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A Project Report on
FINANCIAL ANALYSIS OF ICICI
PRUDENTIAL LIFE INSURENCE
Submitted By: Corporate Guide:
Gurpreet Singh Mr. Akhil Bajaj
104532248423 GNA-IMT
INDEX
Chapter – 1
Introduction to the Company.
1.1 Profile of the company.
1.2 Company’s history.
1.3 Organizational tree.
1.4 Product range of the company.
1.5 Financial status of the company.
1.6 H.R. policies of the company.
1.7 Vision and mission of the company.
Chapter – 2
Introduction to the Project.
2.1 Reason for choice of project.
2.2 Scope of the project.
2.2(a) Theoretical aspect of the project.
2.2(b) Geographical area/ state/ city to be covered.
Chapter – 3
Methodology.
3.1 Objective of the Project.
3.2 Primary data to be collected.
3.3 Sample design, Size, and method to be used
3.3(a) Sampling technique
3.4 Limitations of the Project.
Chapter–4
Analysis and findings.
4.1 Project analysis with the help of data collection.
4.2 Project finding.
Chapter – 5
Conclusion.
BIBLIOGRAHPHY
APPENDIX
Chapter – 1
INTRODUCTION TO
THE COMPANY
INTRODUCTION
India is the largest democracy in the world having a population more than one
billion. It is 5th largest in the world in terms of purchasing power parity (PPP).
India GDP growth rate is over 6 percent per year on average for the last decade and
saving rate is around 26 percent of GDP
Life Insurance Corporation of India was formed in September 1956 by passing LlC
Act, 1956 in Indian parliament The first general insurance company, Triton
Insurance Company Ltd. was established in Calcutta in 1850. In 1957 the General
Insurance Council a wing of Insurance Association of India formed a code of
conduct. In 1961 an insurance act was passed to form General Insurance Company
Ltd. which was amended in 1968. General Insurance business was nationalized
with effect from 1.1.73 by the General Insurance Business Act. From 1973, The
General Insurance Company (GIC) as a holding company divided in four
subsidiaries as: National Insurance Company Ltd., The New India Assurance
Company Ltd., The Oriental Insurance Company Ltd. and The United Assurance
Company Ltd.
WHAT IS LIFE INSURANCE?
All assets have economic value. The asset would have been created through the
efforts of the owner, in the expectation that, either through the income generated
there from or some other output, some of his needs would be met. In the case of a
motor car, it provides comfort & convenience in transportation. There is no direct
income. There is a normally expected life time for the assets during which time it
is expected life time for the assets during which time it is expected to perform. The
owner, aware of this, can so manage his affairs that by the end of that life time, a
substitute is made available to ensure that the value or income is not lost.
How ever if the asset gets lost earlier, being destroyed or made non-functional,
through an accident or other unfortunate event, the owner & those deriving benefits
there from suffer.
Hence Insurance is a tool which helps to reduce effects of such adverse events.
Company profile
History:
Incorporated on 20 July 2000 it is a joint venture between ICIC(74%) and
Prudential LIC(26%) of U.K. In November 2000, ICICI Prudential Life Insurance
was granted Certification of Registration for carrying out life insurance business by
the Insurance Regulatory & Development Authority of India. The Company issued
its first policy on 12 December 2000.ICICI Prudential Life Insurance is a joint
venture between the ICICI Group and Prudential plc, of the UK. ICICI started off
its operations in 1955 with providing finance for industrial development, and since
then it has diversified into housing finance, consumer finance, mutual funds to
being a Virtual Universal Bank and its latest venture Life Insurance.
Foreign Partner:
Established in 1848, Prudential plc. Of U.K. has grown to be the largest life
insurance and mutual fund Company in U.K. Prudential plc. Has had its presence
in Asia for the past 75 years catering to over 1 million customers across 11 Asian
countries. Prudential is the largest life insurance company in the United Kingdom
(Source: S&P's UK Life Financial Digest, 1998). ICICI and Prudential came
together in 1993 to provide mutual fund products in India and today are the largest
private sector mutual fund company in India.
Their latest venture ICICI Prudential Life plans to take care of the insurance needs
at various stages of life
Prudential plc, one of the UK's leading financial service providers, issued life
insurance policies in Poland prior to World War II through Prudential Assurance
Company Limited and its subsidiary "Przezomosc", a now defunct Polish company
in which Prudential Assurance acquired a controlling interest in 1927.
Pizezomosc continued to issue life policies in Poland until 31 December 1936, and
Prudential Assurance issued life policies in Poland from 1 January 1933 to 31
December 1936. With effect from 1 January 1937 both companies ceased to accept
new life business and the administration of the two portfolios was combined.
Based on notes of surviving records that existed in Prudential Assurance's London
office there were 4,623 policies in force in Poland at the outbreak of World War II
in 1939. Over 33% of these policies have been settled since the early 1950s despite
significant gaps in our records, due in no small part to their destruction in Poland
under Nazi Occupation.
The assets of Prudential's Polish Business were seized by the Nazi occupying
authorities, following the invasion of Poland in 1939. Unlike some major European
insurers Prudential did not trade in Nazi occupied Europe ICICI Prudential Life
Insurance Company is a joint venture between ICICI Bank, a premier financial
powerhouse and prudential plc, a leading international financial services group
headquartered in the United Kingdom. ICICI Prudential was amongst the first
private sector insurance companies to begin operations in December 2000 after
receiving approval from Insurance Regulatory Development Authority (IRDA).
ICICI Prudential's equity base stands at Rs. 9.25 billion with ICICI Bank and
Prudential plc holding 74% and 26% stake respectively. In the financial year ended
March 31, 2005, the company garnered Rs 1584 crore of new business premium
for a total sum assured of Rs 13,780 crore and wrote nearly 615,000 policies. The
company has a network of about 56,000 advisors; as well as 7 banc assurance and
150 corporate agent tie-ups. For the past four years, ICICI Prudential has retained
its position as the No.1 private life insurer in the country, with a wide range of
flexible products that meet the needs of the Indian customer at every step in life
Promoters
ICICI and Prudential came together in 1993 to form Prudential ICICI Asset
Management Company, which has today emerged as one of the leading mutual
funds in India. The two companies bring together two of the strongest financial
service brands in Asia, known for their professionalism, excellent quality of
service and long term commitment to YOU. Riding on the success of this
relationship, the two companies joined hands once more in 2000, to form ICICI
Prudential Life Insurance, with a commitment to provide leading-edge life
insurance solutions.
ICICI Bank has 74% stake in the company, and prudential PLC has 26%.
VISION
The company’s vision is to make ICICI Prudential the dominant life and pension
player built on trust by world-class people and services. hope to achieve this by:
. Understanding the needs of customers and offering them superior Products and
services.
. Leveraging technology to service the customers quickly, efficiently and
conveniently.. Developing and implementing superior Ur deal in risk management
and Investing strategies to offer sustainable and stable return to the Policy holders.
. Providing an environment to foster growth and learning of our employees.
. And above all building transparency in organizations.
Board of Directors
The ICICI Prudential Life Insurance Company Limited Board comprises reputed
people from the finance industry both from India and abroad.
Mr. K. V. Kamath, Chairman
Mr. Mark Norbom
Mrs. Lalita D. Gupte
Mrs. Kalpana Morparia
Mrs. Chanda Kochhar
Mr. Kevin Holmgren
Mr. M.P. Modi
Mr. R Narayanan
Ms. Shikha Sharma, Managing Director
Management Team
Ms. Shikha Sharma, Managing Director
Mr. Sandeep Batra, Chief Financial Officer & Company Secretary
Mr. Shubhro J. Mitra, Chief - Human Resources
Mr. Puneet N Anda, Head - Investments
Ms. Anita Pai, Chief - Customer Service and Operations
Mr. V. Rajagopalan, Appointed Actuary
COMPANY PRODUCTS
Insurance Solutions for Individuals
ICICI Prudential Life Insurance offers a range of innovative, customer-centric
products that meet the needs of customers at every life stage. Its 20 products can be
enhanced with up to 6 riders, to create a customized solution for each policyholder.
Savings Solutions
• Secure Plus is a transparent and feature-packed savings plan that offers 3
levels of protection.
• Cash Plus is a transparent, feature-packed savings plan that offers 3 levels of
protection as well as liquidity options.
• Save n Protect is a traditional endowment savings plan that offers life
protection along with adequate returns.
