1

A

Training Report

Titled

‘ Ratio analysis of financial statement ’

IN

HDFC Standard Life Insurance Company Ltd.

#1,20th Main, 100 feet Ring Road, B.T.M. Layout,

1st Stage, Bangalore.

Under the supervision of

Mr. Ajay Kumar (D.M.)

For the partial fulfillment of the award of the degree of M.B.A.

Submitted to: Submitted by: Nirmal Yadav

Director Class: M.B.A. 5 yrs. (9th semester)

IMS, KUK Roll no. 54

Regn. No. 08-UD- 1147

INSTITUTE OF MANAGEMENT STUDIES

KURUKSHETRA UNIVERSITY

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ACKNOWLEDGEMENT

Gratitude is the hardest of emotions to express and often one does not find adequate words to convey that entire one feels. Perhaps it is natural to every human being that when you are really thankful and sincerely want to express you gratitude towards someone, just you run out of words; in spite of healthy vocab.

There are many people whom I would like to thank for their help in preparing this report. I sincerely feel that the credit of the project work could not be narrowed down to anyone individual, by which I could complete this project.

I express my sincere deep gratitude to Mr. Ajay Kumar (Manager HDFC SLIC) under whose guidance I could achieve my project completion and contributing their skills and creativity, which made my report appealing and attractive.

Besides, I would like to thank my parents for their constant cooperation and help. In the absence of above mentioned people, this project would not have been in the present style.

Nirmal Yadav

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PREFACE

For the deep inclination into the management concepts practical training is an important. Theoretical knowledge gives us the fundamental concepts of management, and the practical training teaches us those tact’s and skills, which are successfully employed to today’s competitive market. Theoretical lectures must be correlated with practical training to make learning process more effective and to provide a platform to judge and apply one’s theoretical knowledge to practical situations. Practical training thus plays an important role in developing and sharpening one’s skills in the field of business management and administrative.

I have undergone 4 weeks summer training at HDFC SLIC Bangalore during the training I have worked on the project titled “Ratio analysis of financial statement” and I have submitted the project report as part of fulfillment of 5 year MBA programme.

Being a student of management, this training contributed a lot in gaining knowledge about the business environment at HDFC SLIC Bangalore.

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DECLARATION

I, Nirmal Yadav, Roll no. 54, student of 9th SEM. MBA 5 year, has undergone summer training at HDFC SLIC Bangalore for 4 weeks & have submitted a project report on the title “Ratio

analysis of financial statement” as assigned by company for the partial fulfillment of degree of MBA 5 year.

I hereby declare that the project report is my original work. This has not been previously submitted for the award of any other diploma, degree or other similar title.

Nirmal Yadav

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ContentsChapter Page no.

Preface 03

1. Industry Profile 06-08A brief history of the Insurance sector

The Insurance Regulatory and Development Authority (IRDA)

2. COMPANY PROFILE 09- 22 Background and inception of the company Nature of the business carried Product/service profile

3. General Introduction 32-34 Financial Statement Analysis Tools for Financial Statement AnalysisStatement of the problem

4. Objective of the Study 35

5. Scope of the study 36

6. Methodology 37

7. Limitations of the study

8. ANALYSIS /DESIGN 38- 62 9. SUMMARY OF FINDINGS 6410.CONCLUSION 66

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CHAPTER-1

INDUSTRY PROFILE

The insurance sector in India has come to a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.

A brief history of the Insurance sector

The business of life insurance in India in its existing form started in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta.

Some of the important milestones in the life insurance business in India are:

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act,1956, with a capital contribution of Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.

Insurance sector reforms

In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction.

The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector.

The reforms were aimed at “creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway

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and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms…”

In 1994, the committee submitted the report and some of the key recommendations included:

i) Structure Government stake in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these

subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate.

ii) Competition

Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.

No Company should deal in both Life and General Insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic

companies. Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state.

iii) Regulatory Body

The Insurance Act should be changed An Insurance Regulatory body should be set up Controller of Insurance (Currently a part from the Finance Ministry) should be made

independent

iv) Investments

Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%

GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time)

v) Customer Service

LIC should pay interest on delays in payments beyond 30 days Insurance companies must be encouraged to set up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the Insurance

industry

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The committee emphasized that in order to improve the customer services and increase the

coverage, the insurance industry should be opened up to competition. But at the same time, the

committee felt the need to exercise caution as any failure on the part of new players could ruin

the public confidence in the industry.

Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crore. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body. (IRDA)

The Insurance Regulatory and Development Authority (IRDA)

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies.

The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA’s online service for issue and renewal of licenses to agents.

The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year.

Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered.

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CHAPTER-2

COMPANY PROFILE OF HDFC - STANDARD LIFE

A) Background and inception of the company

HDFC Standard Life Insurance Company Limited is one of India's leading private insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Limited), India's leading housing finance institution and a Group Company of the Standard Life Plc, UK. As on February 28, 2009 HDFC Ltd. holds 72.43% and Standard Life (Mauritius Holding) 2006, Ltd. holds 26.00% of equity in the joint venture, while the rest is held by others.

HDFC Limited

HDFC Limited, India’s premier housing finance institution has assisted more than 3.3 million families own a home, since its inception in 1977 across 2400 cities and towns through its network of over 250 offices. It has international offices in Dubai, London and Singapore with service associates in Saudi Arabia, Qatar, Kuwait and Oman to assist NRI’s and PIO’s to own a home back in India. As of December 2008, the total asset size has crossed more than Rs. 95,000 crores including the mortgage loan assets of more than Rs. 82,800 crore. The corporation has a deposit base of Rs. 17,551 crore, earning the trust of more than 9, 00,000 depositors. Customer Service and satisfaction has been the mainstay of the organization. HDFC has set benchmarks for the Indian housing finance industry. Recognition for the service to the sector has come from several national and international entities including the World Bank that has lauded HDFC as a model housing finance company for the developing countries. HDFC has undertaken a lot of consultancies abroad assisting different countries including Egypt, Maldives, and Bangladesh in the setting up of housing finance companies.

Standard Life Group (Standard Life plc and its subsidiaries)

The Standard Life Group has been looking after the financial needs of customers for over 180 years. It currently has a customer base of around 7 million people who rely on the company for their insurance, pension, investment, banking and health-care needs. Its investment manager currently administers £125 billion in assets. It is a leading pensions provider in the UK, and is rated by Standard & Poor's as 'strong' with a rating of A+ and as 'good' with a rating of A1 by Moody's. Standard Life was awarded the 'Best Pension Provider' in 2004, 2005 and 2006 at the Money Marketing Awards, and it was voted a 5 star life and pension’s provider at the Financial Adviser Service Awards for the last 10 years running. The '5 Star' accolade has also been awarded to Standard Life Investments for the last 10 years, and to Standard Life Bank since its inception in 1998. Standard Life Bank was awarded the 'Best Flexible Mortgage Lender' at the Mortgage Magazine Awards in 2006.

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B) Nature of the business carried

HDFE standard life is on the business of life insurance. But HDFC is in diversified business like banking, housing finance, securities etc…….

C) Vision, Mission and quality policy

Vision

“The most successful and admired life insurance company, which mean that we are the most trusted company, the easiest to deal with, offer the best value for money, and set the standards in the industry. In short, “The most obvious choice for all”.

Mission

We aim to be the top new life insurance company in the market. This doe’s not just mean being the largest or the most productive company in the market; rather it is a combination of several things like-

Customer service of the highest order Value for money for customers Professionalism in carrying out business Innovative products to cater to different needs of different customers Use of technology to improve service standards Increasing market share

Values

Integrity Innovation Customer centric People Care “One for all and all for one” Team work Joy and Simplicity

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Quality policy

Quality road map – time lines

Phase-1 to phase-3 should run simultaneously

Phases Objectives Visible proof when

Phase-5 Business excellence BE award (external)/service guarantee

12-24 months and

Improve levels

Phase-4 Value stream map projects

6 sigma processes, SLA, financial benefit.

6-8 months and improve

Phase-3

Process maturity Process complaint functions 8-12 months and sustenance

Phase-2

Organized work places

Zone/region/branch/location certification

6-10 months and sustenance

Phase-1

Current business improvement

programs

Completion of projects and benefits derived and

sustenance

4-6 months and sustenance

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How (1) how (2) how (3) how (4)

BREADTH OF QUALITY INTERVENTION

How (1): How to achieve

Quality awareness Identify known opportunities Implement prioritized projects Develop capability- BB/GB Deliver and quantify value Share and recognize Basic workplace hygiene

How (2): How to achieve

Standard processes Process rollout Process adherence

Prioritized functions/CFT

All locations Business

Processes

Primary value

Streams

Organization and Stake holders

Current business improvement

Organized workplace

Process maturity

Optimize value streams

Align and integrate long term loans

OB

J

E

C

T

I

V

E

S

Workplace organization

Process management

VALUE STREAM MAP PROJECTS

BUSINESS EXCELLENCE

IMPROVEMENT PROJECTS

(KNOWN OPPORTUNITY)

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Dash board

How (3): How to achieve

Value stream projects. SLA Service guarantee

How (4): How to achieve

Stake holders delight Business excellence

D) Product/service profile

1. Protection Plans

HDFC Term Assurance Plan: This plan is designed to help secure family’s financial needs in case of uncertainties. The plan does this by providing a lump sum to the family of the life assured in case of death or critical illness (if option is chosen) of the life assured during the term of the contract. One can choose the lump sum that would replace the income lost to one’s family in the unfortunate event of one’s death.

HDFC Loan Cover Term Assurance Plan: This plan aims to protect family from loan

liabilities in case of unfortunate demise within the policy term. It provides the beneficiary with a lump sum amount, which is a decreasing percentage of the initial Sum Assured. This means that as the outstanding loan decreases as per the loan schedule, the cover under the policy also decreases as per the policy schedule.

HDFC Home Loan Protection Plan: This plan aims to protect family from loan liabilities

in case of unfortunate demise within the policy term. It ensures that family does not lose the dream house that person have purchased for them, in case person is not around to repay the outstanding monthly installments on their housing loan.

2. Children's Plans

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HDFC Children's Plan: As a parent, everyone priority is their child’s future and being able to meet their child’s dreams and aspirations. With HDFC Children’s Plan, they can start building their savings today and ensure a bright future for their child.

