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Ratio Analysis
Of
IT Sector

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Presented By:

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Suhas Patil 41
Anand Rajawat 42
Manish Rana 43
Priyanka Rane 44
Subodh Sakpal 45
Pushkaraj Save 46
Jay Savla 47
Hetal Shah 48
Ravish Shah 49
Vivek Shah 50 2
IT industry: on a steady growth track

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 Totalrevenues for the Indian IT industry were
US$ 71.7 billion in 2008-09.


 The Indian IT industry has been growing at a

compound annual growth rate (CAGR) of 27 %
for the last five years.


 Contribution of IT industry to India’s gross

domestic product (GDP) has grown from 1.2 per
cent in 1997-98 to an estimated 5.8 per cent in
2008-09.
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CONT……
The total revenues from export were around US$

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47.3 billion in 2008-09.

The total exports have been growing at a CAGR of
28.7per cent over the last five years.

Domestic market revenues touched around US$
24.3 billion in 2008-09.

Domestic market revenues have been growing at a

CAGR of 24 per cent for the last five years.

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
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Scrip Company Close Full Mkt.
Code Price Cap.

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500209 INFOSYS TECH 2,671.40 1,53,214.20

532540 TCS LTD. 807.75 1,58,094.53

507685 WIPRO LTD. 721.05 1,05,846.20

532281 HCL TECHNO 356.9 24,072.83

532466 ORACLE FIN 2,308.95 19,360.35

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Scrip Company Close No.of Shares Full Mkt.
Code Price (normal) Cap.

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500209 INFOSYS TECH2,671 57,35,35,233 1,53,214

532540 TCS LTD. 807 1,95,72,20,996 1,58,094

507685 WIPRO LTD. 721 1,46,79,45,361 1,05,846

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Short Term Solvency Ratios

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 Current Ratio
 Conventionally a current ratio of 2:1 is considered
satisfactory
 Current Assets
Current Ratio =
Current Liabilities

oTo ensure solvency the current ratio

has to exceed 1.0
nGenerally a value greater than 1.5 or
2.0 is required for comfort
nAs always, compare to the industry
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o
Immediate Solvency Ratios

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 Quick Ratio (or Acid-Test Ratio)
 Conventionally a quick ratio of 1:1 is
considered satisfactory.


 = Current Assets – Stock – Prepaid Exp.

.
 Current Liabilities – Bank Overdraft – Advance Income
n
nMeasures liquidity without considering
inventory (the firm’s least liquid
current asset)
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Long Term Solvency Ratios
 Debt-to-equity ratio

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 Generally, financial institutions favour a
ratio of 2:1.

 = Loan Funds .
 Own Funds

nMany sources use long term debt instead

of total liabilities
nMeasures the mix of debt and equity
within the firm’s total capital 11
Long Term Solvency Ratios

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 Interest Coverage Ratio


 = EBIT
 Interest

nInterest coverage ratio

oA high level of interest coverage
implies safety

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Financial Management Ratios
 Debtors turnover ratio

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 This ratio is a test of the liquidity of the debtors of a
firm. It shows the relationship between credit sales and
debtors.
 In general a high debtor turnover ratio and short
collection period is preferable.


Debtors turnover ratio =

 Credit sales
. Average
Debtors and bills receivables


A high turnover ratio and shorter collection period

indicate prompt payment by the debtor. On the contrary13
low turnover ratio and longer collection period indicates
delayed payments by the debtor.
 Financial Management Ratios
Capital Gearing Ratio

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

 This ratio studies the proportion between capital

bearing fixed rate of return & capital not bearing
fixed rate of return

 Capital Gearing Ratio = Debentures + Pref. Sh. Capital
 Equity Shareholders fund – Pref. Sh.
Capital


Capital gearing ratio is important to the company and the



prospective investors. It must be carefully planned as it

affects the company's capacity to maintain a uniform
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dividend policy during difficult trading periods. It reveals the
suitability of company's capitalization.
Proprietary Ratios

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

 Proprietary Ratio = Proprietor's

Fund

Total
Assets
nThis Ratio Explains us the Extent to
which total assets of the company are
financed by the proprietors i.e.
shareholders of the company.

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Earning Per share

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

 Earning Per Share



 = NPAT – Pref. Dividend

 No. of Equity Share

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 Profitability Ratios

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

 Return On Capital Employed



 = EBIT x 100
 CAPITAL EMPLOYED


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Profitability Ratios

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

 Return on Net Worth (%)




= NPAT x 100
 Proprietary Funds

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 Tech GROWTH STORY MAY LOSE A BIT
OF ZIP

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 Global Valuation Comparison


 Company PE EBITDA
 FY10 FY11 FY10 FY11
Infosys 23.8 21.4 17.5 14.5
TCS 22.3 18.6 17.3 14.9
Wipro 21.6 20.2 15.1 13.1
HCL 19.3 15.0 9.5 8.2

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Very Important Reason
For I.T Company in

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

current scenario


FurtherRise in Rupee may

erode IT margin

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 04/05/10
Thank You….. 

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