• Cash back is an anticipated endowment policy ideal for meeting milestone
expenses like a child's marriage, expenses for a child's higher education or
purchase of an asset.
• Lifetime & Lifetime II offer customers the flexibility and control to
customize the policy to meet the changing needs at different life stages. Each offer
4 fund options?
• Preserver, Protector, Balancer and Maxi miser.
• Life Link II is a single premium Market Linked Insurance Plan which
combines life insurance cover with the opportunity to stay invested in the stock
market.
• Premier Life is a limited premium paying plan that offers customers life
insurance cover till the age of 75.
• Invest Shield Life is a Market Linked plan that provides capital guarantee on
the invested premiums and declared bonus interest.
• Invest Shield Cash is a Market Linked plan that provides capital guarantee
on the invested premiums and declared bonus interest along with flexible liquidity
options. Invest Shield Gold is a Market Linked plan that provides capital guarantee
on the invested premiums and declared bonus interest along with limited premium
payment terms.
Protection Solutions
Lifeguard is a protection plan, which offers life cover at very low cost. It is
available in 3 options, Level term assurance, level term assurance with return of
premium and single premium.
Child Plans
Smart Kid education plans provide guaranteed educational benefits to a child along
with life insurance cover for the parent who purchases the policy. The policy is
designed to provide money at important milestones in the child's life. Smart Kid
plans are also available in unit ¬linked form, both single premium and regular
premium.
Retirement Solutions
• Forever Life is a retirement product targeted at individuals in their thirties
• Secure plus Pension is a flexible pension plan that allows one to select
between 3 levels of cover.
Market-linked retirement Products:
• Lifetime Pension II is a regular premium market-linked pension plan
• . Life Link Pension II is a single premium market-linked pension plan.
• . Invest Shield Pension is a regular premium pension plan with a capital
guarantee
On the invertible premium and declared bonuses.
ICICI Prudential also launched? Salaam Indigo? A social sector group
insurance
Policy targeted at the economically underprivileged sections of the society.
Group Insurance Solutions
ICICI Prudential also offers Group Insurance Solutions for companies seeking to
enhance benefits to their employees. ICICI Prudential Group Gratuity Plan: ICICI
Pro group gratuity plan helps employers fund their statutory gratuity obligation in a
scientific manner. The plan can also be customized to structure schemes that can
provide benefits beyond the statutory obligations. ICICI Prudential Group
Superannuation Plan: ICICI Pro offers a flexible defined contribution
superannuation scheme to provide a retirement kitty for each member of the group.
Employees have the option of choosing from various annuity options or opting for
a partial commutation of the annuity at the time of retirement. ICICI Prudential
Group Term Plan: ICICI Pm flexible group term solution helps provide affordable
cover to members of a group. The cover could be uniform or based on
designation/rank or a multiple of salary. The benefit under the policy is paid to the
beneficiary nominated by the member on his/her death.
Flexible Rider Options
ICICI Pm Life offers flexible riders, which can be added to the basic policy at a
marginal cost, depending on the specific needs of the customer.
• Accident & disability benefit: If death occurs as the result of an accident
during the term of the policy, the beneficiary receives an additional amount equal
to the sum assured under the policy. If the death occurs while traveling in an
authorized mass transport vehicle, the beneficiary will be entitled to twice the sum
assured as additional benefit.
• Accident Benefit: This rider option pays the sum assured under the rider on
death due to accident.
• Critical Illness Benefit: protects the insured against financial loss in the
event of 9 specified critical illnesses. Benefits are payable to the insured for
medical expenses prior to death.
• Major Surgical Assistance Benefit: provides financial support in the event of
medical emergencies, ensuring benefits are payable to the life assured for medical
expenses incurred for surgical procedures. Cover is offered against 43 surgical
procedures.
• Income Benefit: This rider pays the 10% of the sum assured to the nominee
every year, till maturity, in the event of the death of the life assured. It is available
on Smart Kid, Secure Plus and Cash Plus
• Waiver of Premium: In case of total and permanent disability due to an
accident, the premiums are waived till maturity. This rider is available with Secure
Plus and Cash Plus.
ABOUT THE PROMOTERS
ICICI Bank is India's second-largest bank with total assets of about Rs.112, 024
crore and a network of about 450 branches and offices and about 1750 ATMs. It
offers a wide range of banking products and financial services to corporate and
retail customers through a variety of delivery channels and through its specialized
subsidiaries and affiliates in the areas of investment banking, life and non-life
insurance, venture capital, asset management and information technology. ICICI
Bank posted a net profit of Rs.l, 637 crores for the year ended March 31, 2004.
ICICI Bank's equity shares are listed in India on stock exchanges at Chennai,
Delhi, Kolkata and Vadodara, the Stock Exchange, Mumbai and the National
Stock Exchange of India Limited and its American Depositary Receipts (ADRs)
are listed on the New York Stock Exchange (NYSE).
• Established in London in 1848, Prudential plc, through its businesses in the
UK and Europe, the US and Asia, provides retail financial services products and
services to more than 16 million customers, policyholder and unit holders
worldwide. As of June 30, 2004, the company had over US$300 billion in funds
under management.
• Prudential has brought to market an integrated range of financial services
products that now includes life assurance, pensions, mutual funds, banking,
investment management and general insurance. In Asia, Prudential is the leading
European life insurance company with a vast network of 24 life and mutual fund
operations in twelve countries - China, Hong Kong, India, Indonesia, Japan, Korea,
Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
PRIVATE SECTOR INSURANCE MARKET SHARES
In today’s Private insurance sector ICIC Prudential holds the highest i.e.
huge30%share in the private insurance market, as compared to all other which
together comprise of the rest 70% of the market share. In the financial year ended
march 31, 2005, the company garnered rs.1584 crore of new business premium for
a total sum assured of Rs. 13780 crore and wrote nearly 615000 policies. The
company has a network of about 56000 advisors: as well as 7 banc assurance and
150 corporate agent tie-ups for the past four years, ICICI Prudential has retained
its position as the no.1 private life insurer in the country with a wide range of
flexible products that meet the needs of the Indian customer at every step in life.
DISTRIBUTION
ICICI Prudential has one of the largest distribution networks amongst private life
insurers in India, having commenced operations in 74 cities and towns in India.
These are: Agra, Ahmedabad, Ajmer, Allahabad, Amritsar, Anand, Aurangabad,
Bangalore, Bareilly, Bharuch, Bhatinda, Bhopal, Bhubhaneshwar, Calicut,
Chandigarh, Chennai, Coimbatore, Dehradun, Durgapur, Faridabad, Goa, Guntur,
Guwhati, Gurgaon, Gwalior, Hyderabad, Hubli, Indore, Jaipur, Jalandhar,
Jamnagar, Jamshedpur, Jodhpur, Kanpur, Karnal, Kochi, Kolkata, Kolhapur, Kota,
Kottayam, Kozhikode, Lucknow, Ludhiana, Madurai, Mangalore, Meerut,
Mehsana, Mumbai, Mysore, Nagpur, Nasik, Noida, New Delhi, Patiala, Pune,
Raipur, Rajkot, Ranchi, Rourkela, Saharanpur, Salem, Shimla, Siliguri, Surat,
Thane, Thrissur, Trichy, Trivandrum, Udaipur, Vadodara, Vapi, Vashi,
Vijayawada and Vizag.
Chapter- 2
Introduction to
Project
FINANCIAL STATEMENT ANALYSIS
Financial statement analysis is an information processing system designed to
provide data for people concerned with the economic situation of a firm and
predicting its future course.
Definition
In the words of John N. Myers, “Financial statement analysis is largely a study
of the relationships among the various financial factors in a business as disclosed
by a single set of statements and a study of the trends of these factors as shown in a
series of statements.”
The major groups of users are:-
1. Investors for making portfolio decisions
2. Managers, for evaluating the operational and financial efficiency of the firm.
3. Lenders for determining the credit worthiness of the loan applicants
4. Labour unions, for establishing an economic basis for collective bargaining.
5. Regulatory agencies for controlling the activities of companies under the
jurisdictions.
6. Researchers, for studying firm and individual behavior.
The ability to analyze and understand a financial statement is as much an art
form as it is and application of several techniques. The technical side of financial
analysis is straightforward. We calculate a variety of common financial ratios to
provide insight into the financial condition of a company. The artistic dimension
of financial analysis is important because the accounting process relies to a great
extent upon the application of judgment, which introduces subjectivity and values.