HDFC Young Star Super: This Plan provides valuable protection to insured person child in case his/her is not around and gives them an outstanding investment opportunity to maximize their savings by providing them a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at Maturity.

HDFC Young Star Super Suvidha: It is a convenient plan, which saves insured person from the need of going for Medicals. This Unit Linked Plan provides valuable protection to his/her child in case he is not around and gives him with an outstanding investment opportunity to maximize their savings by providing them a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at Maturity.

HDFC Young Star Supreme Suvidha: This Plan provides valuable protection to insured person child in case he is not around and gives him an outstanding investment opportunity to maximize his savings by providing him a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at Maturity.

HDFC SL Young Star Champion Suvidha: This is a convenient plan, which saves him from the need of going for Medicals. This Unit Linked Plan gives him with an outstanding investment opportunity to maximize his savings by providing you a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at Maturity.

3. Retirement Plans

HDFC Personal Pension Plan: The HDFC Personal Pension Plan is a ‘With Profits’ insurance policy that is designed to provide a post-retirement income for life with the freedom to choose your retirement date.

HDFC Pension Super: The HDFC Personal Pension Plan is a ‘With Profits’ insurance

policy that is designed to provide a post-retirement income for life with the freedom to choose your retirement date.

HDFC Pension Supreme: The HDFC Pension Supreme is Unit Linked plan, designed to provide a post-retirement income for life with the freedom to choose their retirement date. This plan gives them with an outstanding investment opportunity to maximize their savings by providing them a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at vesting.

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HDFC SL Pension Champion: The HDFC SL Pension Champion is Unit Linked plan, designed to provide a post-retirement income for life with the freedom to choose their retirement date. This plan gives them with an outstanding investment opportunity to maximize their savings by providing them a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at vesting.

HDFC SL Unit Linked Pension Maximiser II: HDFC SL Unit Linked Pension Maximiser II is a unique Single Premium unit linked plan, designed to provide a post-retirement income for life with the freedom to maximize their investment returns. This plan also gives Bumper Addition* of 5% of initial single premium at vesting and on death.

HDFC Immediate Annuity: The HDFC Immediate Annuity is a contract that uses investor capital to provide them with a guaranteed gross income throughout their lifetime or over a period of their choice. The income is guaranteed and is unaffected by the rise and fall of interest rates. This means the investor can plan their life the way they want it to be, safe in the knowledge that their gross income will not fall during the period they have selected. The HDFC Immediate Annuity offers a number of options to meet all their income needs.

4. Savings & Investment Plans

HDFC Endowment Super: With HDFC Endowment Super, investors can start building their savings and it ensures that their family remains financially independent, even when they are not around. This Unit Linked Plan also gives them with an outstanding investment opportunity to maximize their savings by providing them a choice of thoroughly researched and selected investments.

HDFC Endowment Supreme: With HDFC Endowment Supreme, investors can start building their savings today and it ensures that their family remains financially independent, even when they are not around. It is a convenient plan, which saves them from the need of going for Medicals. This Unit Linked Plan gives them with an outstanding investment opportunity to maximize their savings by providing them a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at Maturity.

HDFC SimpliLife: It is a convenient plan, which saves investors from the need of going for Medicals. This Unit Linked Plan gives them with an outstanding investment opportunity to maximize their savings by providing them a choice of thoroughly researched and selected investments.

HDFC Endowment Super Suvidha: It is a convenient plan, which saves investors from the need of going for Medicals. This Unit Linked Plan gives them with an outstanding investment opportunity to maximize their savings by providing you a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at Maturity.

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HDFC Endowment Supreme Suvidha: It is a convenient plan, which saves insured person from the need of going for Medicals. This Unit Linked Plan gives them with an outstanding investment opportunity to maximize their savings by providing them a choice of thoroughly researched and selected investments. This plan also gives Bumper Addition to the fund value at Maturity.

HDFC Wealth Builder: HDFC Wealth Builder is an exclusive plan crafted for elite achievers. An investment cum insurance plan that will actively help in building investor wealth and give them twin advantage of exclusive funds (actively managed ) along with choice of limited premium payment term. This plan provides the financial protection to their loved ones and builds up their wealth effortlessly. This plan also gives Bumper Addition to the fund value at Maturity.

HDFC Endowment Assurance Plan: With HDFC Endowment Assurance Plan, investors can start building their savings today and ensure that their family remains financially independent, even when they are not around. This ‘With Profits’ plan is designed to secure their family’s future by giving their family a guaranteed lump sum on maturity or in case of their unfortunate demise, early into the policy term.

HDFC Money Back Plan: With HDFC Money Back Plan, investors can plan now to ensure

that they have the necessary funds to have the necessary funds to secure their long-term as

well as short-term financial goals. This ‘With Profits’ plan gives them a proportion of the

basis Sum Assured as Cash lump sums at regular 5-year intervals within the policy term.

HDFC Single Premium Whole of Life Insurance Plan: HDFC Single Premium Whole of Life Plan is a tailor made plan well suited to meet investors long-term investment needs and help them to maintain their family’s financial independence. This single premium investment plan is a Whole of Life plan aimed at providing long-term real growth of their money.

HDFC Assurance Plan: HDFC Assurance Plan helps investors conveniently build their long-term savings while keeping their family’s future protected. This ‘With Profits’ savings plan helps them to build their long-term savings while securing their family’s future.

HDFC Savings Assurance Plan: HDFC Savings Assurance Plan is a ‘With Profits’ savings plan which helps investors conveniently build their long-term savings and ensure that their family is protected even if they are not around.

5. Health Plans

HDFC Critical Care Plan: HDFC Critical care plan provides for a lump sum payment on survival post diagnosis of a critical illness, so that in the event a critical illness strikes, investors don’t have to dig into those precious savings of them.

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HDFC SurgiCare Plan: HDFC SurgiCare Plan provides investors with timely support in case they have to undergo a major surgery and hospitalization, as the case maybe, ensuring their financial independence at all times.

6. Rural Products

HDFC Gramin Bima Kalyan Yojana HDFC Gramin Bima Mitra Yojana HDFC Bima Bachat Yojana

7. Social Products

HDFC Development Insurance Plan

E) Area of operation

HDFC STANDARD LIFE is operating internationally, that means all over INDIA and outside India; it is rendering its insurance services including rural places.

F) Ownership pattern

It is a joint venture between Housing Development Finance Corporation Limited (HDFC Limited), India's leading housing finance institution and a Group Company of the Standard Life Plc, UK. As on February 28, 2009 HDFC Ltd. holds 72.43% and Standard Life (Mauritius Holding) 2006, Ltd. holds 26.00% of equity in the joint venture, while the rest is held by others.

Associate Companies:

HDFC Limited HDFC Bank HDFC Mutual Fund HDFC Sales HDFC ERGO General Insurance

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G. Competitors information

Aegon Religare Life

AEGON, an international life insurance, pension and investment company, Religare, one of India’s leading integrated financial services groups and Bennett, Coleman & company, India’s largest media house, have come together to launch AEGON Religare Life Insurance Company Limited. This venture is dedicated to build a firm future, both for customers and employees and will continue to balance a local approach with the power of an expanding global operation.

We launched our pan-India multi-channel operations in July, 2008 with over 30 branches spread across India. Our business philosophy is to help people plan their life better. We provide high quality advice to our customers and offer superior customer service.

Aviva India

Aviva India is a joint venture between one of the country’s oldest and largest groups, Dabur, and Aviva plc, the UK's largest insurance group, whose association with India dates back to 1834.

Dabur Group 

Founded in 1884, Dabur Group is one of India's oldest and largest groups of companies with a consolidated annual turnover in excess of Rs 2,396 crores. A professionally managed company, it is the country's leading producer of traditional healthcare products.

Aviva Group

Aviva Group is the UK’s largest and one of the biggest Insurance groups worldwide. It is one of the leading providers of life and pensions products to Europe and has substantial businesses elsewhere around the world. With a history dating back to 1696, Aviva Group has a 50 million customer base worldwide.

Bajaj Allianz Life Insurance Co Ltd

Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest Insurance Company and Bajaj Finserv.

Allianz SE is a leading insurance conglomerate globally and one of the largest asset managers in the world, managing assets worth over a Trillion (Over INR. 55, 00,000 Crores). Allianz SE has over 115 years of financial experience and is present in over 70 countries around the world.

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Canara HSBC OBC Life

The shareholding pattern of the Joint Venture is as follows - Canara Bank holds 51% equity, HSBC Insurance (Asia Pacific) Holdings Ltd 26% and Oriental Bank of Commerce 23%. The Venture has an initial paid up capital of INR 325 crores which will further increase in line with our expansion plans.

The Company commenced business 16th of June, 2008 after receiving requisite approvals from the Insurance Regulatory Development Authority (IRDA). Canara HSBC Life has access to 4100 bank branches all over India.

Future Generali Life

Future Generali is a joint venture between the India-based Future Group and the Italy-based Generali Group. Future Generali is present in India in both the Life and Non-Life businesses as Future Generali India Life Insurance Co. Ltd. and Future Generali India Insurance Co. Ltd.

ICICI Prudential Life Insurance

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank - one of India's foremost financial services companies-and prudential plc - a leading international financial services group headquartered in the United Kingdom. Total capital infusion stands at Rs. 47.80 billion, with ICICI Bank holding a stake of 74% and Prudential plc holding 26%. We began our operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). Today, our nation-wide team comprises of 2074 branches (inclusive of 1,116 micro-offices), over 225,000 advisors; and 7 bancassurance partners. ICICI Prudential is the first life insurer in India to receive a National Insurer Financial Strength rating of AAA (Ind) from Fitch ratings. For three years in a row, ICICI Prudential has been voted as India's Most Trusted Private Life Insurer, by The Economic Times - AC Nielsen ORG Marg survey of 'Most Trusted Brands'. As we grow our distribution, product range and customer base, we continue to tirelessly uphold our commitment to deliver world-class financial solutions to customers all over India.

G) Infrastructural facilities

HDFC SL is providing good infrastructural facilities which are required for employees to perform their work in a better way. During the year, the Company has invested in additional infrastructure capacity and human capital, in terms of offices, technology, staff, financial consultants, in order to be well positioned to increase the growth momentum in the year ahead. The company stepped up the recruitment programme in the latter part of the year in preparation for the next year.

