Financial Analysis
| Assignment on Financial Management | | | Topic: Financial analysis of Infosys Technologies Ltd. Prepared By:Hiren Kodiyatar (10)Mehul Makwana (11) Submitted To Prof (Dr.) Surendra Sundararajan FACULTY OF MANAGEMENT STUDIESTHE M. S. UNIVERSITY, BARODA. | | | CAPITAL STRUCTURE OF INFOSYS TECHNOLOGIES LIMITED: * Capital structure describes how a company has organized its capital—how it obtains the financial resources with which it operates its business. * Here in Infosys its capital structure consist of 100% equity. It means no debt component. * Infosys don’t have to pay fixed interest so its cash flow position is also good. But it can’t take advantage of leverage and tax shield. * Company can’t have the benefit of leveraging as it is playing safe with low debt but this decision is rational on the part of the sector of company, because the company is operating in IT sector where the technologies changes very fast.
ADVANTAGES OF LONG TERM DEBT FINANCING: * It is less expensive and interest expenses are tax deductible. * If company’s profit increases, it will not have to share it because investors’ yield is fixed. * No dilution of voting rights is good for shareholders.
DISADVANTAGES OF LONG TERM DEBT FINANCING: * Non –payment of debt obligation can damage company’s image. * Debt securities are not inflation hedge hence investors’ response may be inadequate. * For company with unstable earning stream, obligation to pay fixed charges periodically is a burden. * At maturity repayment of debt will result in major cash outflow. * Restrictive covenants in trust deed can affect company’s financial flexibility.
Here, Infosys has reserves and surplus almost four times more than fixed assets and share capital of Infosys is only 1.63% of its reserves and surplus.
ADVANTAGES OF LONG TERM DEBT FINANCING: * It is less expensive and interest expenses are tax deductible. * If company’s profit increases, it will not have to share it because investors’ yield is fixed. * No dilution of voting rights is good for shareholders.
DISADVANTAGES OF LONG TERM DEBT FINANCING: * Non –payment of debt obligation can damage company’s image. * Debt securities are not inflation hedge hence investors’ response may be inadequate. * For company with unstable earning stream, obligation to pay fixed charges periodically is a burden. * At maturity repayment of debt will result in major cash outflow. * Restrictive covenants in trust deed can affect company’s financial flexibility.
Here, Infosys has reserves and surplus almost four times more than fixed assets and share capital of Infosys is only 1.63% of its reserves and surplus.