Different, yet valid views and interpretations of the economic consequences of a
specific transaction often exist.
Significance and purposes of financial statement analysis
1. Judging profitability
Profitability is a measure of the efficiency and success of a business enterprise. A
company which earns profits at a higher rate is definitely considered a good
company by the potential investors. The potential investors analyze the financial
statements to judge the profitability and earning capacity of a company so as to
decide whether to invest in a company or not.
2. Judging liquidity
Liquidity of a business refers to the ability of a company to pay off its short-term
liabilities when these become due. Short-term creditors like trade creditors and
bankers make an assessment of liquidity before granting credit to the company
3. Judging solvency
Solvency refers to the ability o a company to meet its long-term debts. Long-term
creditors like debenture-holders and financial institutions judge the solvency of a
company before any lending decisions. They analyze company’s profitability over
a number of years and its ability to generate sufficient cash to be able to repay their
claims
4. Judging the efficiency of management
Performance and efficiency of management of a company can be easily judged by
analyzing it s financial statements. Profitability of a company is not the only
measure of company’s managerial efficiency. There are a number of other ways to
judge the operational efficiency of management. Financial analysis tells whether
the resources of the business are being used in the most effective and efficient way
5. Inter-firm comparison
A comparative study of financial and operating efficiency of different firms is
possible only after proper analysis of their financial statements. For this purpose it
is also necessary that the financial statements are kept on a uniform basis so that
the financial data of various firms are comparable
6. Forecasting and budgeting
Financial analysis is the starting point for making plans by forecasting and
preparing budgets. Analysis of the financial statements of the past years helps a
great deal in forecasting for the future.
Limitations of financial statements.
1. Effect of accounting concepts and conventions
Various concepts and conventions of accounting affect the values of assets and
liabilities as shown in the balance sheet. Similarly, profit or loss disclosed by profit
and loss account is also affected by these concepts and conventions. For example,
on account of the going concern concept and also the convention of conservatism,
the balance sheet does not show current economic values of various assets and
liabilities
2. Effect of personal judgments
The financial statements are influenced, to a certain extent, by the personal
judgements of the accountant. For example, the amount of provision for bad and
doubtful debts depends entirely on the judgment and past experience of the
accountant. Similarly, an accountant has also to make a judgement about the
method and rate of depreciation for fixed assets. There are numerous instances
when an accountant has to exercise his personal judgement in which there is an
element of subjectivity. The quality of the financial statements thus depends upon
the competence and integrity of those who are responsible for preparing these
statements.
3. Recording only monetary transactions
Financial statements record only those transactions and events which can be
expressed in terms of money. But there are many factors which are qualitative in
nature and cannot be expressed in monetary terms. These non-monetary factors do
not find any place in the financial statements. For example, efficiency of workers,
personal reputation and integrity of the managing director of the company,
advertisement policy of the company etc. are not capable of being expressed in
money terms and thus find no place in financial statements even though they
materially affect the profitability of a business
4. Historical in nature
Financial statements disclose date which is basically historical in nature i.e it tells
what has happened in the past. These statements do not give future projections.
5. Ignores human resources.
No business can prosper without an efficient work force. But financial statements
do not include human resources which is very important asset for a business
6. Ignores social costs
Apart from earning a fair return on investments, a business has certain social
responsibilities. Financial statements do not make any attempt to show the social
costs of its activities. Examples of social cost of a manufacturing company are air
pollution, water pollution, occupational diseases, work injuries etc
1. COMMON SIZE ANALYSIS AND TRENDS
Common size analysis is a technique that enables us to determine the makeup
and patterns of a company’s balance sheet and income statement. The analysis can
be either horizontal (across years) or vertical (within years). In a financial
statement, common-size analysis reduces absolute numbers to percentages of
components at one point in time or the percentages of change in components
overtime, thereby revealing possible trends.
1. Horizontal Analysis.
Common-size analysis that compares the same accounts from year to year.
When we arrange several annual balance sheets and income statements in vertical
columns we can horizontally compare the annual charges in related items.
This comparison or horizontal analysis of the accounts reveals a pattern that may
suggest managements underlying philosophy, policies and motivations. Also called
comparative analysis.
2. Vertical Analysis.
Common-size analysis that compares accounts in the income statement to net
sales and amounts in the balance sheet to total assets.
When we analyze the financial statements for one period, we often use vertical
analysis. It is the process of finding the proportion that an item, such as inventory,
represents of a total group.
A vertical analysis of annual balance sheets reveals how the mix of assets and
financing is changing over time.
3. RATIO ANALYSIS
Common size analysis provides some insight to the financial condition of the
firm. Financial ratio’s analysis is the next step in the process. Ratios are among the
widely used tools of the financial analysis. They are helpful in providing clues and
spotting patterns in the direction of better or poorer performance.
Important points to keep in mind when doing ratio analysis are:-
1. We calculate ratios for specific dates: - If management issues financial
statements infrequently, we may not uncover any seasonal characteristics of the
business.
2. Financial statements show what has happened in the past: - An Important
purpose for calculating ratios is to uncover clues to the futures so that we can
prepare for the problems and opportunities that lie ahead. When we use ratio’s we
must consider our knowledge of judgement about the future.
3. Ratios are not ends in themselves: - They are tools that can help answer
some of our financial questions, but we must interpret them with care. For
example, it is possible to improve the ratio of operating expenses to sales by
reducing costs that act to stimulate sales. However, if the cost reduction results in
loss of sales or market share, any profit improvement may have an overall
detrimental effect.
4. Businesses are not exactly comparable: - There are different ways of
computing and recording some of the items on financial statements. Because the
figures for one business may not correspond exactly to those of another firm, good
comparisons require reasoned judgment.
Four Categories:-
1. Efficiency Ratios
Efficiency ratios are used to indicate the
efficiency with which assets and resources
of the firm are being utilized.
These ratios are called turnover ratios
because they indicate the speed with
Which assets are being converted or
turned over into sales. These ratios,
thus express the relationship between
sales and various assets. A higher turnover ratio generally indicates better use of
capital resources which in turn has a favorable effect on the profitability of the
firm.
2. Liquidity Ratios
Liquidity means ability of a firm to meet its current
Liabilities. The liquidity ratios, therefore, try
to establish a relationship between current liabilities,
which are the obligations soon becoming due and
current assets, which presumably provide the source from which these obligations
will be met.
3. Leverage Ratios
Leverage ratios are used to analyze the long term
Solvency of any particular business concern.
There are two aspects of long term solvency of a
Firm (a) ability to repay the principal amount when
Due and (b) regular payment of interest.
In other words, long term creditors like debenture holders, financial institution etc,
are interested in the security of their loan amount as well as the ability of the
company to meet interest costs. They, therefore, also consider the earning capacity
of the company to know whether it will be able to pay off interest on loan amount.
Liquidity ratios discussed earlier indicate short term financial strength whereas
solvency ratios judge the ability of a firm to pay off its long term liabilities.
4. Profitability Ratios
Every business should earn sufficient profits to
Survive and grow over a long period of time.
Infact efficiency of a business is measured in
Terms of profits. Profitability ratios are cal-
culated to measure the efficiency of the business
Profitability of a business may be measured in two ways:
1. Profitability in relation to sales
2. Profitability in relation to investments
Importance of Ratio Analysis
1. Liquidity Position: with the help of ratio analysis can know the liquidity
position of the firm. We can know whether it is able to meet its short term
liabilities. This ability is reflected in the liquidity ratios of the firm.
2. Long Term Solvency: ratio analysis is useful to assessing the long term
financial viability of the firm. This aspect of the financial position is concerned to
the long term creditors, security analyst and present and potential owners of a
business. The long term solvency is measured by leverage ratios.
3. Operating Efficiency: it throws light on the degree of efficiency in the
management and utilization of assets. The activity ratios measure the efficiency of
the management.
4. Over-All Profitability: the management is constantly concerned about the
overall growth in the enterprise. It to meet short and long term obligations to
creditors
5. Trend Analysis: It shows whether the financial position of the firm is
improving or deteriorating over the years. Significance of trend analysis ratios lies
in the fact to know the direction of the financial position.
Limitations of Ratio Analysis
1. Difficulty in Comparison: One serious limitation of ratio analysis arises out
of the difficulty associated with their comparability.