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H) Awards/achievements

Received CIO 'the Ingenious 100 2009' Award

HDFC Standard Life has received the CIO ‘The Ingenious 100 - 2009 Award,’ for ATLAS (Agency Training Licensing and Servicing System). Additionally, the company has received the CIO 100 ‘Security Award 2009’ for pioneering LANDesk Management and Security Suite security implementation and taking its security to a higher level of technological excellence.

HDFC Standard has received the CIO 100 Award for the third consecutive year. It had received the 2008 CIO Bold Award for Consultant Corner and CIO Security Award for our initiatives for a secure computing environment, including Sesame - Identity and Access Management. In 2007, the company received CIO 100 award for Wonders and a Special Award in Storage category.

CIO magazine has a long tradition of honoring leading companies for business and technology leadership and innovations through its flagship award program – CIO 100. It’s a celebration of 100 organizations (and the people within them) that are using IT in innovative ways to deliver business value, whether by creating competitive advantage, optimizing business processes, enabling growth or improving relationships with customers.

Received Diamond EDGE Award 2009

HDFC Standard Life has received the Diamond EDGE Award 2009 for its mobile workforce portal - Consultant Corner. EDGE - Enterprises Driving Growth and Excellence (using IT) is an initiative by the ,Network Computing magazine to identify, recognize, and honors end-user companies in India that have demonstrated the best use of technology to solve a business problem, improve business competitiveness, and deliver quantifiable ROI to stakeholders.

Network Computing magazine is part of CMP Technology, which brings more than 100 IT media brands to more than 18 million technology and business decision makers worldwide.

Received 2008 CIO Bold 100 and CIO Security Awards

HDFC Standard Life has received the 2008 CIO Bold 100 Award. This annual award recognizes organizations that exemplify the highest level of operational and strategic excellence in information technology. This year's award theme, ‘The Bold 100,’ recognized those executives and organizations that embraced great risk for the sake of great reward.

HDFC Standard Life has also been one of the five recipients of the Special 2008 CIO Security Award aimed at CIOs, whose pioneering implementations have taken their enterprise security to the next level. This award category identifies innovative and groundbreaking deployment of technologies aimed at creating a secure business infrastructure.

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The company received the 2008 CIO Bold Award for its mobile workforce portal and the CIO Security Award for its initiatives for a secure computing environment, including identity management.

Received PCQuest Best IT Implementation Award 2008

HDFC Standard Life received the PCQuest Best IT Implementation Award 2008 for Consultant Corner, the applications for its financial consultants, providing centralized control over a vast geographical spread for key business units such as inventory, training, licensing, etc.

HDFC Standard Life has won the PCQuest Best IT Implementation Award for two years consequently. Last year, the company received the award for Wonders, its path-breaking implementation of an enterprise-wide workflow system.

Silver Abby at Goafest 2008

HDFC Standard Life's radio spot for Pension Plans won a Silver Abby in the radio writing craft category at the Goafest 2008 organized by the Advertising Agencies Association of India (AAAI). The radio commercial ‘Pata nahin chala’ touched several changes in life in the blink of an eye through an old man’s perspective. The objective was drive awareness and ask people to invest in a pension plan to live life to the fullest even after retirement, without compromising on one’s self-respect

Unit Linked Savings Plan Tops Mint Best TV Ads Survey

The Unit Linked Savings Plan advertisement of HDFC Standard Life, one of the leading private insurance companies in India, has topped Mint’s Top Television Advertisement survey conducted, for February 2008. HDFC Standard Life’s Unit Linked Savings Plan advertisement was ranked 4th in terms of a combined score of ad awareness and brand recall and 3rd in terms of ad diagnostic scores (likeability, enjoyment, believability, and claim).

Deepak M Satwalekar Awarded QIMPRO Gold Standard Award 2007

Mr. Deepak M Satwalekar, Managing Director and CEO, HDFC Standard Life, received the QIMPRO Gold Standard Award 2007 in the business category at the 18th annual Qimpro Awards function. The award celebrates excellence in individual performance and highlights the quality achievements of extraordinary individuals in an era of global competition and expectations.

SAR Utha Ke Jiyo among India’s 60 Glorious Advertising Moments

HDFC Standard Life’s advertising slogan honored as one of ‘60 Glorious Advertising & Marketing Moments' over the last 60 years in India,’ by 4Ps Business and Marketing magazine. The magazine said that HDFC Standard Life is one of the first private insurers to break the ice using the idea of self respect (Sar Utha Ke Jiyo) instead of 'death' to convey its brand proposition. This was then, followed by others including ICCI Prudential, thus giving HDFC

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Standard Life the credit of bringing up one such glorious advertising and marketing moment in the last 60 years.

I) Work flow model

The work will starts from the innovating of new product or policy and giving training regarding exiting products or new products to sales development officers. They will start their work of selling policies to the customers. Then from the premium amount company management people take the decision to invest in different portfolios, after that when the customers going to withdraw the money in that time after a fixed term that is minimum 3 years what will be the market return in that percentage, company will reimburse their amount that may happen after the death of a person also.

J) Future growth and prospects

New Business Market Share HDFC Standard Life growing steadily

BAJAJ ALLIANZ: 8% BIRLA SUNLIFE: 5%

REALIANCE LIFE: 6% HDFC SL: 5%

MAX NEW YORK: 3%

SBI LIFE: 9%

ICICI PRUDENTIAL: 12% OTHERS: 12%

Market Share for HDFC SL has gone up from 4.10% Mar 08 to 4.5% Mar 09

OTHERS: 59%

LIC: 40%

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Thus from the above diagram we can say that HDFC SL is growing steadily as it is acquiring market share from 4.10% to 4.5% in march 2009. Through many strategies like: advertising, good service to customers than competitors etc…, it can acquire a good market share in future

Thus from the above diagram we can say that HDFC SL is growing steadily as it is acquiring market share from 4.10% to 4.5% in march 2009. Through many strategies like: advertising, good service to customers than competitors etc…, it can acquire a good market share in future also.

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CHAPTER-3

Five S Model

5- S Model is followed by HDFC STANDARD LIFE instead of 7- s Model

Introduction:

FIVE S is a basic and the simplest methodology used to establish and maintain quality environment in organization. It is a part of a Japanese philosophy known as Kaizen; Kai in Japanese means, “to change” and Zen means “for better”. It involves setting standards and then continuously improving on those standards to achieve their goals.

The ultimate goal of 5s is to make the workplace more effective and efficient by its own people in a short span of time so that efficiency of that workplace is enhanced in an innovative and sustainable manner. Thus it requires active involvement of everyone in the organization across the hierarchy and to come up with suggestions on regular basis.

The name stands for five Japanese words

Japanese English

S1 SEIRI SORTING

S2 SEITON SYSTEMATIC ARRANGEMENT

S3 SEISO SPIC N SPAN/SANITIZE

S4 SEIKETSU STANDARDISE

S5 SHITSUKE SELF DISCIPLINE/SUSTENANCE

BENEFITS OF 5S:

Can be started immediately.

Reduces wastages and fatigue. Improves the efficiency of workplace and wastages are made visible. Improves self – organization and overall self –appearance of company. Everyone can participate and does not require any quality background. Brings in the feelings of ownership of workplace.

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Thus the 5s are the pillars of visually managed workplace. This process starts with identifying the area where 5s is to be deployed. It can be a single workstation or area as big as entire office. Teams are nominated for carrying out the 5s and to ensure that everyone on a regular basis practices it.

In detail:

S1 sorting:

The meaning of s1 that is sorting is to “straighten and contain “that is to divide the objects into 2 groups one that is “needed” and other that is “wanted and then remaining the unneeded ones from the workplace.

Needed items: “needed items” are items that are critical in terms of existence at the workplace and are required from process point of view.

Wanted items: wanted items are those, which we want, but are not required from process point of view. We can also determine the criteria to distinguish between the need and want items.

Red Tag Square (R.T.S)

The use of a red tag square is generally during the time of a blitz, that is during the blitz the material identified as obvious scrap and other “abnormal material” shall be parked in a common place which will be known as “Red Tag Square”, however the items which are in excess quantities can also be put in the R.T.S and be noted in the Red Tag Matrix.

S 2 systematic arrangements:

“Place for everything and everything in place”.

After the “needed” and “wanted” items are identified properly and the R.T items have been parked at the R.T.S.

The next step is to identify the right place for all the needed /wanted items kept at workplace.

Workstation illustration:

The layout of the workplace should be prepared in such a manner so that the owners know the exact location. Layout helps the owner to locate the workplace and assign responsibilities to his team. Again the “needed” and “wanted” items (from need want matrix) needs to taken into consideration. So that place to keep them can be decided according to the frequency or usage.

Storeroom illustration:

After sorting out the needed and unneeded items and putting the unneeded items in the red tag square, one must make the layout of the store and start specifying the areas where the things are

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supposed to be placed. It is very important to allocate right areas so that no rework needs to be done.

S 3: Spin N Span

“Cleaning with meaning” and “cleaning is inspection”

Sanitize means keeping things clean and in order. It is a maintenance made, which looks for damages, defects and potential problems.

Once s1 and s2 have been done it is the responsibilities of the staff to ensure that s3 is done on regular basis so that the items stored are properly identified.

S4 – Standardize:

This step is about making standards for all the procedures and practices followed in five s.

Abnormality identification register

R.T. Matrix

Cabinet index

Master index

Store master index

S5 – discipline:

The main objective of five s is to follow and spread the learning to others. All employees need to keep five s as an ongoing improvement plan and for that there is a fifth s that emphasizes on ‘sustenance’. It is the culmination of s1, s2, s3, and s4, which is likely to happen over a period of time.

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MCKINSEY 7-S MODEL

The 7-s model with reference to Hdfc standard life:

The 7s model is better known as Mc-Kinsey 7’s. This is because the persons who developed this model Robert H Waterman, Jr., Thomas J. peters and Julian R Philips have been consultants at MC-Kinsey and co. they published their 7’s model in their article STRUCTURE IS NOT ORGANISTATION(1980) and in their books THE ART OF JAPANESE MANAGEMENT (1981) and IN SEARCH OF EXCELLENCE(1982).

Productive organization change is not simply a matter of structure, although strategy is critical too. Our claim is that effective organizational change is really the relationship between structure, strategy, systems, styles, skills, staff and something we call super-ordinate goals.

