No single ratio tells you whether an IT services company is financially strong. Start with a dashboard covering revenue growth, operating margin, cash conversion and balance-sheet risk, then use utilization, attrition, bookings, client concentration and service mix to explain why those financial results look the way they do. Compare only like-for-like periods, currencies, accounting bases and metric definitions.
Start with a four-part financial dashboard
The most useful first pass combines four questions:
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- Is revenue growing, and how much of that growth is organic rather than acquired or currency-driven?
- Does the company turn revenue into sustainable operating profit?
- Does reported profit become operating cash flow and free cash flow?
- Can the balance sheet absorb weak demand, restructuring or large investment without financial stress?
Services-specific operating measures then provide the explanation. Utilization, employee attrition, hiring, bookings, contract value and customer concentration can reveal whether a result is supported by healthy demand and delivery economics or by temporary accounting and timing effects.
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Do not rank companies by one headline number. A high-margin consultancy can have slower growth and different cash timing from a lower-margin managed-services provider. Both may be sound businesses, but they should not be judged against the same unqualified target.
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1. Revenue growth: measure both the result and its quality
Begin with reported revenue growth over several years. The basic calculation is:
Revenue growth = (current-period revenue − prior-period revenue) ÷ prior-period revenue
A single year can be distorted by an acquisition, divestiture, foreign-exchange movement, a major client transition or an unusually easy comparison period. A multi-year trend is more informative, especially when paired with organic or constant-currency growth.
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Reported, organic and constant-currency growth
Reported growth is the change shown in the financial statements. Organic growth attempts to remove the effect of acquisitions and disposals. Constant-currency growth removes exchange-rate movements. Companies do not always define these measures identically, so read the reconciliation rather than treating the labels as standardized.
Infosys reported 9.6% revenue growth for FY2026 and 3.1% growth at constant currency. Those figures are a company-specific example, not a sector benchmark: the gap indicates that currency and the reporting basis materially affected the reported change.
Questions that make growth useful
- How much growth came from acquisitions, and when were acquired businesses included?
- Did growth occur across consulting, managed services and outsourcing, or was it concentrated in one activity?
- Is growth broad across regions and clients, or dependent on a few contracts?
- Did volume, pricing, currency or client timing drive the change?
- Does the company disclose backlog or bookings that can plausibly support the next periods?
Fast growth with falling margins or weak cash collection deserves a different interpretation from moderate growth with expanding margins and strong cash conversion.
2. Operating margin: focus on trend, mix and reconciliation
Operating margin shows how much operating profit remains from each unit of revenue:
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Operating margin = operating income ÷ revenue
Track the reported margin and its direction over time. Then examine any adjusted or underlying margin as a supplement. An adjusted figure can help isolate recurring operations, but only if you know what has been removed and whether those items genuinely are unusual.
Reported versus adjusted results
Infosys reported a 21.0% adjusted operating margin for FY2026. The company said that measure excluded the effect of specified labour-code provisions in India. That qualification is part of the number; it should not be compared directly with an unadjusted margin from another issuer.
Capita’s 2025 reporting year illustrates the danger of comparing labels. It presented a 5.2% adjusted operating margin and a negative 5.6% reported operating margin. The difference reflects the items included or excluded under each basis, not a mathematical error. A proper comparison requires the reconciliation and an understanding of the underlying costs.
What moves a services margin
- Utilization and the amount of paid employee time assigned to client work.
- Billing rates, pricing concessions and contract renegotiations.
- Employee compensation, subcontractor use and wage inflation.
- Service mix: consulting often has different economics from long-term managed services or outsourcing.
- Automation, delivery-location mix and productivity programs.
- Restructuring, impairment, acquisition accounting and other unusual charges.
Look for a margin bridge that explains the year-on-year movement. A stable margin supported by recurring pricing and productivity is more durable than one produced by a temporary hiring freeze or a one-time cost reversal.
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Profit does not automatically provide cash. Review operating cash flow, capital expenditure and free cash flow together. A common conversion measure is:
Free-cash-flow conversion = free cash flow ÷ net income
That ratio is meaningful only after confirming the issuer’s definition and checking working-capital movements, tax payments and exceptional cash costs.