The differences may relate to:
1. Differences in the basis of inventory valuation
2. Different depreciation methods.
3. Estimated life of assets
4. Amortization of intangible assets like goodwill, Patents.
5. Amortization of deferred revenue expenditure such as preliminary
expenditure and discount on issue of shares.
6. Impact of Inflation: weaken ss of traditional finance statements which are
based on historical costs. Assets are acquired at different prices and shown in the
balance sheet. These prices may over value or under value. It enters the balance
sheet at different book value affect the profitability ratio of the firm.
7. Conceptual Diversity: yet another factor influences the ratios is that there is
a difference of opinion regarding the various concepts used to compute the ratios.
There is always room for diversity of opinion as to what constitutes shareholders
equity, debt, assts, profit, and so on different firms may use these terms in
different senses or the same firm may use them to different mean different things
and different times.
Ratios are relative figures reflecting the relationship between variables.
Comparison with related facts is the basis of ratio analysis.
8. STATEMENT OF CASH FLOWS
Accrual accounting concepts recognize that it is the economic substance of a
transaction that determines the timing of accounting recognition rather than the
activity of receipt or payment of cash. However, investors use cash flows and not
accrual accounting numbers to value the firm.
The statement of cash flows (SCF) is important for understanding the true
cash flows of the business. The SCF restates the firm’s flow of funds from an
accrual accounting basis to a cash accounting basis. As such, it eliminates all non
cash revenues and expenses recorded by accrual accounting. The cash flow
statement shows the true cash inflows and outflows of the firm. We can see how
management has employed resources during the period.
An analysis of cash flow is useful for short run planning. A firm needs sufficient
cash to pay debts maturing in the near future, to pay interest and other expenses
and to pay dividends to shareholders. The cash balance can be matched with the
firm’s needs for cash during the year, and accordingly, arrangements can be made
to meet the deficit or invest the surplus cash temporarily. A statement of changes in
financial position on cash basis, commonly known as the cash flow statement,
summarizes the causes of changes in cash position between two balance sheets.
Components of cash flow
1. Initial investment
2. Annual net cash flows
3. Terminal cash flows
Sources and uses of cash
Sources Applications
Profitable operation Loss from operations
Decrease in assets Increase in assets
Increase in liabilities Decrease in liabilities
Sales proceeds Redemption of preference
shares, and
Cash Dividends
Cash flow versus profit
Cash flow should not be confused with the profit for 2 reasons.
1. Profit measured by accountant, is based on accrual concept- revenue is
considered when it is earned, rather than when cash received. Expenses are
recognized when it is incurred, rather than when cash paid.
2. Profit involves the entire revenue expenditure and while capital expenditure
are not. Profit calculation charged capital expenditure which does not involves
cash flow.
Profit = revenues- expenses- depreciation
Cash flow = revenues- expenses- capital expenditure
AS-3 describes cash equivalent as an item which is of short term nature, highly
liquid, and is readily convertible into known amount of cash with insignificant risk
of change in value.
Objectives and uses of cash flow statement
1. Useful in cash planning
A cash flow statement proves very useful to management by providing a basis to
evaluate the ability of a company to generate cash. A cash flow statement prepared
on an estimated basis for the next accounting period enables the management to
know how much cash can be generated internally and how much it should arrange
from outside. Such estimated amounts are used for preparing cash budget.
2. Assesses cash flow from operating activities
Cash flow statement provides information about cash generated from operating
activities. It provides explanation for the difference net profit and cash from
operations. Cash provided by operating activities is very important to assess the
cash generated by internal sources.
3. Payment of dividends.
Decisions to pay dividends cannot be based on net profit only. Availability of
profit in the form of cash is also important for dividend disbursement. Thus cash
provided by operating activities assumes importance for declaration of dividend.
4. Cash from investing and financing activities
Cash flow statement provides information not only about cash provided by
operating activities but also by non-operating activities under two heads, namely
investing activities and financing activities. This helps to explain the overall
liquidity position of the enterprise and its ability to meet its cash commitments.
5. Explains reasons for surplus or shortage of cash.
A business may have made profit and yet running short of cash. Similarly a
business may have suffered a loss and still has sufficient cash at the bank. A cash
flow statement discloses reasons for such increases or decreases of cash balance.
ACCOUNTING FOR LIFE INSURNCE COMPANIES.
The Accounting function of the life insurance companies is quite different from
that of other companies. The major reasons for this are due to:
1. Ascertainment of liability in respect of insurance policies issued by the
company
2. The concept of Policyholders’ Fund and Shareholders’ Fund
3. The unit linked business and the related investment valuations involved in
the same and
4. Segmental reporting in respect of all the funds maintained by the company
The financial statements of insurance company consist of:
1. Revenue account (policy holders account).
2. Profit and loss account (share holders account)
3. Balance sheet.
4. Receipts and payment account (cash flow statement)
5. The segmental reports relating to funds (revenue account and balance sheet)
The above statements are to be in conformity with the Accounting Standards
issued by ICAI, to the extent applicable to the life insurance business except that
1. Cash Flow Statement needs to be prepared under Direct Method and
2. Segmental Reporting shall apply to all insurers irrespective of listing and
turnover mentioned in AS 17.
Insurance Regulatory and Development Authority (IRDA) has prescribed specified
formats for the preparation of Financial Statements. These formats are in Part V of
Schedule A of IRDA (Preparation of Financial Statements and Auditors Report of
Insurance Companies
1) Revenue Account (Policyholders’ Account – Technical Account)
The Revenue Account sets out all income and expenses relating to the insurance
business.
Income:
The income of the technical account comprises of:
1. Premium after adjusting reinsurance ceded and reinsurance accepted
2. Income from investments which needs to be shown under different heads
like:
1. Interest, Dividend and Rents
2. Profit on sale redemption of investments
3. Loss on sale redemption of investments
1. Transfer gain on revaluation of change in fair value and.
2. Amortization charge
Under the Income head, there will also be Other Income, Foreign exchange gain /
Loss and other items. The transfer of funds from Shareholders’ Fund to
Policyholders’ Account is shown separately in the Revenue Account.
Expenses
Expenses include:
1. Commission
2. Operating Expenses
3. Benefits paid
4. Interim bonus paid and
5. Change in valuation of liability against life policies in force.
2) Profit and Loss Account (Shareholders’ Account –Non-Technical Account)
This Account represents all income and expenses relating to Shareholders’
Account (Those not relating to insurance business).
Income
The income comprises mainly of investment or other income created out of
Shareholders’ Fund.
Expenses
The major components of expenses are:
1. Depreciation relating to assets held by shareholders’ fund, investment
expenses, Directors Fees etc.
2. Transfer of funds to Policyholders’ Fund and
3. Preliminary Expenses written off
The profit or loss as per the Account is carried to the Balance Sheet as usual.
3) Balance Sheet
The items in the Balance Sheet of a Life Insurance Company includes, other than
the normal
Items –
1. Shareholders’ Fund
2. Policy Holders Fund
3. Investments related to Policyholders’ Fund, Shareholders’ Fund and Assets held
to cover linked liabilities Shareholders’ Fund includes share capital less
preliminary expenses, reserves and surplus and fair value change account.
Policyholders’ Fund consists of Policy liabilities, Fair value change relating to
policy fund investments, insurance reserves, provision for linked liabilities, Funds
for future appropriations, Surplus allocated to shareholders etc.
The balance in the Funds for future appropriations represents funds, the
allocation of which, either to participating policyholders or to shareholders has not
been determined at the balance sheet date. Transfers to and from the fund reflect
the excess or deficiency of income over expenses and appropriations in each
accounting period arising in the Company’s policyholder fund.
4) Receipts and Payments account (Cash Flow Statement)
The cash flow statement of the insurance company needs to be worked out as per
Direct Method as per the IRDA requirement. The statement depicts the receipts
and payments from various business activities. The major items are:
Operating Activities
1. Receipts and Payments from policyholders
2. Payments to Re insurers
3. Payments to Agents, Employee expenses, investment income
Investing Activities
1. Purchase and sale of investments
2. Purchase of fixed assets
Financing Activities
This refers to the issue of share capital or raising of funds from other sources.
5) Segmental Reporting
As per the regulations, every insurance company has to prepare segment
wise Revenue Account and Balance Sheet of the business it has done.
