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Infy EVA rises 31%, HR value soars 86%

K Giriprakash

Infosys Technologies' economic value-added has increased by 31 per cent to Rs 5.10 billion, while the value of its human resources grew by a whopping 86 per cent to Rs 95.39 billion as of March 31, 2002.

Infosys' enterprise value, however, dropped by 10 per cent to Rs 236.27 billion as of March 31, 2002.

During 2000-01, Infosys Technologies Ltd's economic value added shot up by 300 per cent to Rs 3.89 billion during which its enterprise value declined by over 50 per cent to Rs 263.49 billion even as the value of human resources increased by over 200 per cent to Rs 51.23 billion during the same year compared with the previous year.

Economic value-added measures the profitability of a company after taking into account the cost of all capital including equity.

It is the post-tax return on capital employed minus the cost of capital employed. "it is those companies which earn higher returns than cost of capital that create value. Those companies which earn lower return than cost of capital are deemed destroyers of shareholder value," Infosys said in its annual report.

The report said Infosys used the Lev & Schwartz model to compute the value of the human resources as on March 31, 2002. It said the dichotomy in accounting between human and non-human capital is fundamental.

The latter is recognised as an asset and is therefore recorded in the books and reported in the financial statements, whereas the former is totally by accountants.

The definition of wealth as a source of income inevitably leads to the recognition of human capital as one of several forms of wealth such as money, securities and physical capital, the report said.

The report said the evaluation is based on the current value of the future earnings of the employees and on the following assumptions:

• Employee compensation includes all direct and indirect benefits earned both in India and abroad; and

• The incremental earnings based on group/age have been considered.

Infosys said the education index of employees has gone up substantially to 31,385 from 28,725. This reflects the quality of employees at Infosys. The value-added per software engineer and the value-added per employee show an increasing trend.

The average age of employees as of March 31, 2002 was 26.60 compared with 25.67 as of March 31, 2001. The average age of the support staff is 30.94 years compared with the previous year average age of 30.61 years.

The sales per support staff, as well as, the proportion of support staff to the total organisational staff, has shown improvements over the previous year. Infosys said as of March 31, 2002, exports constituted 98 per cent of total revenue, as compared with 98.6 per cent during the previous year. Employee costs were around 43 per cent of total revenue compared with 38 per cent during the previous year.

The report said income tax expense was around 5 per cent of total revenue compared with 4 per cent during the previous year. It said the return on average net worth is 46.6 per cent compared with 56 per cent during the previous year.

As the company maintains around 49.4 per cent of its assets in liquid funds, if the average liquid assets are adjusted against the average net worth, and revenue earned after tax from liquid assets is adjusted against net profit return on invested capital stands at 83 per cent, compared with 105 per cent during the previous year.

The report said the capital output ratio is 1.50, compared with 1.71 for the previous year. The enterprise value to total revenue is nine times compared with 14 times in the previous year.

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