Our central idea is that organization effectives, systems from the interaction of several factor- some especially obvious and some under analyzed. Our framework for organization change graphically depicted the figure.

STRUCTURE

In the hdfc standard life each and every department is empowered with the officer, clerk and sub staff. The authority is delegated to officer/manager to extract work from the staff. The each department consists of members based on its requirements.

Thus it is having an effective work on the various activities efficiently and effectively.

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SKILLS

It is a more reputed insurance company, as it is providing financial solution of where to invest, how to invest and number of products with having more benefits to investors. It has reputed customers who are loyal to the organization. The service given to the customers are accomplished as per their requirements. Financial services generally do mass supporting services are rendered to all types (classes) of customers. More over the people feel their task is in safe hands of the industry. The organization is having various capabilities over the competitors. These skills are unique from the competitors of hdfc standard life.

The skills are broadly categorized as follows:-

Market knowledge, analytical skills, Services, Research, Personal/administration, Soft skills, Supporting, Medical, Finance, Information relations, others

STYLE

Hdfc standard life follows top down/bottom up style in its management, where in each major decision regarding the company is taken in top down fashion and other decision like targets and growth aspects hdfc standard life follows bottom up style.

We think it is important to distinguish between the basic personality of a top management team and the way the team comes across to the organization. Organization may listen to what managers say but they believe what managers do. Not words, but pattern of action is decisive. The power of style then is essentially manageable.

One aspect of style is symbolic behavior. Typically have more people on board who understand exploration are have headed exploration department. Typically they fund exploration more consistently.

STRATEGY

By “strategy” we mean those actions that a company plans in response to or anticipation of changes in its customers, its competitors. Strategy is the way A Company aims to improve its position vis-à-vis competition perhaps through low cost production or delivery, perhaps by providing better value to the customer, perhaps by achieving sales and service dominance. it is, or ought to be, an organization way of saying:” here is how we will create unique value”.

The hdfc standard has set of objectives, strategies to achieve the objective, the course of action to be taken to achieve the objective and guidelines for the course of action.

Hdfc standard adopts low pricing strategy to generate huge returns and good market share in the industry, since it has well expanded its business all over INDIA.

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Hdfc standard life charges minimal to its clients for the services. It provides more benefits to customers compared to its competitor. Hence it is known for the good pricing strategy in the industry.

SYSTEM

The hdfc standard life has various techniques to control this procedure as system like to improve the back office targets by giving addition support.

Information system: the implementation of computers has made information flow fast and reliable. The information is versatile. Since hdfc standard life has good backup system.

Recruitment, training and development system

Recruitment process starts with the identification of the vacancies by the department head of the respective department. A form requesting for the human resource is sent from the department to HRD.

STAFF

Staff (in the sense of people, not line/staff) is often treated in one of two ways. At the hard end of the spectrum, we talk of appraisal systems, pay scales, formal training program and the like. At the soft end, we talk about morale, attitudes, motivation and behavior.

The hdfc standard life is in the course of cutting down the cost of service. If it starts recruiting, the selection is done based on the education qualification first class degree.

The various training program to the employees are taken like refresher course, job rotation and job training. The promotion in the organization is taken place based upon the service, seniority and educational qualification. The performance appraisal is also taken as a basis for promotion so officer’s staff makes it.

SHARED VALUES

Unlike the other six S’s, super ordinate goals don’t seem to be present in all, or even most, organizations. They are, however, evident in most of the superior performers.

The value shared by the members of an enterprise is known as the shared values. The organization of HDFC STANDARD LIFE is having a strategy of sharing values.

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SWOT ANALYSIS

STRENGTHS

1. HDFC Standard life insurance offers a range of individual and group insurance solutions.

2. HDFC Standard Life has the financial expertise required to manage long-term investments safely and efficiently.

3. Rated ‘AAA’ by CRISIL and ICRA for the 10th consecutive year for High service standards

4. Life insurance industry is a rapid growing and a nobler service industry.

WEAKNESSES

1. LIC is prevalent and sustains even today a major source of population.

2. Low number of offices and network and number of life insurance agents.

3. Lack of knowledge and expertise.

OPPORTUNTIIES

1. Life insurance has captured its mere15 – 20% growth therefore a wide open untapped market is open to the company to develop, grow and measure its success.

2. Still the numbers of companies are few and company has every capability to grow and forward its performance areas to the widest.

THREATS

1. People are hesitant to invest and put their hard earned money to the private life insurance company with the fear of getting lost.

2. Belief towards LIC as it is a government corporation is continued to surmount the people of India despite lots of flaws and development and liberalization of life insurance.

3. Alternative financial services such as mutual fund, banking services, share and securities also pose problems and threats to the working of the life insurance sector.

4. Illiteracy and unemployment also pose threat.

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5. Rising real estate industry also pose threat as people are investing a bulk of their money over to that industry.

Strengths Weaknesses Opportunities Threats

Reputation in

marketplace

Shortage of consultants

at operating level rather

than partner level

Well established position

with a well defined

market niche

Large consultancies

operating at a minor level

Expertise at partner level

in HRM consultancy

Unable to deal with

multi-disciplinary

assignments because of

size or lack of ability

Identified market for

consultancy in areas

other than HRM

Other small

consultancies looking to

invade the marketplace

ANALYSIS OF FINANCIAL STATEMENT

Financial statement analysis is a comprehensive analysis of all three financial statements: balance sheet, income statement, and cash flow statement. Financial statements provide useful information. However, one has to meticulously look for the right information from the right data. One can undertake the financial statement analysis from different stakeholders’ perspective: creditors, bankers, credit rating agencies, existing shareholders, potential shareholders, internal management, and employees too.

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Financial statement helps in understanding the performance of the organization. The performance of an organization can be explained on the basis of the four important aspects of the business:

a) Liquidity: Liquidity shows the ability of the business to service the short term obligation.b) Solvency: Solvency shows the ability of the business to meet the long term obligation.c) Efficiency: Efficiency shows the ability of the business to use the resources of the business.d) Profitability: Profitability shows the ability to the business to generate and distribute profit.

Intra firm comparison of hdfc:

1. Analysis of Short – Term Liquidity:

a. Current ratio = Total Current Assets / Total Current Liabilities

b. Quick ratio = quick current assets / quick current liabilities

Table showing: current ratio and quick ratio of hdfc standard life insurance company ltd. for the year 2008 and 2009.

Year 2009 (RS.’000) 2008 (RS.’000)

Current assets 9,643,629 8,575,727

Current liabilities 9,029,038 6,251,168

Current ratio and quick ratio 1.07% 1.37%

Inference:

The above table is showing the details regarding the current ratio and quick ratio of hdfc standard life insurance company ltd. The standard current ratio is 2:1, and quick ratio is 1:1, but the company has got only 1.37 and 1.07 both the year the ratio is not satisfactory. But compare to year-2009 ratio year-2008 ratio was good.

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2. Capital Structure and Long -Term Solvency Ratios: Debt equity ratio =long Term Debt / shareholders fund

Table showing: debt equity ratios of hdfc standard life in the year 2008 and 2009.

Inference:

There is continues increase in Share holders’ Funds and also in an outsider funds from the year

2008 to 2009. Outsider’s funds are increased more than the shareholders fund. Hence the

outsider’s funds has been increased year by year, it shows the larger outsiders funds are available

to the company. Since this is quite satisfactory and in the same way it is not good to the

shareholders point of view and also to the company.

3. Profitability Ratios:

a. Gross profit ratio = gross profit / sales*100

Table showing: the gross profit ratio of hdfc standard life insurance company ltd.

Years 2009 (RS.’000) 2008 (RS.’000)

Outsiders Funds 97,578,470 84,012,076

Share Holders Fund 18,433,462 13,263,132

Debt Equity Ratio 5.29% 6.33%

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Year 2009 (Rs.’000) 2008 (Rs.’000)

Gross profit (5,029,631) (2,435,094)

Sales 55,183,763 48,176,166

Gross profit ratio -0.09% -0.05%

Analysis:

The high ratio of gross profit is considered satisfactory; hdfc standard life insurance company

ltd. is suffering gross loss in the year 2008 and 2009.

Inference:

There is an increase in gross loss and also the percentage of loss in the year 2008 to 2009 is

0.05, and 0.09 respectively. In the year 2008 it was facing less gross loss, but later it went on

increasing. In the year 2009, loss percentage is 0.09 compare to last year the loss has increased.

b. Net profit ratio:

Net profit ratio= net profit/sales*100

Table showing net profit ratio of hdfc standard life for the year 2008 and 2009

Inference: The high ratio of net profit is considered satisfactory; hdfc standard life insurance

company ltd. is suffering net loss in the year 2008 and 2009 respectively.

There is an increase in net loss in 2009 compare to year-2008. The percentage of loss in the year

2008 and 2009 is 0.14, and 0.22 respectively. This is not good from the company point of view.

Year 2009 (RS.’000) 2008 (RS.’000)

Net profit (11,913,122) (6,883,491)

Sales 55,183,763 48,176,166

Net profit ratio -0.22 -0.14

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LEARNING EXPERIENCE

In the class just we can assume how the corporate world is but it is completely different when I started to go to the company. In the class just we will read, learn and same thing we will write in the exam and we will get pass but when we go for searching job really we will feel the heat of outside world, regarding pressure for target achievement, competition for jobs etc…

That was a wonderful experience to me in that company. I learnt so many things there, what is the real corporate culture, How much we have to be smart, How much talented we should, How we should achieve our target, what is our responsibity.

Chapter-4

General Introduction

Financial Statement Analysis

The purpose of the financial statement analysis is to help users to understand the organization and the business decisions. These users are both internal and external. The internal users include the management, employees, and the external users include the shareholders, researchers, bankers, customers, suppliers’ government representatives.

Boards of directors analyze the financial statements to understand the impact of the decisions and use the same for future decision making. Employees use the financial statements to negotiate the union demands. Potential investors use the financial statements to decide about the investment to be made. The common goal of these users is to understand the past and use the data to predict the future.