Accordingly, the company is required to report segment results separately for
Participating, Non-Participating, Pension, Annuity business and Unit Linked
business (Group, Individual – Life and Individual Pension). For the purpose of
working out results of such segments, company will decide on the bases on which
revenue, expenses, assets and liabilities are to be allocated. The accounting policies
used in the segmental reporting are to be disclosed in the Financial Disclosures.
The IRDA Rules also specify the disclosure requirements, general instructions for
preparation of financial statements, and also the contents of the Management
Report.
Financial summary and Ratios
IRDA has also specified the format for Financial Statement summary for the
previous financial years and the relevant ratios to be worked out. The summary and
the ratios form part of the financial disclosures.
Chapter- 3
Research
Methodology
OBJECTIVES OF THE STUDY
1. To analyze the financial statement.
2. To simplify and summarize a long array of accounting data and make them
understandable.
3. To forecast and prepare the plans for the future.
4. To reveal the trend of costs, sales, profits and other important facts.
5. To establish ideal standards of the different items of the business.
6. To provide useful information to the management.
SCOPE OF THE STUDY
1. It is useful for the management.
2. It gives information to the investors about the earning capacity of the
business.
3. With the help of Ratio Analysis comparison of profitability and financial
soundness can be made.
4. Current year's ratios are compared with those of previous years and if some
weak spots are located remedial measures are taken to correct them.
5. It gives information to the financial institution for providing the finance to
the company
6. It gives information to the taxation authorities.
7. It gives information to the researchers for conducting research in respect of
profitability, efficiency, financial soundness and growth of that company.
METHODOLOGY OF STUDY
Research methodology is the study of research method and rules for doing
research work. To do a research it is necessary to anticipate all the steps, which
must be undertaken. If the project is to be completed successfully proper steps in
research process has to be followed. It consists of interrelated activities such as
identifying the research problems, description of research design, sources of
collecting data etc.
DATA COLLECTION:
The data can be of two types:
1. Primary Data :
1. Primary data was collected with the help of an interview scheduled with the
managers of ICICI Pru.
2. Secondary Data:
Secondary Data are those data which are already collected and stored and which
has been passed through statistical research. In this project, secondary data has
been collected from following sources:-
1. Annual Report
2. Articles in Journal, Magazines.
3. Books
4. Other material and report published by company
RESEARCH DESIGN
Research Design is the way in which the research is carried out. It works as a blue
print. Research Design is the arrangement of conditions for the collection and
analysis of data in a manner that aims to combine relevance to the research purpose
with economy in procedure.
The present project is descriptive in nature. In Descriptive Research Design, those
studies are taken which are concerned with describing the characteristics of a
particular group. The major purpose of descriptive research is the description of
state of affairs, as it exists at present.
Exploratory Research - an exploratory research focuses on the delivery of ideas
and is generally based on secondary data. It is a preliminary investigation a
preliminary investigation which does not have a rigid design. This is because a
researcher engaged in exploratory study may have to change his focus as a result of
new ideas and relation among the variables.
The study conducted through exploratory research is with the help of data obtained
from the secondary data, there is no specific sample design made or questionnaire
used to obtain information
Data Type:
The data used for the study is secondary data
Source of data
1. Insurance company broacher
2. IRDA web site
3. Companies web sites
4. Annual report of company
Limitations of the study.
1. Study is largely based on secondary published information.
2. Insufficient time available for the study and submission of the report.
3. It depends on past information.
4. Only the last 5 years data is considered for the study
5. Only limited sample size had been considered for the study and therefore,
the conclusions drawn based on this may not be a reflection of the entire industry.
Chapter-IV
ANALYSIS & FINDINGS
1. Liquidity Ratios
The adequate liquidity in the sense of the ability of a firm to meet current/short
term obligations when they become due for payment can hardly be overstressed.
1. Net working capital
It represents the excess of current assets over current liabilities. An enterprise
should have sufficient NWC in order to be able to meet the claims of the creditors
and the day to day needs of the business. NWC measures the firm’s reservoir of
funds. The greater is the amount of Net Working capital, greater is the liquidity
position of the firm.
Table 4.1: Net working capital
Particulars 2007 2008 2009 2010 2011
Total Current assets 38,69,728 53,25,536 87,57,727 9,537,359 77,44,120
Total current
liabilities
26,87,296 39,05,497 62,51,168 90,29,038 1,24,69,202
Net working capital 11,82,432 14,20,039 25,06,559 508321 (4,725,082)
Net working capital = current assets – current liabilities
Figure 4.1: Net working capital
Analysis :
From the above table , shows that the net working capital in the year 2006 having
1182432 was increased in the year 2009 to 1420039 and in 2008 to 2506559 but in
2009 there is a fall in the networking capital and in 2010 there is an adverse
balance.
Interpretation:
Here NWC for the year 2010 is negative. There is in reality deterioration in
liquidity position.
-6000000
-5000000
-4000000
-3000000
-2000000
-1000000
0
1000000
2000000
3000000
2006 2007 2008 2009 2010
Net working capital
Net working capital
2.Current ratio
It is the ratio of total current assets to total current liabilities. Short-term creditors
prefer a high current ratio since it reduces their risk. Shareholders may prefer a
lower current ratio so that more of the firm's assets are working to grow the
business. Typical values for the current ratio vary by firm and industry. For
example, firms in cyclical industries may maintain a higher current ratio in order to
remain solvent during downturns.
Table 4.2: Current ratio
Particulars 2007 2008 2009 2010 2011
Current assets 38,69,728 53,25,536 87,57,727 9,537,359 77,44,120
Current liabilities 26,87,296 39,05,497 62,51,168 90,29,038 1,24,69,202
Current ratio 1.44:1 1.36:1 1.4:1 1.05:1 0.62:1
Current ratio = current assets
Current liabilities
Figure 4.2:Current ratio
Analysis:
From the above table the current ratio in the year 2006 was 1.4:1 in the year 2007
it decreased to 1.36:1 and there was an increase of 1.4:1 in2008 and 1.05:1 in 1009
also there was a fall of 0.62:1 in 2010.
Interpretation:
It shows rupee value of current asset for each rupee of current liabilities. The
higher the current ratio, the larger is the amount of rupees available per rupee of
current liability and therefore more is the firm’s ability to meet current obligations
and greater is the safety of funds of short term liabilities. Current assets of 0.62 are
available to meet the current liabilities. In the previous year current ratio is 1.07:1
signifies that current assets are 1.07 times its short term obligations. The liquidity
position is better in previous year as compared to current year.
24%
23% 24%
18%
11%
current ratio
2006
2007
2008
2009
2010
2. Turnover ratio
Another way of examining the liquidity is to determine how quickly certain
current assets are converted into cash. The different turnover ratios are as follows
1. Debtors turnover ratio.
2. Creditors turnover ratio.
3. Inventory turnover ratio.
4. Fixed asset turnover ratio.
Debtor’s turnover ratio is determined by dividing the net credit sales by
average debtors outstanding during the year. Debtors turnover ratio = net credit
sales/average debtors. Since its insurance company turnover ratio’s are not
applicable.
5. Leverage ratio/ capital structure ratio
It is the ratio to calculate the long term liquidity position of the firm. There are
thus 2 aspects of the long term solvency of the firm.
Ability to repay principle when due.Regular payment of the interest.
There are 2 different types of leverage ratios
1. Ratios which are based on relationship between borrowed funds and owners
capital.
1. Debt-equity ratio
2. Debt-asset / capital ratio
3. Ratio which are based on profit and loss account (coverage ratios)
1. Interest coverage ratio
2. Dividend coverage ratio
3. Total fixed coverage ratio
4. Cash flow coverage ratio
1. Debt equity ratio
It indicates the relative proportions of debt and equity in financing the asset of the
firm. There 2 approaches in calculating debt equity ratio. The debt equity ratio is
the relationship between borrowed funds and owner’s capital is a popular measure
of the long term financial solvency of the firm. Total long term debt does not
include current liabilities like sundry creditors banks credit etc, which are
ostensibly short term, are renewed year by year and remain by and large
permanently in the business.
The debt equity ratio shows the safety margin of the firm. This is an important tool
of financial analysis to appraise the financial structure of a firm. It has important
implications from the view point of creditors, owners and the firm by itself. High
ratio shows a large share of financing by outsider which implies that the owners
are putting up relatively less money of their own. It is danger signal for the
creditors. A lower debt equity ratio has just the opposite implications to the
creditors. The relatively high stake of the owners implies sufficiently safety margin
and substantial protection against shrinkage in assets.