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Read the definition before the number
Infosys states: “Free cash flow is defined as net cash provided by operating activities less capital expenditure as per the Consolidated Statement of Cash Flows prepared under IFRS.” Other companies may start with a different cash-flow subtotal or exclude different investments. Never place two free-cash-flow figures in the same table without documenting their definitions.
For FY2026, Infosys reported ₹33,097 crore of free cash flow and free-cash-flow conversion of 112.3% of net profit. The figures describe that fiscal year and the company’s stated methodology; they are not a universal target.
Investigate unusually strong or weak cash flow
- Working capital: collections, contract assets, deferred revenue and supplier payments can shift cash between periods.
- Restructuring and litigation: cash payments may lag the accounting charge or occur in a different period.
- Taxes and interest: these affect cash available to shareholders even when operating profit is unchanged.
- Capital expenditure: distinguish routine technology investment from a one-time facility or infrastructure project.
- Acquisitions and disposals: decide whether the company includes them in its published free-cash-flow measure.
Capita explained that its 2025 free-cash-flow figure included restructuring-program costs and cash outflows related to a cyber incident. That disclosure shows why a weak or negative period should be decomposed rather than dismissed as a permanent collapse—or excused as a one-off without evidence.
4. Utilization and workforce measures explain delivery economics
IT services companies sell skilled employee time, intellectual property and managed operational capacity. Utilization and workforce data help connect demand with revenue and margin, but they are operating indicators, not replacements for audited financial statements.
Utilization
Utilization generally measures the share of available employee time assigned to billable client work. Definitions differ: some companies exclude trainees, leave, subcontractors or particular service lines. Accenture reported 92% utilization for FY2024. That is one company’s annual figure, not a universal target.
Interpret utilization alongside service mix and demand. A high percentage can result from strong bookings, but it can also reflect a narrow employee population or short-term deployment decisions. Pushing utilization too high may leave too little capacity for training, sales support or future skills.
Attrition, hiring and headcount
Voluntary attrition indicates how quickly employees leave, while total attrition may include involuntary departures. Ask which definition is reported and whether it covers the entire workforce. High attrition can raise recruiting and training costs, disrupt client delivery and force greater subcontractor use. Low attrition is not automatically positive if it reflects weak hiring in a shrinking business.
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Accenture identifies utilization, labor costs, skill matching, deployment and attrition as factors affecting revenue and margins. Wipro lists global IT services utilization and voluntary attrition among its operating metrics. Use these indicators to explain a financial trend: for example, falling utilization plus rising bench costs can pressure margin before revenue visibly declines.
5. Bookings, TCV, backlog and pipeline are leading indicators—not revenue
Forward-looking demand measures can indicate future work, but they are not recognized revenue. Ask exactly what is being counted:
- Bookings: newly signed work under the company’s stated rules.
- Total contract value (TCV): the value over a contract’s full term, which may span many years.
- Backlog: contracted work not yet delivered, subject to the issuer’s definition and cancellation terms.
- Pipeline: potential opportunities, often less certain than signed contracts.
Check whether a figure is gross or net new, cancellable, weighted by probability, or limited to a specific service line. Contract duration and type affect conversion speed: managed-services bookings generally convert more slowly than consulting bookings.
Accenture cautions that bookings “are not comparable to, nor should [they] be substituted for, an analysis of our revenues over time.” That warning applies broadly. Use bookings to frame demand, then test the thesis against revenue growth, backlog conversion and cash collection.
Infosys reported US$14.9 billion of large-deal TCV for FY2026, with 55% identified as net new. The statistic is useful only with its definition and expected conversion period; TCV is not FY2026 revenue.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.6. Customer measures reveal concentration and expansion risk
Customer concentration shows how dependent revenue is on a small number of clients. Review the percentage contributed by the largest customer or customer group, the number of large clients and evidence of retention or expansion. A concentrated account can be valuable and deeply embedded, but its loss would have an outsized effect.