For answering the above mentioned questions one has to undertake a detailed analysis of the financial statements. Financial statement analysis is a comprehensive analysis of all three financial statements: balance sheet, income statement, and cash flow statement. Financial statements provide useful information. However, one has to meticulously look for the right information from the right data. One can undertake the financial statement analysis from different stakeholders’ perspective: creditors, bankers, credit rating agencies, existing

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shareholders, potential shareholders, internal management, and employees too. There are different tools of financial statement analysis: common-size statement, comparative statements, and ratio analysis. Before we get into the financial statement analysis, in the first section we will recapitulate the financial statements.

Tools for Financial Statement Analysis

Following the important tools which are used for undertaking FSA:

a) Comparative Statementsb) Common Size Statementsc) Ratio Analysisd) Trend Analysise) Du-Pont analysisf) Fund flow analysisg) Cash flow statementh) Cost-volume profit analysis

Statement of the problem

Finance is the life blood of all business activities. Financial soundness is the basic requirement on which the progress and success of any business firm rests in the long run. Firms should be able to mobilize adequate funds to carry on their regular and normal activities without any difficulty.

The year 08-09 has been a difficult year for the financial sector and the impacts have been felt in the Indian life insurance industry. Growth rate in the private sector have declined over the year on the back of a much more cautious attitude adopted by individual customers. There have been changes in asset allocation and preferences during the year. Main purpose of this topic is to analyze the financial statement to know regarding the performance of the company and to know whether it has performed well in this financial year (2009) compare to past five years.

Objectives of the study

I. To study the overall financial performance of the company.

II. To know the debt and equity position in the company

III. To analyze whether company is in good financial position or not.

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IV. And to gain the professional knowledge while working in corporate environment.

Scope of the study

a. Hdfc standard life financial statements analysis with comparison of financial statements of past five years.

b. To study regarding insurance industry

c. To know about hdfc standard life insurance company

d. To know the status of hdfc standard life in the market

Methodology

This project is on descriptive research and some extent it regards to causal research, and to use

the available facts as information and analyze these to make a critical evaluation of the materials

this is also a causal research with an aim to find a solution for an immediate problem facing by

industry or business organization. The control aim of descriptive research is to discover a

solution for some pressing problem.

1. Type of research – descriptive research

2. Tool – Ratio analysis

3. Company annual reports and e-mail at www.hdfcinsurance.com

Source of data

Secondary data:

Secondary data was collected through available records/annual reports of 5 year period from

2005-2009 and web sites of hdfc standard life insurance company.

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Data Collection:

The required data was collected from the annual report of the company and direct Personal

interview with the officer of the company and also through company website.

Limitations of the study

It was difficult to collect some information because of some company rules.

Interaction with the employees was limited because of the work schedule.

It was difficult to cover all the types of ratios because of lack of information i.e. regarding inventories, debtor’s turnover etc…..

CHAPTER-5 ANALYSIS /DESIGN

Ratio analysis of financial statements

It is a systematic use of ratios to interpret/ assess the performance and status of the firm.

A ratio expresses a mathematical relation between two quantities.

Ratios are tools providing us which clues and symptoms of underlying conditions. Ratios can help us to identify areas requiring further investigation.

The usefulness of ratio depends on the quality of the numbers in their calculation.

That is our ability to draw useful insights and make valid intercompany comparisons is enhanced by our skill in adjusting reported numbers prior to inclusion in these analyses.

Ratios are interpretable only in comparison with

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1) Prior ratios

2) Predetermined standards.

3) Ratios of competitors.

Ratio analysis of a firm’s financial statements is of interest to shareholders, creditors, and the firm’s management. Stockholders are interested in the firm’s current and future level of risk and return, which directly affect the stock price. The firm’s creditors are primarily interested in the short-term liquidity of the company and in its ability to make interest and principal payments.

Internal management is concerned with all aspects of the firm’s financial performance. Therefore, they attempt to produce financial ratios that will be considered favorable to both owners and creditors. Additionally, management uses ratios to monitor the firm’s performance from period to period. Unexpected changes or variances are identified to isolate developing problem areas.

IMPORTANCE OF RATIO ANALYSIS

Ratio analysis does two things, immediately.

The first thing is it allows the company to compare itself with other like companies. If management feels things aren't going well, they can help pinpoint the problem through comparing their ratios with other companies.

They may have several ratios that are comparable, but a couple which are way off. That might be where the problem is.

Also, ratio analysis may help by comparing your company with prior periods. If a particular ratio is declining when it would be better if it were staying the same or increasing, then again looking at the ratios are important to find out where the problem lies. Ratios are important to spot trends easily.

Types of ratios:

Ratios can be classified into six broad groups:

1. Liquidity ratios2. Capital structure/ leverage ratios3. Profitability ratios4. Activity/ efficiency ratios

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5. Integrated analysis of ratios6. Growth ratios.

1. Liquidity Ratios:

It is the ability of a firm to satisfy its short- term obligations as they become due. The importance of 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.

a) Current Ratio:

Current Ratio is the ratio between Current Assets and Current Liabilities. It is calculated by

dividing Current Assets by Current Liabilities. Current assets include all assets, which can

convert easily into near money within a year. Current assets include cash in hand, cash at bank,

debtors, stock, and money at short or call notice etc. Current liabilities are the sum of all short-

term payables within a year, which include Sundry Creditors, Bills payable, Bank overdraft,

Expenses outstanding etc. the current ratio of a firm measures its short term solvency that is, its

ability to meet short-term obligations.

As a measure of short-term current financial liquidity, it indicates the amount of current assets

available for each amount of current liability. Formula for finding current ratio is given below.

Significance of the ratio

Current ratio provides a margin of safety to the creditors. In a sound business, a current ratio of

2:1 is considered an ideal one. Current ratio indicates firm’s ability to pay its current liabilities,

i.e. day-to-day financial obligation. Current ratio is an index of the firm’s financial stability i.e.,

an index of technical solvency and an index of the strength of working capital, which means

excess of current assets over current liabilities. Higher ratio more than 2:1 indicates sound

solvency position. Lower ratio less then 2:1 indicates inadequate working capital.

Current Ratio = Current Assets/Current Liabilities

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Table: 1

Table showing: the Current Ratios of hdfc standard life from the year 2005-09.

Year 2009

(RS.’000)

2008

(RS.’000)

2007

(RS.’000)

2006

(RS.’000)

2005

(RS.’000)

Current assets 9,643,629 8,575,727 5,325,536 3,869,728 1,143,024

Current

liabilities

9,029,038 6,251,168 3,905,497 2,687,296 1,090,355

Current ratio1.07% 1.37% 1.36% 1.44% 1.05%

Analysis:

Hdfc standard life insurance company ltd. is having a low current ratio in the year 2005 (1.05) in

the year 2006 the ratio has been increased to 1.44. It has been reduced to 1.36 in the year of 2007,

and in 2008 current ratios increased further (1.37). But again the current ratio has decreased in the

year 2009 (1.07).

Inference:

The Current assets in the year 2005 is Rs.1,143,024,000, in the year 2006 is Rs. 3,869,728,000,

in the Year 2007 Rs. 5,325,536,000, in the year 2008 Rs. 8,575,727,000, and in the year 2009 Rs.

9,643,629,000. When there is an increase in current assets in the same way Current liabilities are

also increasing from year to year. In the year 2005 the current liability was Rs. 1,090,355,000, in

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2006 it increased to Rs. 2,687,296 and it increased in the year 2007 to Rs. 3,905,497,000.and in

the year 2008 it increased more than the last year that is Rs. 6,251,168,000. And in 2009 it

increased much more i.e., 9,029,038,000.

Since the current ratio is not Satisfactory in the year 2005 & 09. But in the year 2006, 2007, and

2008 Current ratios is not up to the level.

Graph-1

Graph showing: the Current ratios of hdfc standard life insurance company ltd. from the

year2005 to 2009. Current Ratio

YEARS

Quick ratio:

Quick ratio is also known as liquid ratio or Acid test ratio. Quick ratio shows the liquidity of the business. Quick ratio is the ratio between quick assets and quick liabilities. The term quick asset refers to current assets, which can be converted into, cash immediately or at a short notice without diminution of value. Quick assets comprise of all current assets minus stock and pre paid expenses.

The formula to find quick ratio is as follows.

P

E

RC

ENTAGE

2005 2006 2007 2008 20090

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Quick Assets = Current assets – (Stock + Prepaid expenses)

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Quick liabilities comprises of all current liabilities minus Bank over draft.

The formula is shown below:

(Or)

Significance of the ratio

It is the true test of business solvency. Generally an acid test ratio of 1:1 considered as

satisfactory, by that a firm can easily meet all current claims. Higher ratio more than 1:1 indicates

sound and good financial position. If the ratio is less then 1:1, that is, liquid assets are less than

current liabilities, the financial position of the concern shall be deemed to be unsound. This ratio

gives a picture of firm’s ability to meet its short-term debts out of short-term assets. If less the

quick ratio, higher the incidence of inventory in inflating the current ratio and higher is quick

ratio, the incidence of inventory in inflating the current ratio is less.

Table-2

Table showing the quick or Acid Test ratios of hdfc standard life from the year 2005-09

Years 2009

(Rs.’000)

2008

(Rs.’000)

2007

(Rs.’000)

2006

(Rs.’000)

2005

(Rs.’000)

Quick Ratio = Quick assets / Quick Liabilities

Quick Ratio = Quick assets/Current Liabilities

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Liquid assets 9,643,629 8,575,727 5,325,536 3,869,728 1,143,024

Liquid liabilities 9,029,038 6,251,168 3,905,497 2,687,296 1,090,355

Acid test ratio1.07% 1.37% 1.36% 1.44% 1.05%

Analysis:

Hdfc standard life insurance company ltd. is having a low acid test ratio in the year 2005 and

2009 i.e. (1.05 and 1.07). When compare to next years, in the year 2006, 2007 and 2008, it has

1.44, 1.36 and 1.37 respectively.

Inference:

As a rule of thumb quick ratios for the past consecutive years are well above the rule of

thumb. It indicates that the firm is liquid and has the ability to meet its current or liquid liabilities

in time.

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Graph – 2

Graph showing the quick ratios or Acid test ratio of hdfc standard life insurance.ltd from

the year 2005 to 2009

2005 2006 2007 2008 2009

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Series 2

Years

b) Net working capital:

Working capital is the lifeblood of the business. Working capital refers to that part of the firm’s capital, which is used for financing short term or current assets, such as, cash, marketable securities, debtors, inventories, bills receivables etc. in a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities.