Table 4.3: Debt equity ratio
Particulars 2007 2008 2009 2010 2011
Long Term Debts 23,633,655 45,999,541 84,012,076 97,578,470 193,089,795
Shareholder’s equity 6,331,725 8,360,441 13,263,132 18,433,462 20,417,327
Debt equity ratio 3.73% 5.50% 6.33% 5.29% 9.45%
Figure 4.3:Debt equity ratio
0
1
2
3
4
5
6
7
8
9
10
2006 2007 2008 2009 2010
debt-equity ratio
debt-equity ratio
Debt equity ratio = long term debts
Shareholder’s equity
Analysis:
From the above table the debt equity ratio in the year 2006 was increase to 6.33
compared to the previous 2 years and there is an immediate fall in 2007 which was
increased to 9.45 in 2010
Interpretation:
The debt equity ratio for the year 2010 is high. This leads to inflexibility in the
operations of the firm as creditors would exercise pressure and interfere in
management. Therefore firm would able to borrow only under restrictive terms
and conditions.
1. Proprietary ratio
It is a variant of debt equity ratio. It measures the relationship between
shareholder’s funds and total assets. Proprietary ratio shows the extent to which
shareholders own the business and thus indicates the general financial strength of
the business. The higher the proprietary ratio, the greater the long term stability of
the company and consequently greater protection to creditors. However, a very
high proprietary ratio may not necessarily be good because if funds of outsiders are
not used for long term financing, a firm may not be able to take advantage of
trading on equity.
Proprietary ratio = shareholder’s equity
Total assets
1. Table 4.4: Proprietary ratio
Particulars 2007 2008 2009 2010 2011
Shareholder’s equity 6,331,725 8,360,441 13,263,132 18,433,462 20,417,327
Total assets 44,71,073 60,61,590 99,07,527 10,988,705 8,887,897
Proprietary ratio 1.416 1.3792 1.3387 1.6775 2.2972
Figure 4.4:Propreitory Ratio
0
0.5
1
1.5
2
2.5
2006 2007 2008 2009 2010
propreitory ratio
propreitory ratio
Analysis:
From the above table the proprietary ratio was decreased in the year 2007 and 2008
and further it increased to 1.6775 in the year 2009 and 2.2972 in 2010.
Interpretation:
The proprietary ratio for the year 2010 is higher compared to the year 2009 which
shows that the creditors are protected. We can see the ratio has been increasing
from the last three years, showing that the company is on the path of becoming
stable.
2. Total debt to equity.
Indicates what proportion of equity and debt that the company is using to finance
its assets. A ratio greater than one means assets are mainly financed with debt, less
than one means equity provides a majority of the financing.
Total debt to equity = current liabilities + long term debts
Share holder’s equity
Table 4.5: Total debt to equity
Particulars 2007 2008 2009 2010 2011
Total debts 26,292,222 49,874,193 90,141,225 106,398,695 205,371,380
Shareholder’s equity 6,331,725 8,360,441 13,263,132 18,433,462 20,417,327
Total debt to equity 4.1524 5.9655 6.7963 5.7720 10.0587
Figure 4.5: Total debt to equity
Analysis:
From the above table the debt equity ratio in the year 2006 was increase to 6.33
compared to the previous 2 years and there is an immediate fall in 2007 which was
increased to 9.45 in 2010.
0
2
4
6
8
10
12
2006 2007 2008 2009 2010
total debt to equity
total debt to equity
Interpretation:
Here the total debt equity ratio is quite high which indicates that assets are mainly
financed with debt and therefore the company is in a risky position.
3. Profitability ratios
Apart from the creditors both short term and long term, also interested in the
financial soundness of a firm are the owners and management. The management of
the firm is naturally eager to measure its operating efficiency. The operating
efficiency depends ultimately on the profit earned by it. The profitability ratios are
designed to provide answers to questions such as
Is the profit earn by the firm adequate?
What rate of return does it represent?
What is the rate of profit for various divisions and segments of the firm?
What are the earnings per share?
What is the rate of return to equity holders etc?
Profitability ratios are
Profit margin ratio
Expenses ratio
Return on assets
Return on shareholder’s equity
1. Profit margin ratio
Net profit margin ratio measures the relation between profit and revenues of a firm.
The net profit margin is indicative of management’s ability to operate the business
with sufficient success and better control over its costs.
A high return margin would ensure adequate return to the owners as well as enable
a firm to withstand adverse economic conditions when revenues is declining and
demand for the product is falling.
Table 4.6: Profit margin ratio
Particulars 2007 2008 2009 2010 2011
Profit/ loss after
interest and tax
(1,287,572) (1,255,611)
(2,435,094) (5,029,631) (2,751,844)
Revenues 15,469,501 28,226,248 48,176,166 55,183,763 69,556,324
NET profit Ratio -.0832329 -.0444838 -0.0505456 -0.0911433 -0.0395628
Net profit margin ratio = earnings after tax and interest
Revenues
Figure 4.6: Profit margin ratio
Analysis:
From the above table the loss was decreased in 2007 and 2008 and there was an
increase in 2009 which was again decreased in 2010.
Interpretation:
Here the profit and loss account shows negative balance. So the ratio of net loss to
the revenues is (0.0395628). But we can notice that the quantum of losses has
decreased in the current year when compared to the last four years.
-0.1
-0.09
-0.08
-0.07
-0.06
-0.05
-0.04
-0.03
-0.02
-0.01
0
2006 2007 2008 2009 2010
profit margin ratio
profit margin ratio
2. Return on equity (ROE)
It is one of the profitability ratios which show the relationship between the profit
and loss account and the equity (Net Worth) of the firm. Common or ordinary
share holders are entitled to residual profit. Rate of dividend is not fixed; the
earnings may be distributed to shareholders. Never the less, the profits after taxes
represent their returns. A return on shareholder’s equity is calculated to see the
profitability of owner’s investment. The shareholders equity or net worth will
include paid up capital, share premium and reserves and surplus less accumulated
losses. Net worth can also be found by subtracting total liabilities from total assets.
The ROE indicates how well the firm has used the resources of owners. In fact this
ratio is one of the most important relationships in financial analysis. The earning of
a satisfactory return is the most desirable objective of a business. The ratio of net
profit to owner’s equity reflects the extent to which this objective has been
accomplished. This will reveal the relative performance and strength of the
company’s in attracting future investments.
Return on equity = profit/ (loss) after tax
Net worth
Table 4.7: Return on equity
Particulars 2007 2008 2009 2010 2011
Profit/( loss
after tax)
(12,87,572) (12,55,611)
(2,435,094) (5,029,631) (2,751,844)
Net worth 3,165,972 3,939,077 6,379,641 6,520,340 5,752,361
(Return on
equity)
-0.4066 -0.31875 -0.3817 -0.7714 -0.4783
Figure 4.7; Return on equity
Analysis:
The above table shows that the Return on equity is totally negative in all the years,
compared to 2009 the previous years has a better negative rates.
-0.9
-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
2006 2007 2008 2009 2010
return on equity
return on equity
Interpretation:
Here the current years ratio is -0.4783 which is more than previous year’s ratio is -
0.7714, comparatively current year relative performance of the company in
attracting future investment is quite good.
3. Management expenses ratio
It is another ratio which shows the relationship between expenses and gross
premium of the business. The management ratio explains the changes in the profit
margin. This ratio is computed by dividing management expenses viz, operating
expenses relating to insurance business excluding interest.
A higher management expenses ratio is unfavorable since it will leave a small
amount of operating income to meet interest dividend etc. To get a comprehensive
idea of the behavior of operating expenses, variations in the ratio over a number of
years should be analyzed. The year to year variation in the management expenses
ratio is temporary in nature arising due to some temporary condition. This ration is
a yard stick of operating efficiency of the firm.
