A Project Report on FINANCIAL ANALYSIS OF ICICI PRUDENTIAL LIFE INSURENCE

Submitted By: Gurpreet Singh 104532248423

Corporate Guide: Mr. Akhil Bajaj GNA-IMT

INDEX
Chapter 1 Introduction to the Company.
1.1 Profile of the company. 1.2 Companys history. 1.3 Organizational tree. 1.4 Product range of the company. 1.5 Financial status of the company. 1.6 H.R. policies of the company. 1.7 Vision and mission of the company.

Chapter 2 Introduction to the Project.

2.1 Reason for choice of project. 2.2 Scope of the project. 2.2(a) Theoretical aspect of the project. 2.2(b) Geographical area/ state/ city to be covered.

Chapter 3 Methodology.
3.1 Objective of the Project. 3.2 Primary data to be collected. 3.3 Sample design, Size, and method to be used 3.3(a) Sampling technique 3.4 Limitations of the Project.

Chapter4 Analysis and findings.

4.1 Project analysis with the help of data collection. 4.2 Project finding.

Chapter 5 Conclusion. BIBLIOGRAHPHY APPENDIX

Chapter 1 INTRODUCTION TO THE COMPANY

INTRODUCTION India is the largest democracy in the world having a population more than one billion. It is 5th largest in the world in terms of purchasing power parity (PPP). India GDP growth rate is over 6 percent per year on average for the last decade and saving rate is around 26 percent of GDP Life Insurance Corporation of India was formed in September 1956 by passing LlC Act, 1956 in Indian parliament The first general insurance company, Triton Insurance Company Ltd. was established in Calcutta in 1850. In 1957 the General Insurance Council a wing of Insurance Association of India formed a code of conduct. In 1961 an insurance act was passed to form General Insurance Company Ltd. which was amended in 1968. General Insurance business was nationalized with effect from 1.1.73 by the General Insurance Business Act. From 1973, The General Insurance Company (GIC) as a holding company divided in four subsidiaries as: National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and The United Assurance Company Ltd.

WHAT IS LIFE INSURANCE? All assets have economic value. The asset would have been created through the efforts of the owner, in the expectation that, either through the income generated there from or some other output, some of his needs would be met. In the case of a motor car, it provides comfort & convenience in transportation. There is no direct income. There is a normally expected life time for the assets during which time it is expected life time for the assets during which time it is expected to perform. The owner, aware of this, can so manage his affairs that by the end of that life time, a substitute is made available to ensure that the value or income is not lost. How ever if the asset gets lost earlier, being destroyed or made non-functional, through an accident or other unfortunate event, the owner & those deriving benefits there from suffer. Hence Insurance is a tool which helps to reduce effects of such adverse events.

Company profile
History: Incorporated on 20 July 2000 it is a joint venture between ICIC(74%) and Prudential LIC(26%) of U.K. In November 2000, ICICI Prudential Life Insurance was granted Certification of Registration for carrying out life insurance business by the Insurance Regulatory & Development Authority of India. The Company issued its first policy on 12 December 2000.ICICI Prudential Life Insurance is a joint venture between the ICICI Group and Prudential plc, of the UK. ICICI started off its operations in 1955 with providing finance for industrial development, and since then it has diversified into housing finance, consumer finance, mutual funds to being a Virtual Universal Bank and its latest venture Life Insurance.

Foreign Partner: Established in 1848, Prudential plc. Of U.K. has grown to be the largest life insurance and mutual fund Company in U.K. Prudential plc. Has had its presence in Asia for the past 75 years catering to over 1 million customers across 11 Asian countries. Prudential is the largest life insurance company in the United Kingdom (Source: S&P's UK Life Financial Digest, 1998). ICICI and Prudential came together in 1993 to provide mutual fund products in India and today are the largest private sector mutual fund company in India.