Large-client counts and deal sizes need definitions. One issuer may count clients above a revenue threshold; another may count signed accounts or global groups. Infosys reports large-deal TCV and large-client counts, while Wipro lists customer concentration as an operating consideration. Compare only after matching thresholds, periods and currencies.
Also examine industry and geographic exposure. A portfolio concentrated in one regulated sector or region can face common budget, geopolitical or currency shocks even when the formal customer count is high.
7. Balance sheet, liquidity and returns complete the picture
Review cash and investments, debt, maturities, lease obligations and available liquidity. A services company usually has less physical capital intensity than a manufacturer, but it can still face cash needs from acquisitions, restructuring, legal settlements, buybacks or dividends.
Return on equity (ROE) and related return measures add context, but interpret them with leverage, acquisitions and share repurchases in mind. A high ROE can result from a small equity base rather than superior operating economics. Infosys highlights cash and investments and return on equity in its reporting; those disclosures should be read alongside the income statement and cash-flow statement.
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1Clear out junk files and repair common Windows errors2Fix the driver behind crashes, sound loss and screen glitches3Repair Windows errors before they cause bigger problemsThere is no established universal balance-sheet ratio that ranks every IT services business. The appropriate liquidity position depends on contract risk, customer terms, acquisition plans, pension or lease commitments and capital-allocation policy.
How to compare two IT services companies without creating false precision
- Align the periods. Match fiscal years and note quarter-end dates, acquisitions and major client transitions.
- Normalize currency. Separate reported growth from constant-currency growth and record the presentation currency.
- Match the accounting basis. Compare reported operating margin with reported operating margin. Put adjusted figures in a separate column and include each reconciliation.
- Describe the business mix. Identify the proportions of consulting, managed services, outsourcing, infrastructure and other activities.
- Reconcile cash flow. Record each company’s free-cash-flow definition, capital-expenditure treatment and exceptional cash items.
- Define operating metrics. Confirm what population and period are covered by utilization, attrition and headcount figures.
- Separate demand from revenue. Label bookings, TCV, backlog and pipeline as leading indicators and assess their conversion timing.
- Check concentration and geography. Compare customer thresholds, major industries, regions and currency exposure.
- Read the explanations. Use management’s margin bridge, revenue mix, contract commentary and cash-flow notes to test whether changes are recurring.
A comparison worksheet should therefore show the number, definition, period, currency, reported or adjusted basis and the main driver. A table of unqualified percentages creates more confidence than accuracy.
Common mistakes that distort an evaluation
- Calling a high adjusted margin superior without examining excluded costs.
- Treating TCV or bookings as revenue already earned.
- Using one year of reported growth when an acquisition or currency move explains most of it.
- Comparing utilization percentages from different populations or service mixes.
- Ignoring working-capital swings when judging cash conversion.
- Comparing a consulting-heavy company with a managed-services provider without adjusting expectations for contract duration and margin profile.
- Ranking companies solely by margin while overlooking customer concentration, debt, retention or demand quality.
- Turning a company example into a sector benchmark. The cited figures from Infosys, Accenture and Capita illustrate measurement and definition issues; they do not establish target ranges.
A practical review checklist
Before reaching a conclusion, write down:
- Three- to five-year reported revenue growth and any disclosed organic or constant-currency growth.
- Reported operating margin, adjusted margin, reconciliation and the trend’s stated drivers.
- Operating cash flow, capital expenditure, free cash flow, conversion and unusual cash items.
- Utilization, voluntary or total attrition, hiring and headcount definitions.
- Bookings, TCV, backlog or pipeline definitions and estimated conversion timing.
- Largest-customer exposure, large-client counts, industry mix and geographic exposure.
- Cash, investments, debt, maturities, liquidity and return measures.
- Fiscal year, currency, accounting standards and any acquisition or divestiture affecting comparability.
Bottom line
The most informative evaluation is a connected chain: revenue growth shows demand realized; operating margin shows delivery economics; cash conversion tests whether earnings become usable funds; and the balance sheet shows resilience. Utilization, attrition, bookings, TCV, client concentration and service mix explain the causes and risks behind those financial outcomes. Use every figure with its definition and period attached, and compare companies only after the reporting bases genuinely match.
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