Management expenses ratio = management expenses
Total gross premium
Table 4.8: Management expenses ratio
Particulars 2007 2008 2009 2010 2011
Management Expenses 5,214,991 7,902,455 13,704,946 21,915,907 20,345,376
Total Gross Premium 15,699,126 28,558,656 48,585,616 55,646,937 70,051,044
Ratio .3321 .2767 .2820 .3938 .2904
4. Figure 4.8: Management expenses ratio
Analysis:
The above table shows that the expenses have been maintained in 2007 and 2008
when compared to 2006 which increased in 2009 and it was maintained in the year
2010.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
2006 2007 2008 2009 2010
manangement expenses ratio
manangement expensesratio
Interpretation:
Here the management expenses ratio is 29.04% which is lower compared to
previous year’s ratio which is 39.38%. This indicates company is efficient to meet
other obligations
1. Administrative expenses ratio
It is another profitability ratio related to revenue. It is computed by dividing
expenses by revenue.
Table 4.9: Administrative expenses ratio
Particulars 2007 2008 2009 2010 2011
Administrative expenses 18,251 8,252 12,596 5,307 3,981
Net revenue 15,469,501 28,226,248 48,176,166 55,183,763 69,556,324
Administrative expenses
ratio
0.11798% 0.02923% 0.02614% 0.00961% 0.00572%
Administrative expenses ratio = administrative expenses
Net revenue
1. Figure 4.9: Administrative expenses ratio
Analysis:
The above table shows that the administration expenses have been increasing year
by year while comparing to the year 2006.
Interpretation:
Here we can notice that the administrative expenses ratio is decreasing from year
to year. This shows that the company is managing its funds in a better manner.
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
2006 2007 2008 2009 2010
administration expenses ratio
administration expensesratio
2. Earnings per share
Measures the profit available to the equity shareholders on a per share basis, is the
share they can get on every share held. Earnings per share serve as an indicator
of a company's profitability.
When calculating, it is more accurate to use a weighted average number of shares
outstanding over the reporting term, because the number of shares outstanding can
change over time. However, data sources sometimes simplify the calculation by
using the number of shares outstanding at the end of the period.
Diluted EPS expands on basic EPS by including the shares of convertibles or
warrants outstanding in the outstanding shares number.
Table 4.10: Earnings per share
Particulars 2007 2008 2009 2010 2011
Net profit/(loss)
as per profit and
loss account
(1,287,572) (1,255,611) (2,435,094) (5,029,631) (2,751,544)
Weighted average
number of equity
shares for basic
EPS
440,287,672 687,450,109 1,004,398,90
4
1,534,219,71
8
1,819,347,94
5
Basic Earning per
share
(2.92) (1.83) (2.42) (3.28) (1.51)
Weighted average
number of equity
shares for diluted
EPS
440,287,672 693,229,422 1,004,398,90
4
1,534,219,17
8
1,819,347,94
5
Diluted earnings
per share
(2.92) (1.81) (2.42) (3.28) (1.52)
Figure 4.10: Earnings per share
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
2006 2007 2008 2009 2010
Basic EPS
Diluted EPS
Analysis:
The Earning per share is decreased in the year 2007 and 2008 while compare to
2006 which increased in 2009 and again there is a fall in 2010.
Interpretation:
Here we can notice that the EPS of company is negative, this indicates the
company is not profitable.
OTHER IMPORTNANT RATIOS
1. Net Retention ratio
Net retention ratio is the relationship between net premium and gross premium.
This measures the ability of the insurer to retain investment made by the insured
(policyholder). The difference between net premium and gross premium is
reinsurance ceded.
Reinsurance plays an important role in the insurance business of virtually every
type. The service provided by the reinsurer is similar to that provided by the
insurance company to their policyholders. In general insurance there are risks,
which because of their magnitude or nature, one insurance company cannot afford
to cover, in such cases, an insurance company insures the whole risk itself and
lays off the amount it has accepted to other insurance or reinsurance companies,
retaining only that much risk which it can absorb.
Retention ratio = net premium income
Gross premium income
Table 4.11: Net Retention ratio
Particulars 2007 2008 2009 2010 2011
Net Premium 15,469,501 28,226,248 48,176,166 55,183,763 69,556,324
Gross Premium 15,699,126 28,558,656 48,585,616 55,646,937 70,051,044
Retention ratio .98537 .98836 0.99157 0.99167 0.99293
Figure: Net Retention ratio
Analysis:
From the above table it shows that there is a continuous increase in the net
retention ratio in all the years.
0.98
0.982
0.984
0.986
0.988
0.99
0.992
0.994
2006 2007 2008 2009 2010
Net Retention Ratio
Net Retention Ratio
Interpretation:
Here the current year’s retention ratio is 0.99293. Company is retaining 99.29% of
risk with itself. In the previous year retention ratio is 0.99167. This shows
company has taken high risk compared to previous year.
1. Commission Ratio
This ratio indicates the amount of commission that is paid out of the gross
premium.
Table 4.12: Commission Ratio
Particulars 2007 2008 2009 2010 2011
Gross
commission
1,203,252 2,099,268 3,512,586 4,248,904 5,254,973
Gross premium 15,699,126 28,558,656 48,585,616 55,646,937 70,051,044
Ratio 7.66% 7.35% 7.23% 7.64% 7.50%
Commission ratio = gross commission
Gross premium
Figure 4.12: Commission Ratio
Analysis:
The above table shows that there is a fall in the commission ratio in the years 2007,
2008, 2009 and 2010 while comparing the ratio of 2006.
Interpretation:
Here we can notice that the commission ratio has decreased from 7.64% to 7.50%
in the current year, though there was an increase in the commission paid, this is
because the premium s received increased at a higher rate.
7
7.1
7.2
7.3
7.4
7.5
7.6
7.7
2006 2007 2008 2009 2010
Commission ratio
Commission ratio
Table 4.13: Growth rate of shareholder’s fund
Particulars 2007 2008 2009 2010 2011
Shareholder’s
fund
3,165,972 3,939,077 6,379,640 6,520,340 5,752,361
Growth rate 140.53% 24.42% 61.96% 2.21% (11.78%)
Figure 4.13: Growth rate of shareholder’s fund
Analysis:
The table shows that the growth rate is consistently decreasing in all the years
while comparing to the year 2006 also there is a negative rate of (11.78%) in the
year 2010.
-20
0
20
40
60
80
100
120
140
160
2006 2007 2008 2009 2010
Growth Rate
Growth Rate
Interpretation:
Growth rate of shareholder’s fund has decreased in the current year. In fact the
growth rate is negative indicating that there was a decrease in the shareholder’s
fund
1. Change in net worth
Table 4.14: Change in net worth
Particulars 2007 2008 2009 2010 2011
Net worth 3,165,972 3,939,077 6,379,640 6,520,340 5,752,361
Change 1,849,703 773,105 2,440,563 140,699 (767,980)
Figure 4.14: Change in net worth
-1,000,000
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2006 2007 2008 2009 2010
Change in Net worth
Change in Net worth
Analysis:
The above table shows the net worth of the company is having Rs1849703 in 2006
but in 2007 it is decreased to Rs 773105 later in this period it increased, Compared
to the last 2 years and also there is a negative figure shown in the year 2010
Interpretation:
The net worth of the company has also decreased considerably.
CASH FLOW STATEMENT
Table 4.15 - RECEIPTS AND PAYMENTS ACOUNT FOR THE YEAR
ENDED 31ST
MARCH 2010
Particulars 2011 2010
CASH FLOW FROM OPERATING ACITIVITIES
Amounts received from policy holders
Amounts paid to policy holders
Amounts received/(paid) to Reinsurers
Amounts paid as commission
Payments to employees and suppliers
Deposit with RBI
Income Tax paid
Other Income
Net cash from operating activities
70,817,804
(12,053,422)
(312,168)
(5,417,619)
(13,207,483)
_
(309,142)
303,213
39,821,183
54,747,190
(5,414,218)
(384,636)
(4,136,736)
(15,583,363)
100,004
(230,833)
355,744
29,453,152
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets
Sale of fixed assets
Investments (net)
Interest income
Dividend income
Net cash flow from investing activities
(2,177,582)
5,444
(48,767,468)
4,817,558
1,338,737
(42,823,481)
(581,822)
319
(39,057,231)
3,805,029
745,975
(35,087,730)
CASH FLOW FROM FINANCING ACTIVITIES
Issue of shares during the year
Net cash flow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the
year
Cash and cash equivalents at the end of the year
1,720,000
1,720,000
(1,282,298)
4,108,660
2,826,362
5,250,000
5,250,000
(384,578)
4,493,238
4,108,660
NOTE:
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD
INCLUDE:
2011 2010
Cash and cheques in hand
Bank balances
Fixed deposit
299,148
1,206,633
1,340,581
668,726
1,653,161
1,786,773
Total cash and cash equivalents 2,826,362 4,108,660
Analysis of cash flow statement
Operating activities
Here high profitable operation shows the firm’s cash inflow. A huge amount of
inflow received from policyholders remains positive after deducting all operating
expenses. The operating expenses are, amounts paid to Policyholders, amounts
received / (paid) to Reinsurers, amounts paid as Commission, taxes paid etc. these
expenses paid reduces the current liabilities of the firm. Reduction in current
liability shows cash outflow of the firm. Comparative analysis of cash flow
statement shows that the amount received from policyholders is increased by
16,070,614 and the amount paid to employees and suppliers is reduced by
2,375,880.
