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Diligence of an IT company

 1) What is an IT company ?

In a deal scenario, an IT company is a software development or skilled manpower outsourcing company. For example infosys is an IT company - it develop software. But in deal scenario, hinduja global solutions, or genpact is also an IT company. 

2) Key performance indicators of an IT company

A) Revenue KPIs

- Growth in absolute revenue

- Growth in Realisations : Revenue per employee/headcount on a monthly/annual level

- Growth in hours billed

- Efficiency measured in terms of billed hours as a % of available hours 

- Movement in absolute revenue/realisation in each Geography

B) Margin KPIs

- Growth in absolute margins as a % of revenue 

- Movement in average margin per employee on a monthly/annual level 

- Variation in margin per billed hour/available hour

- Movement in margin in each geography

3) Key potential issues in an IT company

-  Customer concentration: Many a times, these companies are highly dependent on very few customers. Even if those customers are highly profitable, it is huge risk to have very few customers

- Salary benchmarking : 

- ESOPs or non recorded costs :

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