Table: 3

Table showing: Working Capital of HDFC Standard life insurance company ltd. from the

year 2005-09.

Net working capital = Current assets – Current liabilities

P

E

RC

ENTAGE

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Years 2009

(RS.’000)

2008

(RS.’000)

2007

(RS.’000)

2006

(RS.’000)

2005

(RS.’000)

Total Current

Asset

9,643,629 8,575,727 5,325,536 3,869,728 1,143,024

Total Current

Liability

9,029,038 6,251,168 3,905,497 2,687,296 1,090,355

Net working

Capital614,591 2,324,559 1,420,039 1,182,432 52,669

c) Turnover ratios:

It measures the speed with which various accounts /assets are converted into sales or cash. It is concerned with measuring the efficiency in asset management. These ratios are also called efficiency ratios or asset utilization ratios.

The liquidity ratios mentioned above are related to the liquidity of a firm as a whole. Another way of examining the liquidity is to determine how quickly certain current assets are converted into cash. The ratios to measure these are referred to as turnover ratio.

The three relevant turnover ratios are,

1. Inventory turnover ratio:

This ratio is also known as stock velocity. This ratio is calculated to consider the adequacy of the

quantum of capital and its justification for investing in inventory. A firm must have reasonable

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stock in comparison to sales. It is the ratio of cost of sales and average inventory. This ratio helps

the finance manager to evaluate inventory policy. This ratio reveals the number of times finished

2. Debtors’ turnover ratio:

Debtor’s turnover ratio is also called ‘Debtors velocity’ or ‘Receivables turnover’. A firm sells

goods on credit basis. When the firm extends its customers, book debts are created in the firm’s

account. Debtors are expected to convert into cash over a short period, so it included in current

assets. Debtors include the amount of bills receivables and book debts at the end of accounting

period. It is a test to understand the reasonable quantitative relationship between outstanding

receivables and sales. Financial analysts employ two ratios to judge the quality or liquidity of the

Debtors turnover and Average collection period. Debtor’s turnover is found by dividing total

sales by sundry debtors. Formula to find debtors turnover ratio is given below

3. Creditor’s turnover ratio:

It is a ratio between net credit purchases and the average amount of creditors outstanding during the year. It is calculated as follows:

Debtors turnover = Total sales/Sundry debtors

Inventory turnover Ratio = Cost of sales/Average inventory

Creditors turnover ratio= net credit purchases / average creditors

Net credit purchases= gross credit purchases – returns to suppliers

Average creditors= average of creditors (including bills payable) outstanding at the beginning and at the end of the year

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A low credit turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shows that accounts are to be settled rapidly. The creditor’s turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by relying on supplier’s credit. The extent to which trade creditors are willing to wait for payment can be approximated by the creditor’s turnover ratio.

d) Defensive – interval ratios:

It is the ratio between quick assets and projected daily cash requirement.

e) Cash flow from operations ratio:

This ratio measures liquidity of a firm by comparing actual cash flows from operations with current liability. It is calculated as per equation

Being a cash measure, the ratio does not encounter the problems of actual convertibility of current assets and the need for maintaining minimum levels of these assets. In general, the higher the ratio, the better is a firm from the point of view of liquidity.

2. Capital structure /leverage ratios:

The long term lenders/creditors would judge the soundness of a firm on the basis of the long term financial strength measured in terms of its ability to pay the interest regularly as well as repay the installment of the principal on due dates or in one lump sum at the time of maturity. The long term solvency of a firm can be examined by using leverage or capital structure ratios. It may be defined as financial ratios which throw light on the long term solvency of a firm as reflected in its ability to assure the long term lenders with regard to

(1) Periodic payment of interest during the period of the loan and

(2) Repayment of principal on maturity or in predetermined installments at due dates

Defensive – interval ratios = Liquid assets /projected daily cash requirement

Projected daily cash requirement=projected cash operating expenditure/number of days in a year

Cash flow from operations ratio= Cash flow from operations/ current liabilities

49

f) Ratios based on relationship between borrowed funds and owner’s capital:

A. Debt –equity ratio:

The financing of total assets of a business concern is done by owner’s equity as well as outsider’s debts. The relationship between borrowed funds and owner’s capital is a popular measure of long-term financial solvency of a firm. The relationship is shown by the debt equity ratio. This ratio indicates the relative proportions of debts and equity in financing the assets of a firm the formula we use is Total long-term debts by Shareholders fund. Total long-term debts include mortgage loans, long term loans; debentures etc. share holders fund includes Preference share holders, Equity share holders, capital reserve, revenue reserve etc.

Significance of the ratio:

Acceptable norm for this ratio is considered to be 2:1. A higher debt-equity ratio is allowed in the

case of capital-intensive industries, a norm of 4:1 is used for fertilizer and cement units and a norm

of 6:1 is used for shipping units. A high ratio shows that the claims of creditors are greater than that

of owners. A very high ratio is unfavourable from the firm’s point of view. A high debt company,

also known as highly leveraged or geared, is able to borrow funds on very restrictive terms and

conditions. A low debt-equity ratio implies greater claim of owners then creditors. From the point of

view of creditors, it represents a satisfactory capital structure of the business since a high proportion

Debt equity ratio = Total long term funds/Share holders fund

50

of equity provides a larger margin of safety for them. This ratio shows the extent to which debt

financing is used in the business.

Table: 4

The debt equity ratios of hdfc standard life insurance company ltd. from the year 2005 to

2009.

Years 2009

(RS.’000)

2008

(RS.’000)

2007

(RS.’000)

2006

(RS.’000)

2005

(RS.’000)

Outsiders

Funds

97,578,470 84,012,076 45,999,541 23,633,655 8,470,669

Share

Holders

Fund

18,433,462 13,263,132 8,360,441 6,331,725 3,194,450

Debt Equity

Ratio5.29% 6.33% 5.50% 3.73% 2.65%

Analysis:

The ratio of 2:1 is considered satisfactory, the debt equity ratios of hdfc standard life insurance

company ltd is 2.65, 3.73, 5.50, 6.33, and 5.29 from the year 2005 – 2009 respectively.

Inference:

51

There is continues increase in Share holders’ Funds and also in an outsider funds from the year

2005 to 2009. Outsider’s funds are increased more than the shareholders fund. Hence the

outsider’s funds has been increased year by year, it shows the larger outsiders funds are available

to the company. It has crossed more than maximum level also. Since this is quite satisfactory and

in the same way it is not good to the shareholders point of view and also to the company.

Graph- 3

Chart showing: the debt equity ratios of HDFC STANDARD LIFE from the year 2005-09.

Debt equity ratios

2005 2006 2007 2008 20090

1

2

3

4

5

6

7

Series 2

Years

B). Debt –assets ratio:

Another approach to calculating the debt to capital ratio is to relate the total debt to the total assets of the firm. The total debt of the firm comprises long- term debt plus current liabilities. The total assets consist of permanent capital plus current liabilities. Thus,

Debt to total assets/capital ratio= total debt/ total assets

Percentage

52

Table: 5

Debt - assets ratio table

Particulars

2009

(Rs.’000)

2008

(Rs.’000)

2007

(Rs.’000)

2006

(Rs.’000)

2005

(Rs.000)

Total debt 116,011,932 97,275,208 54,359,982 29,965,380 11,665,119

Total assets 11,091,335 9,907,527 6,061,590 4,471,073 1,874,848

Debt-assets

Ratio

10.45% 9.82% 8.97% 6.70% 6.22%

Analysis:

The ratio of 2:1 is considered satisfactory, the debt equity ratios of hdfc standard life insurance

company ltd is 6.22, 6.70, 8.97, 9.82, and 10.45% from the year 2005 – 2009 respectively.

Inference:

There is continues increase in total debt and also in total assets from the year 2005 to 2009. Debt

ratio is increasing more than the assets ratio. Hence the debt ratio has been increased year by year;

it shows the larger total debt is more than the total assets available to the company. Since this is

quite satisfactory and in the same way it is not good to the share holder’s point of view and also to

the company.

53

Graph: 4

Debt assets ratio of HDFC STANDARD LIFE, from the year 2005 to 2009

2005 2006 2007 2008 2009

0

2

4

6

8

10

12

Series 1

Years

c) Equity assets ratio:

Still another variant of the debt/equity ratio is to relate the owner’s/proprietor’s funds with total assets. This is called the proprietary ratio. The ratio indicates the proportion of total assets financed by owners. Symbolically, it is equal to:

Proprietary Fund to Fixed Assets

Proprietary ratio relates shareholders funds to total assets. It is a variant of debt equity ratio. This ratio shows long term or future of the business. It calculated by dividing shareholders funds by the total assets.

P

E

R

C

E

N

T

A

G

E

Proprietary ratio = Proprietor’s funds / total assets x 100

54

`Preference share capital and equity share capital plus all reserves and surplus items are called

shareholders fund. Total assets include all assets including goodwill.

Significance of the ratio:

The acceptable norm for the ratio is 1: 3. The ratio shows the general strength of the company. It is very important to creditors as it helps to find out the proportion of shareholders funds in the total assets used in the business. Higher ratio indicates a secured position to creditors and a low ratio indicates greater risk to creditors. Proprietary ratio is also analysis in the following manner

Table: 6

Table showing: the Proprietary Ratio of hdfc standard life from the year 2005-09.

Years

2009

(RS.’000)

2008

(RS.’000)

2007

(RS.’000)

2006

(RS.’000)

2005

(RS.’000)

Fixed Asset 1,447,706 1,331,800 736,054 601,345 731,824

Shareholders

Fund18,433,462 13,263,132 8,360,441 6,331,725 3,194,450

Proprietary ratio12.73% 9.96% 11.36% 10.53% 4.37%

Analysis:

The ratio of 1:3 is considered satisfactory; the Proprietary Ratio of Hdfc standard life insurance

company is having a proprietary ratio of 4.37, 10.53, 11.36, 9.96, and 12.73 in the year 2005,

2006, 2007, 2008, and in 2009 respectively.

Inference:

Proprietary ratio = shareholders funds/ Fixed assets

55

The Proprietary Ratio of hdfc standard life insurance company is increasing over the years. It

shows Good investment over by the company in Fixed Asset.