Their latest venture ICICI Prudential Life plans to take care of the insurance needs at various stages of life Prudential plc, one of the UK's leading financial service providers, issued life insurance policies in Poland prior to World War II through Prudential Assurance Company Limited and its subsidiary "Przezomosc", a now defunct Polish company in which Prudential Assurance acquired a controlling interest in 1927. Pizezomosc continued to issue life policies in Poland until 31 December 1936, and Prudential Assurance issued life policies in Poland from 1 January 1933 to 31 December 1936. With effect from 1 January 1937 both companies ceased to accept new life business and the administration of the two portfolios was combined. Based on notes of surviving records that existed in Prudential Assurance's London office there were 4,623 policies in force in Poland at the outbreak of World War II in 1939. Over 33% of these policies have been settled since the early 1950s despite significant gaps in our records, due in no small part to their destruction in Poland under Nazi Occupation. The assets of Prudential's Polish Business were seized by the Nazi occupying authorities, following the invasion of Poland in 1939. Unlike some major European insurers Prudential did not trade in Nazi occupied Europe ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse and prudential plc, a leading international financial services group headquartered in the United Kingdom. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA).

ICICI Prudential's equity base stands at Rs. 9.25 billion with ICICI Bank and Prudential plc holding 74% and 26% stake respectively. In the financial year ended March 31, 2005, the company garnered Rs 1584 crore of new business premium for a total sum assured of Rs 13,780 crore and wrote nearly 615,000 policies. The company has a network of about 56,000 advisors; as well as 7 banc assurance and 150 corporate agent tie-ups. For the past four years, ICICI Prudential has retained its position as the No.1 private life insurer in the country, with a wide range of flexible products that meet the needs of the Indian customer at every step in life

Promoters
ICICI and Prudential came together in 1993 to form Prudential ICICI Asset Management Company, which has today emerged as one of the leading mutual funds in India. The two companies bring together two of the strongest financial service brands in Asia, known for their professionalism, excellent quality of service and long term commitment to YOU. Riding on the success of this relationship, the two companies joined hands once more in 2000, to form ICICI Prudential Life Insurance, with a commitment to provide leading-edge life insurance solutions.

ICICI Bank has 74% stake in the company, and prudential PLC has 26%.

VISION The companys vision is to make ICICI Prudential the dominant life and pension player built on trust by world-class people and services. hope to achieve this by: . Understanding the needs of customers and offering them superior Products and services. . Leveraging technology to service the customers quickly, efficiently and conveniently.. Developing and implementing superior Ur deal in risk management and Investing strategies to offer sustainable and stable return to the Policy holders. . Providing an environment to foster growth and learning of our employees. . And above all building transparency in organizations.

Board of Directors The ICICI Prudential Life Insurance Company Limited Board comprises reputed people from the finance industry both from India and abroad. Mr. K. V. Kamath, Chairman Mr. Mark Norbom Mrs. Lalita D. Gupte Mrs. Kalpana Morparia Mrs. Chanda Kochhar Mr. Kevin Holmgren Mr. M.P. Modi Mr. R Narayanan Ms. Shikha Sharma, Managing Director Management Team Ms. Shikha Sharma, Managing Director Mr. Sandeep Batra, Chief Financial Officer & Company Secretary Mr. Shubhro J. Mitra, Chief - Human Resources Mr. Puneet N Anda, Head - Investments Ms. Anita Pai, Chief - Customer Service and Operations Mr. V. Rajagopalan, Appointed Actuary

COMPANY PRODUCTS Insurance Solutions for Individuals ICICI Prudential Life Insurance offers a range of innovative, customer-centric products that meet the needs of customers at every life stage. Its 20 products can be enhanced with up to 6 riders, to create a customized solution for each policyholder.

