Infosys Liquidity Ratios

Description
Current Ratio, Quick Ratio, Cash Ratio

Infosys Technologies Ltd.
RATIO ANALYSIS Liquidity Ratios

CURRENT RATIO
Definition: Current Ratio = Current assets Current liabilities

CURRENT RATIO contd…
According to the Annual Report, the Current Ratio is 2.77 which is a good indicator for the company. Higher the current ratio the more capable the company is at paying their obligations. Obviously with a ratio of 2.77 it is in a commanding position to pay its short term obligations.

CURRENT RATIO contd…
Things that are considered in calculating the current liabilities are Total cash and Bank balances (48), Trade Receivables (48), and Loans and Advances (48). According to AsianCerc, the ratio comes out to be 2.80 for 2005 and according to the report, the same ratio is 2.77. The difference is minimal, but Prowess gives the same ratio as 3.40. This is because they have included Investments as a part of the current assets.

CURRENT RATIO contd…
Ratios from the Annual Report YEAR Current Ratio 2005 2.77 2004 1.65

Ratios from AsianCerc YEAR Current Ratio 2005 2.80 2004 1.67

Ratios from Prowess YEAR Current Ratio 2005 3.40 2004 2.08

QUICK RATIO
Establishes a relationship between quick/liquid assets and current liabilities. Considers liquid assets like Cash, Debtors and bills receivable and marketable securities. Inventories being less liquid are not taken into account. Quick Ratio = Current Assets – Inventories Current liabilities

Quick Ratio

Mar ‘ 05 2.77

Mar ‘ 04 1.65

Mar ‘ 03 3.87

?Liquidity position of Infosys has become more sound as compared to 2004.

Infosys Mar ’05 Quick Ratio 2.77

TCS Mar ’05 1.77

Wipro Mar ’05 1.45

?A quick ratio of 1 to 1 is considered to be satisfactory.

CASH RATIO
The cash ratio is the formula to calculate the liquidity of the company by calculating the ratio between all cash and all cash equivalents with all current liabilities.

Cash Ratio = Cash + Cash Equivalents Current Liabilities

INFOSYS in 2004-05
Cash & Cash equivalents = 2850.67 Cr
Current liabilities = 578.56 Cr

2850.67

Cash ratio=
578.56

= 4.927

Comparison
• Cash ratio :


• •

In 2004-05 = 4.927
In 2003-04 = 4.94 The net change = 0.26% decrease.

REASONS
• Decrease in the current accounts by 93.2 cr. • Decrease in the deposit accounts by 85.89 cr. • The company invested in acquiring equity and land in the financial year.

INFERENCE
• The cash ratio is very high, it implies that INFOSYS is financially very stable and will be able to meet the immediate need of liquidity with the internal source of funding. • INFOSYS will be able to gat a slightly better return of investment because of high Cash Ratio.

Thank You



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