Graph – 5

Graph showing the Proprietary Ratio of hdfc standard life insurance company ltd. from

the year 2005-09

Proprietary Ratio

2005 2006 2007 2008 20090

2

4

6

8

10

12

14

Ratio of current assets to proprietor’s funds:

It shows the relationship between current assets and Shareholders funds. The purpose of this ratio is to calculate the percentage of shareholders funds invested in current assets. It found by dividing current assets by proprietors funds.

Significance of the ratio

Years

P

E

R

C

E

N

T

A

G

E

56

This ratio can be expressed in percentage or as a proportion. Different industries are using different norms and hence the ratio should be carefully used.

Table: 7

Table showing the Proprietary Ratio of hdfc standard life insurance company ltd. from the

year 2005-09

Years 2009

(RS.’000)

2008

(RS.’000)

2007

(RS.’000)

2006

(RS.’000)

2005

(RS.’000)

Current Asset 9,643,629 8,575,727 5,325,536 3,869,728 1,143,024

Proprietors Fund18,433,462 13,263,132 8,360,441 6,331,725 3,194,450

Proprietary

Ratio1.91% 1.55% 1.55% 1.64% 2.79%

Analysis:

Hdfc standard life is having a current asset to proprietary ratio of 2.79, 1.64, 1.55, 1.55, and 1.91 percent in the year 2005, 2006, 2007, 2008, and in 2009 respectively.

Inference:

The Proprietary ratio of hdfc standard life insurance company ltd. is varying from the

year 2005 to 2009. It indicates that the Proprietary ratio is not up to the level.

57

Graph -6

The Graph showing the Proprietary Ratio of hdfc standard life insurance company ltd.

from the year 2005-2009.

2005 2006 2007 2008 20090

0.5

1

1.5

2

2.5

3

c) Coverage ratios:

It measures the firm’s ability to pay certain fixed charges. These ratios are computed from information available in the profit and loss account. For a normal firm, in the ordinary course of business, the claims of creditors are not met out of the sale proceeds of the permanent assets of the firm. The obligations of a firm are normally met out of the earning or operating profits.

1. Interest coverage ratio:It measures the firm’s ability to make contractual interest payments.

It is also known as ‘time-interest- earned ratio’. This ratio measures the debt servicing capacity of a firm insofar as fixed interest on long term loan is concerned. It is determined by dividing the operating profits or earnings before interest and taxes by the fixed interest charges on loans.

Interest coverage = EBIT / interest

YEARS

P

E

R

C

E

N

T

A

G

E

58

2. Dividend coverage ratio:

It measures the ability of a firm to pay dividend on preference shares which carry a stated rate of return. This ratio is the ratio of net profits after taxes and the amount of preference dividend. Thus,

3. Total fixed charges coverage ratio:

It measures the firm’s ability to meet all fixed payment obligations. The total coverage ratio has a wider scope and takes into account all the committed fixed obligations of a firm, that is, 1) Interest on loan 2) Preference dividend 3) Lease payments4) Repayment of principal

Symbolically,

4. Cash flow coverage ratio:

The overall ability of a firm to service outside liabilities is truly reflected in the total cash flow coverage ratio: the higher the coverage, the better is the ability

5. Debt services coverage ratio:

Debt service capability is the ability of a firm to make the contractual payments required on a scheduled basis over the life of the debt. It is considered a more comprehensive and apt measure

Dividend coverage ratio = EAT/ PREFERENCE DIVIDEND

Total fixed charges coverage ratio = EBIT + Lease payment/ interest + lease payment + (preference dividend + installment of principal) / (1-t)

Total cash flow coverage = EBIT+ lease payments + depreciation + non-cash expenses / lease payment + interest + (principal repayment)/ (1-t) + (preference dividend)/ (1-t)

59

to compute debt service capacity of a business firm. It provides the value in terms of the number of times the total debt service obligations consisting of interest and repayment of principal in installments are covered by the total operating funds available after the payment of taxes: Earnings after taxes, EAT + interest + depreciation + other non – cash expenditure like amortization.

3. Profitability ratios:

The profitability of a firm can be measured by its profitability ratio. Apart from the creditors, both short-term and long terms, also interested in the financial soundness of a firm are the owners and the management or the company itself. The management of the firm is naturally eager to measure its operating efficiency. Similarly the owners invest their funds in the expectation of reasonable returns. The operating efficiency of a firm and its ability to ensure adequate returns to its shareholders/ owners depends ultimately on the profits earned by it.

a) Gross profit ratio:

Gross profit is the result of the relationship between prices, sales volume and costs. It measures the percentage of each sales rupee remaining after the firm has paid for its goods. A change in the gross margin can be brought about by changes in any of these factors. The gross margin represents the limit beyond which fall in sales prices are outside the tolerance limit.

Further, the gross profit ratio/ margin can also be used in determining the extent of loss caused by theft, spoilage, damage, and so on in the case of these firms which follow the policy of fixed gross profit margin in pricing their products.

A high ratio of gross profit to sales is a sign of good management as it implies that the cost of production of the firm is relatively low. It may also be indicative of a higher sales price without a corresponding increase in the cost of goods sold. It is also likely that cost of sales might have declined without a corresponding decline in sales price.

A relatively low gross margin is definitely a danger signal, warranting and careful and detailed analysis of the factors responsible for it.

Gross profit ratio= gross profit x 100

Sales

60

Table: 8

Table showing: the gross profit ratio of hdfc standard life insurance company ltd.

Year 2009(Rs.’000)

2008 (Rs.’000)

2007 (Rs.’000)

2006 (Rs.’000)

2005 (Rs.’000)

Gross profit (5,029,631) (2,435,094) (1,255,611) (1,287,572) (897,348)

Sales 55,183,763 48,176,166 28,226,248 15,469,5016,866,346

Gross profit ratio

-0.09% -0.05% -0.04% -0.08% - 0.13%

Analysis:

The high ratio of gross profit is considered satisfactory; hdfc standard life insurance company

ltd. is suffering gross loss from the year 2005 – 2009 respectively. Even though having a very

good sales and growth in the market company is not in the position to make profit.

Inference:

There is continues decrease in gross loss suffered by this company and also the percentage of

loss from the year 2005 to 2009 is 0.13, 0.08, 0.04, 0.05, and 0.09 respectively. In the year 2005 it

was facing more gross loss, but later it went on decreasing the loss. In the year 2009, again it

faced more loss percentage compare to last three years.

61

Graph- 7

The gross profit ratios of hdfc standard life insurance company.ltd from the year 2005-09.

Gross profit ratio in percentageYEARS

2005 2006 2007 2008 2009

-0.14

-0.12

-0.1

-0.08

-0.06

-0.04

-0.02

0

B.Net profit ratio:

It measures the percentage of each sales rupee remaining after all costs and expenses including interest and taxes have been deducted.

The net profit margin is indicative of management’s ability to operate the business with sufficient success not only to recover from revenues of the period, the cost of merchandise or services, the expenses of operating the business (including depreciation) and the cost of the borrowed funds, but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. The ratios of net profit (after interest and taxes) to sales essentially express the cost price effectiveness of the operation.

PERCENTAGE

62

A high net profit margin would ensures adequate return to the owners as well as enable a firm to withstand adverse economic conditions when selling price is declining, cost of production is rising and demand for the product is falling.

A low net profit margin has the opposite implications.

Table: 9

Table showing net profit ratio of hdfc standard life from the year 2005 to 2009

Year 2009(RS.’000)

2008(RS.’000)

2007(RS.’000)

2006(RS.’000)

2005(RS.’000)

Net profit (11,913

,122) (6,883,49

1) (4,421,36

4) (3,165,75

3) (1,878,181)

Sales 55,183,763 48,176,166 28,226,248 15,469,501

6,866,346

Net profit ratio

-0.22% -0.14% -0.16% -0.20% -0.27%

Analysis:

The high ratio of net profit is considered satisfactory; hdfc standard life insurance company ltd.

is suffering net loss from the year 2005 – 2009 respectively. It is having very good sales and

growth in the market then also its profit is not increasing, but net loss is reducing compare to past

years.

Inference:

There is continues decrease in net loss, which is suffered by this company and also the

percentage of loss from the year 2005 to 2009 is 0.27, 0.20, 0.16, 0.14, and 0.22 respectively. In

Net profit ratio = Net profit x 100

Sales

63

the year 2005 it was facing more net loss, but later it went on decreasing the loss. In the year

2009, again it faced more loss percentage compare to last three years.

Graph- 8

Chart showing the Net profit ratios of hdfc standard life insurance company.ltd from the

year 2005-09.

YEARS

2005 2006 2007 2008 2009

-0.3

-0.25

-0.2

-0.15

-0.1

-0.05

0

c. Return on capital employed:

The ROCE is the second type of ROI. Here the profits are related to the total capital employed. The term capital employed refers to long- term funds supplied by the lenders and owners of the firm. It can be computed in two ways. First, it is equal to non –current liabilities (long term liabilities) plus owners’ equity.

Percentage

Return on capital employed= Net profit x100

Capital employed

64

Table-10 Return on capital employed ratio table

Particulars 2009(Rs.’000)

2008(Rs.’000)

2007(Rs.’000)

2006(Rs.’000)

2005(Rs.’000)

Net profit (11,913,122) (6,883,491) (4,421,364) (3,165,753) (1,878,181)

Capital employed

18,433,462 13,263,132 8,360,441 6,331,725 3,194,450

Return on capital employed ratio

-64.62% -51.90% -52.88% -49.99% -58.80%

Analysis:

The high ratio of rate of return on capital employed is considered satisfactory; hdfc standard life

insurance company ltd. is not in the position to earn a better rate of return on total capital

employed from the year 2005 – 2009 respectively.

Inference:

There is continues decrease in rate of return on capital employed, and also the percentage of

capital employed is increasing continuously from the year 2005 to 2009 i.e. is 3,194,450,000,

6,331,725,000, 8,360,441,000, 13,263,132,000, and 18,433,462,000 respectively. In the year 2005

and 2009 it was earning very low return on capital employed compare to other financial years.

65

Graph- 9

Chart showing the return on capital employed ratio of hdfc standard life insurance

company.ltd from the year 2005-09.