Savings Solutions Secure Plus is a transparent and feature-packed savings plan that offers 3

levels of protection. Cash Plus is a transparent, feature-packed savings plan that offers 3 levels of

protection as well as liquidity options. Save n Protect is a traditional endowment savings plan that offers life

protection along with adequate returns. Cash back is an anticipated endowment policy ideal for meeting milestone

expenses like a child's marriage, expenses for a child's higher education or purchase of an asset. Lifetime & Lifetime II offer customers the flexibility and control to

customize the policy to meet the changing needs at different life stages. Each offer 4 fund options?

Preserver, Protector, Balancer and Maxi miser. Life Link II is a single premium Market Linked Insurance Plan which

combines life insurance cover with the opportunity to stay invested in the stock market. Premier Life is a limited premium paying plan that offers customers life

insurance cover till the age of 75. Invest Shield Life is a Market Linked plan that provides capital guarantee on

the invested premiums and declared bonus interest. Invest Shield Cash is a Market Linked plan that provides capital guarantee

on the invested premiums and declared bonus interest along with flexible liquidity options. Invest Shield Gold is a Market Linked plan that provides capital guarantee on the invested premiums and declared bonus interest along with limited premium payment terms.

Protection Solutions Lifeguard is a protection plan, which offers life cover at very low cost. It is available in 3 options, Level term assurance, level term assurance with return of premium and single premium.

Child Plans Smart Kid education plans provide guaranteed educational benefits to a child along with life insurance cover for the parent who purchases the policy. The policy is designed to provide money at important milestones in the child's life. Smart Kid plans are also available in unit linked form, both single premium and regular premium. Retirement Solutions Forever Life is a retirement product targeted at individuals in their thirties Secure plus Pension is a flexible pension plan that allows one to select

between 3 levels of cover.

Market-linked retirement Products: Lifetime Pension II is a regular premium market-linked pension plan . Life Link Pension II is a single premium market-linked pension plan. . Invest Shield Pension is a regular premium pension plan with a capital

guarantee On the invertible premium and declared bonuses. ICICI Prudential also launched? Salaam Indigo? A social sector group insurance Policy targeted at the economically underprivileged sections of the society.

Group Insurance Solutions ICICI Prudential also offers Group Insurance Solutions for companies seeking to enhance benefits to their employees. ICICI Prudential Group Gratuity Plan: ICICI Pro group gratuity plan helps employers fund their statutory gratuity obligation in a scientific manner. The plan can also be customized to structure schemes that can provide benefits beyond the statutory obligations. ICICI Prudential Group Superannuation Plan: ICICI Pro offers a flexible defined contribution superannuation scheme to provide a retirement kitty for each member of the group. Employees have the option of choosing from various annuity options or opting for a partial commutation of the annuity at the time of retirement. ICICI Prudential Group Term Plan: ICICI Pm flexible group term solution helps provide affordable cover to members of a group. The cover could be uniform or based on designation/rank or a multiple of salary. The benefit under the policy is paid to the beneficiary nominated by the member on his/her death.

Flexible Rider Options ICICI Pm Life offers flexible riders, which can be added to the basic policy at a marginal cost, depending on the specific needs of the customer. Accident & disability benefit: If death occurs as the result of an accident

during the term of the policy, the beneficiary receives an additional amount equal to the sum assured under the policy. If the death occurs while traveling in an authorized mass transport vehicle, the beneficiary will be entitled to twice the sum assured as additional benefit.

Accident Benefit: This rider option pays the sum assured under the rider on

death due to accident. Critical Illness Benefit: protects the insured against financial loss in the

event of 9 specified critical illnesses. Benefits are payable to the insured for medical expenses prior to death. Major Surgical Assistance Benefit: provides financial support in the event of

medical emergencies, ensuring benefits are payable to the life assured for medical expenses incurred for surgical procedures. Cover is offered against 43 surgical procedures. Income Benefit: This rider pays the 10% of the sum assured to the nominee

every year, till maturity, in the event of the death of the life assured. It is available on Smart Kid, Secure Plus and Cash Plus Waiver of Premium: In case of total and permanent disability due to an

accident, the premiums are waived till maturity. This rider is available with Secure Plus and Cash Plus.