Investment activities
Here the purchase of fixed assets is more than the sale of fixed assets. There is
increase in investments by 9,710,237. There is also increase in return on
investment, dividend income. The investment activities show negative balance due
to huge increase in investment.
Financial activities
This year the cash inflow is increased by 897,720. It increases the cash inflow of
the firm. The overall net cash inflow is reduced due to over investment. The cash
flow carry to the balance sheet is reduced to 2,826,362 from 4,108,660.
COMPARATIVE FINANCIAL STATEMENTS
Table 4.16 - Comparative Balance Sheet
Item 31stmarch
2010
31stmarch
2011
Absolute
increase
Percentage
SOURCES OF FUNDS
Share capital
Reserves and surplus
Credit/(Debit) fair value change
account
POLICY HOLDER’s FUNDS
Credit/(debit) fair value change
account
Policy liabilities
Total Provision for linked
liabilities
Fund for future appropriations
Fund for future appropriations-
Provision for lapsed policies
17,958,180
552,892
(77,610)
(296,885)
29,092,419
68,782,936
586,395
531,970
19,680,000
552,892
184,435
205,087
37,666,908
155,217,800
1,490,013
1,064,831
1,721,820
-
262,045
-91,798
8,574,489
86,343,864
903,618
532,861
9.5
-
337.64
(30.92)
29.47
88.57
154.10
100.10
APPLICATION OF FUNDS
INVESTMENTS
Shareholder’s
Policy holder’s
Assets held to cover linked
liabilities
Loans
Fixed assets
Current assets
Cash and bank balances
Advances and other assets
Sub total A
Current liabilities
Provisions
Sub total B
Net current assets C= A-B
Debit balance in profit and loss
account
4,291,597
30,152,727
68,782,936
30,248
1,451,346
4,108,660
5,428,699
9,537,359
8,820,225
208,813
9,029,038
508,321
11,913,122
6,304,757
43,415,382
155,217,800
40,366
1,143,777
2,826,362
4,917,758
7,744,120
12,281,585
187,617
12,469,202
(4,725,082)
14,664,966
2,010,160
13,262,655
86,434,864
10,118
(307,569)
(1,282,298)
(510,941)
3,461,360
(21,196)
46.84
43.98
125.66
33.45
(21.19)
(31.21)
(9.41)
39.24
10.15
Total 117,130,297 216,061,966
Table 4.17 - Comparative profit and loss account
Particulars
31st march
2010
31st march
2011
Absolute
increase/decrease
Percentage
Amounts transferred from the
policy holders
account(technical account)
Income from investments
a. Interest, dividends and rent
- gross
b. Profit on sale/redemption
of investments.
c. (Loss on sale/redemption of
investments.)
d. Transfer/gain on
revaluation/ change in fair
value
e. Amortization of (premium)/
discount on investments
Sub Total
Other income
794,984
302,367
13,924
(35,870)
51,887
(2,965)
329,343
300
472,930
289,102
49,152
(487)
-
(2,634)
335,133
3,522
(322,054)
(13,625)
35,228
(35,383)
51,887
331
3,222
(40.5)
(4.39)
253.00
(98.64)
100
11.16
1074
Total A 1,124,627 811,585
Expenses other than those
directly related to the
insurance business
Contribution to policy
holder’s fund
5,307
6,148,951
3,981
3,559,448
(1326)
(2,589,503)
(24.98)
(42.11)
Total B 6,154,258 3,563,429
Profit/loss before tax
Provision for taxation
Profit/loss after tax
(5,029,631)
-
(5,029,631)
(2,751,844)
-
(2,751,844)
(2,277,787)
-
(2,277,787)
(45.29)
-
(45.29)
FINDINGS
After analyzing the financial statements of the firm, following are the findings during the
course of study.
1. Net working capital of the firm for the year ended march 2010 is negative i.e. (4,725,082)
2. The liquidity position of the firm has deteriorated which is significant from the decrease
in current ratio.
3. Debt equity ratio is high indicating increased pressure from creditors.
4. The company is on the path of becoming stable and this is evident from the increase in
the proprietary ratio.
5. Assets are being financed to a greater extent by debt and this is indicated by the high total
debt to equity ratio.
6. Profit margin ratio is negative, as the company is undergoing loss, but the quantum of
losses has decreased.
7. ROE has improved when compared to previous year and this is due to reduction in the
amount of losses in the current year.
8. Management expenses ratio has decreased indicates that the company will be capable of
meeting other obligations.
9. Administrative expenses are also decreasing and this shows the increasing efficiency of
the firm.
10. EPS of the firm is negative, but when compared to previous year it seems to be better.
11. The company is retaining a higher portion of the risk.
12. There is decrease in the shareholders fund of the company.
13. Net worth of the company has also declined.
14. Amount received from policyholders is increased by 16,070,614 and amount paid to
employees and suppliers is reduced by 2,375,880.
15. Since the inflow from policyholders was huge it remained positive after deducting all
operating expenses and also operating expenses have reduced during the current financial
year.
16. The investment activities show negative balance due to huge increase in investment.
17. Cash flow is increased by 897,720.
18. Overall net cash inflow is reduced due to over investment.
\
Chapter – V
SUGGESTION AND
CONCLUSION
CONCLUSION :
A study on financial statement analysis was carried out in ICICI Prudential. Financial Statement
Analysis is one of the important factors in analyzing company’s performance hence while
knowing the company’s growth and profitability financial analysis would be helpful.
The data was collected from various sources and also through tools like company’s annual report
and relevant transactions with the company staffs. The were identified in the form of findings
and suitable suggestions were put forth to the concerned authorities for further discussion.
SUGGESSIONS:
1. Company’s working capital for 2011 is showing a negative balance, there fore company
should increase its working capital or else there are chances of losing its reputation.
2. Company’s liquidity position is not good according to the analysis, company should
increase its liquidity position because customers can anytime come to collect their funds.
3. Company should reduce its debt equity ratio.
4. Company should increase its profit margins, last year profits margin increase in its value
basis but still it is not covered in percentage basis compared to the competitors.
5. Company’s managerial expenses is decreased, it shows good control on managerial cost
but still company should adopt more techniques to control the managerial cost to increase
the company’s profit.
6. Company should look forward to increase the EPS or else it will lose its Finance.
7. Risk management techniques should be adopted in order to avoid investing in risky
projects.
8. Found there was a decrease in shareholder’s founds comparing to the previous years may
be because of loss in those years so company should increase its profits to retain its
investors.
9. The company should take steps in training and development program in upgrading the
technological knowledge for their employees.
10. Company should also follow some qualitative techniques in order to overcome the future
risk.
11. If the company is not able to satisfy the appraisals of their employees, at least should look
forward for a “Rewards and Recognitions” program to motivate the employees.
BIBILOGRAPHY
REFERENCE BOOKS:
PRASANNA CHANDRA: FINANCIAL MANAGEMENT, (TMH), 6/e, 2004
M.Y. KHAN & P.K. JAIN: FINANCIAL MANAGEMENT, (TMH), 4/e, 2004
WEBSITES:
http://www.iciciprulife.com/public/default.htm
http://www.iciciprulife.com/public/Life-plans/Plan-Life-need.htm
http://www.iciciprulife.com/public/Life-plans/Plan-Life-need.htm
http://www.iciciprulife.com/public/Others/Download-Center.htm
http://www.iciciprulife.com/public/Why-Us/Buying-life-insurance-policy.htm
http://www.iciciprulife.com/public/About-us/Prudential-Edge.htm
http://www.iciciprulife.com/public/Investor-Relations/IR-Main-page.htm