YEARS

2005 2006 2007 2008 2009

-70

-60

-50

-40

-30

-20

-10

0

Percentage

66

SUMMARY OF FINDINGS

Ratio analysis is an important tool for financial statement analysis. Here we studied various

ratios relating to measurement of the financial performance such as current ratio, quick ratio,

debt equity ratio, proprietary ratio, gross profit ratio etc. In the previous chapter we made a

detailed analysis of the hdfc standard life insurance company ltd. from 2005 to 2009. The major

findings are given below

The study shows there is a continuous changes in the current ratio and also it is not satisfactory when compare to actual standard of 2:1.

Current ratio in the year 2005, it is showing 1.05% and later on it went on increasing way i.e. in 2006 – 1.44%, 2007 – 1.36, 2008-1.37%.

Current ratio in past three years it was getting to meet the standard, but in the year of 2009 again it went down to 1.07%.

The quick ratio for this company is same as mentioned in the above table. Because as there is no inventory and prepaid expenses to deduct in this company as it is insurance company we cannot find inventory.

The study shows that the net working capital in the company is Rs.52,669,000 in 2005, Rs.1,182,432,000 in 2006, in 2007 – Rs.1,420,039,000, in 2008 – Rs.2,324,559,000 and in 2009 again it decreased to Rs.614,591,000.

The study shows that the debt equity ratio is satisfactory from the creditors point of view that is in the year 2005 the percentage of ratio is 2.65%, in 2006 – 3.73%, in the year 2007 – 5.50%, in 2008- 6.33% and in 2009 it is 5.29%.

67

The study shows that the proprietary ratio to fixed assets is 2005- 4.37%, 2006- 10.53%, 2007- 11.36%, 2008- 9.96%, 2009- 12.73%.

The study shows that the proprietary ratio to current ratio is in 2005-2.79%, 2006- 1.64%, 2007- 1.55%, 2008- 1.55%, 2009- 1.91%.

The study shows that gross profit ratio of the company was went on decreasing but it is recovering from more loss to less loss and the percentage of ratio is, in the year 2005 is -0.13%, in 2006 it is -0.08%, in 2007 it is -0.04%, in 2008 it is -0.05%, in 2009 it is -0.09%

The study shows that the net loss was went on decreasing from the year 2005 to 2008. But in the year 2009 it has incurred more loss than 2006, 2007, and 2008 but less than 2005 (i.e. 2005 = -0.27, 2006= -.20, 2007= -.16, 2008= -0.14, 2009= -0.22)

The study shows that the return on capital employed is not good because every year it is earning negative returns and also the percentage of negative returns went on increasing way (i.e. 2005= -58.80%, 2006= -49.99%, 2007= -52.88%, 2008= -51.90%, 2009= -64.62%.

The return on capital employed is more negative in the year 2009 as compared to all other four years. (I.e. 64.62%)

68

CONCLUSION

HDFC STANDARD LIFE has been one of the best life insurance service providers in India. It has the excellent quality service provider to their customer. The overall performance of HDFC STANDARD LIFE is very good compared to other service providers. It got fifth position in the insurance industry. They share a very good rapport with the customers.

The financial condition is not good from year to year. It is in loss condition from past five years. Its debt- equity ratio is good. Because of that the company is in a good condition to get survival in the market.

It is selling more policies from year to year that means the sales percentage is increasing from many years it is the signal to the growth of the company. Presently it is incurring more expenses and market share is very less compare to other competitors like LIC, ICICI Prudential etc….

69

ANNEXURES

Balance sheet of HDFC STANDARD LIFE as at March 31 for five years

Particulars Schedule 2009

(Rs.‘000)

2008

(Rs.‘000)

2007

(Rs.‘000)

2006

(Rs.‘000)

2005

(Rs.‘000)

SOURCES OF FUNDS

SHAREHOLDERS’ FUNDS:

Share Capital

Share application money received pending allotment of shares

Reserve and Surplus

Credit / [Debit] Fair Value Change Account

5

6

17,958,180

-

552,892

(77,610)

12,706,359

-

552,892

3,881

8,007,148

287,391

65,902

-

6,192,718

-

65,902

73,105

3,190,898

-

-

3,552

Sub-Total 18,433,462 13,263,132 8,360,441 6,331,725 3,194,450

BORROWINGS POLICYHOLDERS’

FUNDS:

Credit / [Debit] Fair

7 - - - - -

70

Value Change Account

Policy Liabilities

Insurance Reserves

Provision for Linked liabilities

Add: Fair value change

(296,885)

29,092,419

-

84,085,083

(15,302,147)

193,745

24,366,747

-

56,317,976

3,133,608

91,247

17,391,531

-

25,934,264

2,582,499

209,569

11,487,996

-

9,732,781

2,203,309

174,980

6,377,397

-

1,918,292

-

Total Provision for Linked Liabilities

68,782,936 59,451,584 28,516,763 11,936,090 -

Sub-Total 97,578,470 84,012,076 45,999,541 23,633,655 8,470,669

Funds for Future Appropriations

Funds for future appropriation -

Provision for lapsed policies unlikely to

be revived

Surplus Allocated to Shareholders

586,395

531,970

-

-

246,951

-

-

59,485

-

-

25,516

-

-

-

-

TOTAL 117,130,297 97,522,159 54,419,467 29,990,896 11,665,119

APPLICATION OF FUNDS:

INVESTMENTS

Shareholders’

Policyholders’

Assets held to cover

8

8A

4,291,597

30,050,097

4,213,064

23,299,043

1,529,743

17,782,866

1,380,910

11,695,010

984,253

6,087,916

71

Linked Liabilities

LOANS

FIXED ASSETS

CURRENT ASSETS

Cash and bank balances

Advances and Other Assets

8B

9

10

11

12

68,782,936

30,248

1,447,706

4,108,660

5,534,969

59,451,584

18,618

1,331,800

4,493,238

4,082,489

28,516,763

12,638

736,054

3,363,556

1,961,980

11,936,090

29,356

601,345

2,879,622

990,106

1,918,292

11,984

731,824

733,529

409,495

Sub-total (A) 9,643,629 8,575,727 5,325,536 3,869,728 1,143,024

CURRENT LIABILITIES

PROVISIONS

13

14

8,820,225

208,813

6,129,149

122,019

3,874,652

30,845

2,658,567

28,729

1,069,635

20,720

Sub-Total (B) 9,029,038 6,251,168 3,905,497 2,687,296 1,090,355

NET CURRENT ASSETS (C) =

(A - B) 614,591 2,324,559 1,420,039 1,182,432 52,669

MISCELLANEOUS EXPENDITURE (to the extent not written off or adjusted)

DEBIT BALANCE IN PROFIT AND LOSS ACCOUNT (Shareholders’ account)

15 -

11,913,122

-

6,883,491

-

4,421,364

-

3,165,753

-

1,878,181

TOTAL 117,130,297 97,522,159 54,419,467 29,990,896 11,665,119

72

CONTINGENT LIABILITIES

1. Partly paid-up investments

2. Claims, other than against policies, not

acknowledged as debts by the company

3. Underwriting commitments

outstanding (in respect of share and

securities)

4. Guarantees given by or on behalf of the

Company

5. Statutory demands / liabilities

in dispute, not provided for

6.Reinsurance obligations to the

extent not provided for in the accounts

7.Others

-

-

-

-

1,465,718

-

-

-

-

-

-

262,091

-

-

-

-

-

-

309,494

-

-

-

-

-

-

119,829

-

-

-

-

-

-

-

-

-

Total 1,465,718 262,091 309,494 119,829 -

Profit & Loss Account for year ended March 31, from 2005 to 2009

Shareholders’ Account (Non-technical Account)

Particulars schedule

2009

(RS.’000)

2008

(RS.’000)

2007

(RS.’000)

2006

(RS.’000)

2005

(RS.’000)

73

Amounts transferred from the Policyholders

Account (Technical Account)

Income from Investments

(a) Interest, Dividends & 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)/disco

unt on investments

794,984

302,367

13,924

(35,870)

51,887

(2,965)

516,341

242,109

98,694

(11,142)

(21,384)

561

-

126,836

114,192

(12,470)

(23,909)

(2,375)

-

138,496

7,989

(6,933)

(6,594)

(8,926)

-

65,321

10,117

(4,043)

-

(5,156)

Sub Total 329,343 308,838 202,274 124,032 66,239

Other Income 300 531 764 3,650 1587

TOTAL (A) 1,124,627 825,710 203,038 127,682 67,826

Expenses other than those directly related to the insurance business

Bad debts written off

Provisions (other than taxation)

(a) For diminution in the value of Investments (net)

3A 5,307

-

-

12,596

-

-

8,252

-

-

18,251

-

-

10,490

-

-

74

(b) Provision for

doubtful debts

(c) Others

Contribution to the Policyholders Fund

-

-

6,148,951

-

-

3,248,208

-

-

1,450,397

-

-

1,397,003

-

-

954,744

TOTAL (B) 6,154,258 3,260,804 1,458,649 1,415,254 965,234

Profit / (Loss) before tax

Provision for Taxation

Profit / (Loss) after tax

APPROPRIATIONS

(a) Balance at the beginning of the Year

(b) Interim dividends paid during the Year

(c) Proposed final dividend

(d) Dividend distribution tax

(e) Transfer to liabilities on account of Employee benefits

(5,029,631)

-

(5,029,631)

(6,883,491)

-

-

-

-

(2,435,094)

-

(2,435,094)

(4,421,364)

-

-

-

(27,033)

(1,255,611)

-

(1,255,611)

(3,165,753)

-

-

-

-

(1,287,572)

-

(1,287,572)

(1,878,181)

-

-

-

-

(897,348)

-

(897,348)

(980,833)

-

-

-

-

Profit / (Loss) carried forward to the Balance Sheet (11,913,1

22)

(6,883,491)

(4,421,364)

(3,165,753)

(1,878,181)

75

Earnings per share - Basic

(3.28) (2.42) (1.83) (2.92) (3.38)

Earnings per share - Diluted

(3.28) (2.42) (1.81) (2.92) (3.38)

BIBILOGRAPHY

WEBSITES:

WWW.HDFCINSURANCE.COM

REFERENCE BOOKS:

PRASANNA CHANDRA: FINANCIAL MANAGEMENT, (TMH), 6/e, 2004

M.Y. KHAN & P.K. JAIN: FINANCIAL MANAGEMENT, (TMH), 4/e, 2004