ABOUT THE PROMOTERS ICICI Bank is India's second-largest bank with total assets of about Rs.112, 024 crore and a network of about 450 branches and offices and about 1750 ATMs. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital, asset management and information technology. ICICI Bank posted a net profit of Rs.l, 637 crores for the year ended March 31, 2004. ICICI Bank's equity shares are listed in India on stock exchanges at Chennai, Delhi, Kolkata and Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). Established in London in 1848, Prudential plc, through its businesses in the

UK and Europe, the US and Asia, provides retail financial services products and services to more than 16 million customers, policyholder and unit holders worldwide. As of June 30, 2004, the company had over US$300 billion in funds under management. Prudential has brought to market an integrated range of financial services

products that now includes life assurance, pensions, mutual funds, banking, investment management and general insurance. In Asia, Prudential is the leading European life insurance company with a vast network of 24 life and mutual fund operations in twelve countries - China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.

PRIVATE SECTOR INSURANCE MARKET SHARES In todays Private insurance sector ICIC Prudential holds the highest i.e. huge30%share in the private insurance market, as compared to all other which together comprise of the rest 70% of the market share. In the financial year ended march 31, 2005, the company garnered rs.1584 crore of new business premium for a total sum assured of Rs. 13780 crore and wrote nearly 615000 policies. The company has a network of about 56000 advisors: as well as 7 banc assurance and 150 corporate agent tie-ups for the past four years, ICICI Prudential has retained its position as the no.1 private life insurer in the country with a wide range of flexible products that meet the needs of the Indian customer at every step in life.

DISTRIBUTION ICICI Prudential has one of the largest distribution networks amongst private life insurers in India, having commenced operations in 74 cities and towns in India. These are: Agra, Ahmedabad, Ajmer, Allahabad, Amritsar, Anand, Aurangabad, Bangalore, Bareilly, Bharuch, Bhatinda, Bhopal, Bhubhaneshwar, Calicut, Chandigarh, Chennai, Coimbatore, Dehradun, Durgapur, Faridabad, Goa, Guntur, Guwhati, Gurgaon, Gwalior, Hyderabad, Hubli, Indore, Jaipur, Jalandhar, Jamnagar, Jamshedpur, Jodhpur, Kanpur, Karnal, Kochi, Kolkata, Kolhapur, Kota, Kottayam, Kozhikode, Lucknow, Ludhiana, Madurai, Mangalore, Meerut, Mehsana, Mumbai, Mysore, Nagpur, Nasik, Noida, New Delhi, Patiala, Pune, Raipur, Rajkot, Ranchi, Rourkela, Saharanpur, Salem, Shimla, Siliguri, Surat, Thane, Thrissur, Trichy, Trivandrum, Udaipur, Vadodara, Vapi, Vashi, Vijayawada and Vizag.

Chapter- 2 Introduction to Project

FINANCIAL STATEMENT ANALYSIS Financial statement analysis is an information processing system designed to provide data for people concerned with the economic situation of a firm and predicting its future course.

Definition In the words of John N. Myers, Financial statement analysis is largely a study of the relationships among the various financial factors in a business as disclosed by a single set of statements and a study of the trends of these factors as shown in a series of statements.

The major groups of users are:1. 2. 3. 4. 5. Investors for making portfolio decisions Managers, for evaluating the operational and financial efficiency of the firm. Lenders for determining the credit worthiness of the loan applicants Labour unions, for establishing an economic basis for collective bargaining. Regulatory agencies for controlling the activities of companies under the

jurisdictions. 6. Researchers, for studying firm and individual behavior.

