Last update on 2024-06-07

Infosys (INFY) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Infosys Piotroski F-Score Analysis for 2023: Achieved a 4/9 score. Detailed financial strength, profitability, and efficiency review.

Short Analysis - Piotroski Score: 4

We're running Infosys (INFY) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is used to evaluate a company's financial strength, ranging from 0 to 9, across criteria related to profitability, liquidity, and operational efficiency. Infosys (INFY) scored a 4 in the analysis based on the following findings: 1. **Profitability**: Infosys showed positive net income and cash flow from operations but noticed a decline in ROA and operating cash flow lower than net income. 2. **Liquidity**: There was an increase in leverage and a decrease in the current ratio, indicating rising financial risk and declining short-term liquidity. 3. **Operating Efficiency**: The company faced a decline in gross margin despite a reduction in outstanding shares and an increased asset turnover ratio.

Insights for Value Investors Seeking Stable Income

Given that Infosys scored a 4 on the Piotroski F-Score, this puts them on the lower side, implying a mixture of strengths and weaknesses in their financial position. The positive net income, historical cash flow generation, and improved asset turnover are strong points. However, concerns arise from declining ROA, lower operational cash flow relative to net income, increasing leverage, decreasing current ratio, and reduced gross margins. Potential investors should proceed with caution and consider deeper research or consult with a financial advisor to evaluate whether the company's strengths outweigh its risks.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Infosys (INFY)

Company has a positive net income?

Net income is a critical measure of a company's profitability and overall financial health. Positive net income indicates that a company is successfully managing its expenses and generating profit.

Infosys has demonstrated consistent profitability over the past 20 years, with a net income of $2.981 billion in 2023. This marks an incremental improvement from the previous year's $2.963 billion. Given the net income is positive, Infosys earns 1 point in the Piotroski analysis. This longstanding positive trend highlights Infosys's robust financial management and profitability.

Company has a positive cash flow?

Cash Flow from Operations indicates a company's financial health and its ability to generate cash from its core business activities.

Infosys's Cash Flow from Operations (CFO) for 2023 stands at $2.853 billion, which is indeed positive. This warrants an addition of 1 point for this Piotroski criterion. This positive trend reflects Infosys's strong operating efficiency and its consistent ability to generate substantial cash from its core operations over the last 20 years. The 10-year average CFO stands well above $2 billion, demonstrating robust and stable financial health. This consistent uptrend from $211 million in 2003 to $2.853 billion in 2023 underlines Infosys's strong operational dynamics, affirming its resilience and efficiency in the IT services sector.

Return on Assets (ROA) are growing?

The criterion evaluates the growth in Return on Assets (ROA) year-over-year, signifying enhanced profitability and efficient asset utilization.

The ROA for Infosys in 2023 decreased to 0.1932 from 0.1951 in 2022. Considering the Piotroski criterion, since the ROA did not increase,we assign 0 points. This decline, likely marginal, signifies a slight dip in profitability and asset utilization efficiency. Additional data shows that the 20-year industry median ROA for 2023 was 0.3391, higher than Infosys' 0.1932, indicating the company outperformed industry trends. Past trends reflect cyclic nature of the industry, emphasizing the need for Infosys to improve asset productivity.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income: This criterion checks if the operating cash flow (OCF) for the year is greater than the net income (NI). A higher OCF compared to NI suggests strong cash generation and potentially higher earnings quality.

In 2023, Infosys reported an operating cash flow of $2.85 billion compared to a net income of $2.98 billion. This indicates that the OCF is indeed lower than the NI, warranting a score of 0 for this criterion. This trend raises a red flag as consistently high net income accompanied by lower operating cash flow may suggest potential earnings management or that the company is less efficient in converting net income into actual cash. Historical data show that over the last 20 years, there have been instances where OCF surpassed NI, such as in 2021 ($3.25 billion vs $2.61 billion). However, the current trend needs to be monitored closely to ensure this isn't part of a longer-term decline in cash-generating efficiency.

Liquidity of Infosys (INFY)

Leverage is declining?

Change in leverage compares the variation in a company's leverage year-over-year. It helps assess changes in financial risk and capital structure.

The leverage for Infosys has increased from 0.039 in 2022 to 0.0561 in 2023, indicating a rise in financial risk. Therefore, 0 points are added under this criterion. Historical data over the last 20 years shows that leverage was non-existent until 2020 when it reported a leverage of 0.0432, followed by 0.0423 in 2021 and 0.039 in 2022 before this recent increase. The trend suggests a gradual increase in leverage, which could raise concerns about the company's growing dependency on debt over recent years.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay short-term obligations with its short-term assets.

Analyzing Infosys's Current Ratio in 2023 (1.8088) against 2022 (1.9998), we see a decline. This indicates a reduced ability to cover short-term liabilities with current assets, marking a concerning trend. This interannual drop signifies that the company is now less liquid compared to the previous year. Historically, the Current Ratio of Infosys has been declining since 2003, when it was substantially high at 8.0502. Moreover, this 2023 figure remains above the industry median of 1.4169, which is a silver lining. However, since the current ratio decreased from 2022 to 2023, this criterion gets 0 points.

Number of shares not diluted?

The criterion examines whether a company has reduced its outstanding shares. A decrease in outstanding shares indicates that the company may be buying back shares, which generally enhances shareholder value by increasing earnings per share and providing positive signals about the firm’s financial health.

In 2022, Infosys had 4,209,546,724 shares outstanding. This number decreased to 4,180,897,857 shares in 2023, signaling a reduction. This reduction is perceived positively, earning Infosys 1 point on this criterion. Over the last 20 years, the company has also maintained a prudent approach towards managing its share count. For example, comparing 2003's 4,254,656,576 shares outstanding with the steady readjustments seen such as the dip in 2019's 4,351,420,772 shares, Infosys demonstrates a disciplined share management. This trend is beneficial for shareholder value.

Operating of Infosys (INFY)

Cross Margin is growing?

Change in Gross Margin measures the variation in a company's gross profit as a percentage of its revenue year-over-year. It's a critical indicator of operational efficiency.

In 2023, Infosys' Gross Margin decreased to 0.3022 from 0.3259 in 2022. This reduction reflects a significant drop in operational efficiency. Comparing this to the last 20 years of Gross Margin data, it is evident that the 2023 figure is on the lower side historically. Additionally, the 2023 Gross Margin of 0.3022 is considerably below the 2023 industry median of 0.3391. This marks a disappointing performance for the company for this criteria and suggests heightened cost pressures. Consequently, this results in scoring 0 points for this criterion.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company in using its assets to generate sales. A higher ratio indicates better performance.

Comparing the Asset Turnover ratio of Infosys from 2022 to 2023, we observe an increase from 1.0738 to 1.18. This positive trend signifies that Infosys has become more effective in utilizing its assets to drive revenue. Historically, this is one of the highest ratios observed over the last 20 years, indicating improved operational efficiency. As the Asset Turnover has increased in 2023, this criterion scores 1 point.