVIRONMENT

Plant a tree for every new employee

Status- Below the target – planted 16,000 trees in Mangalore.

HUMAN RIGHTS

Create a framework for employees, suppliers and vendors to be educated on human

rights.

Status- Below target- developed a basic training module on human rights which will

be implemented in 2020.

EMPLOYEE ENGAGEMENT

Track impact of employee health related activities.

Status- Target achieved by receiving feedbacks after health checkups.

SOCIETY

Define and implement metrics for measurement.

Status- Achieved target by developing guidelines and dashboards.

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OBJECTIVES OF
THE STUDY

56
 OBJECTIVES OF THE STUDY

 To study the financial solvency of the company by comparative study with

other years

 To know the capacity of payment of dividend & Interest.

 To know the profitability of company in form of ratio.

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 RESEARCH
METHODOLOGY

58
 RESEARCH METHODOLOGY

RESEARCH DESIGN:

A research design is the arrangement of conditions for collection and analysis of data

in a manner that aims to combine relevance to the research purpose with economy in

procedure .A research design is purely and simply the framework of plan for a study

that guides the collection and analysis of data. It is a blue print that is followed in

completing a study. Keeping in view the objectives of the project. Research design

used in the report is Descriptive. Type of research conducted is analytical in nature.

DESCRIPTIVE RESEARCH:

This is kind of research structure which is concerned with describing the

characteristics of the problem. In this way the main purpose of such a

research design is to present a descriptive picture about the marketing problem

on the basis of actual facts. For this it is important to obtain the complete and

actual information about the subjects.

TYPE OF DATA AND DATA COLLECTION

SECONDARY DATA:

Secondary data are those which have already been collected by someone else and

have already been passed through the statistical process.

All the data has been collected from internal source that includes:-

 Books

 Websites

 Official Files

 Company‘s Manual related to Working Capital

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 TECHNIQUES OF ANALYSIS:-

The schedule that was planned to be executed or the methodology of approach may be

explained as follows.

 An overview of the procedures followed in analyzing the data obtained. The methods

followed are: Ratio analysis an effective tool in analysis.

 Proper & effective collection of the various data required in to with the analysis in relevance

with the current economic growth.

 An efficient analysis with an eye for errors or blunders that may occur due to inefficiency.

This is the most prominent feature of the study & was executed with utmost care & diligence.

 It also included the study of various circulars & notes that were passed by the management in

this regard. Thus having a higher hand on the literature study of the project as a whole.

TOOLS FOR DATA COLLECTION:

The data so collected from various annual reports & financial Statements for 5 years

been classified & tabulated for better understanding & to give a complete picture at 1 place.

TOOLS FOR ANALYSIS:

The tabulated data has been analyzed thoroughly through various ratios and graphs, which is

used.

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LIMITATIONS
OF THE STUDY

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 LIMITATIONS OF THE STUDY
 The study is limited to finance and the finding need not apply in similar

sense to other firms.

 The inferences that have been framed only on the basis of financial

statement.

 Based on the limited information it is not possible to arrive at a proper

conclusion.

 Limitations of Financial analysis.

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DATA ANALYSIS
&INTERPRETATION

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DATA ANALYSIS & INTERPRETATION

FINDINGS

64
FINDINGS

65
SUGGESTIONS

66
 SUGGESTIONS

CONCLUSION

67
CONCLUSION

68
BIBLIOGRAPHY

69
 BIBLIOGRAPHY

Annexure

70
QUESTIONNAIRE

71