The ability to analyze and understand a financial statement is as much an art form as it is and application of several techniques. The technical side of financial analysis is straightforward. We calculate a variety of common financial ratios to provide insight into the financial condition of a company. The artistic dimension of financial analysis is important because the accounting process relies to a great extent upon the application of judgment, which introduces subjectivity and values. Different, yet valid views and interpretations of the economic consequences of a specific transaction often exist. Significance and purposes of financial statement analysis 1. Judging profitability

Profitability is a measure of the efficiency and success of a business enterprise. A company which earns profits at a higher rate is definitely considered a good company by the potential investors. The potential investors analyze the financial statements to judge the profitability and earning capacity of a company so as to decide whether to invest in a company or not. 2. Judging liquidity

Liquidity of a business refers to the ability of a company to pay off its short-term liabilities when these become due. Short-term creditors like trade creditors and bankers make an assessment of liquidity before granting credit to the company

3.

Judging solvency

Solvency refers to the ability o a company to meet its long-term debts. Long-term creditors like debenture-holders and financial institutions judge the solvency of a company before any lending decisions. They analyze companys profitability over a number of years and its ability to generate sufficient cash to be able to repay their claims 4. Judging the efficiency of management

Performance and efficiency of management of a company can be easily judged by analyzing it s financial statements. Profitability of a company is not the only measure of companys managerial efficiency. There are a number of other ways to judge the operational efficiency of management. Financial analysis tells whether the resources of the business are being used in the most effective and efficient way 5. Inter-firm comparison

A comparative study of financial and operating efficiency of different firms is possible only after proper analysis of their financial statements. For this purpose it is also necessary that the financial statements are kept on a uniform basis so that the financial data of various firms are comparable 6. Forecasting and budgeting

Financial analysis is the starting point for making plans by forecasting and preparing budgets. Analysis of the financial statements of the past years helps a great deal in forecasting for the future.

Limitations of financial statements. 1. Effect of accounting concepts and conventions

Various concepts and conventions of accounting affect the values of assets and liabilities as shown in the balance sheet. Similarly, profit or loss disclosed by profit and loss account is also affected by these concepts and conventions. For example, on account of the going concern concept and also the convention of conservatism, the balance sheet does not show current economic values of various assets and liabilities

2.

Effect of personal judgments

The financial statements are influenced, to a certain extent, by the personal judgements of the accountant. For example, the amount of provision for bad and doubtful debts depends entirely on the judgment and past experience of the accountant. Similarly, an accountant has also to make a judgement about the method and rate of depreciation for fixed assets. There are numerous instances when an accountant has to exercise his personal judgement in which there is an element of subjectivity. The quality of the financial statements thus depends upon the competence and integrity of those who are responsible for preparing these statements.

3.

Recording only monetary transactions

Financial statements record only those transactions and events which can be expressed in terms of money. But there are many factors which are qualitative in nature and cannot be expressed in monetary terms. These non-monetary factors do not find any place in the financial statements. For example, efficiency of workers, personal reputation and integrity of the managing director of the company, advertisement policy of the company etc. are not capable of being expressed in money terms and thus find no place in financial statements even though they materially affect the profitability of a business 4. Historical in nature

Financial statements disclose date which is basically historical in nature i.e it tells what has happened in the past. These statements do not give future projections. 5. Ignores human resources.

No business can prosper without an efficient work force. But financial statements do not include human resources which is very important asset for a business 6. Ignores social costs

Apart from earning a fair return on investments, a business has certain social responsibilities. Financial statements do not make any attempt to show the social costs of its activities. Examples of social cost of a manufacturing company are air pollution, water pollution, occupational diseases, work injuries etc

1.

COMMON SIZE ANALYSIS AND TRENDS Common size analysis is a technique that enables us to determine the makeup

and patterns of a companys balance sheet and income statement. The analysis can be either horizontal (across years) or vertical (within years). In a financial statement, common-size analysis reduces absolute numbers to percentages of components at one point in time or the percentages of change in components overtime, thereby revealing possible trends. 1. Horizontal Analysis. Common-size analysis that compares the same accounts from year to year. When we arrange several annual balance sheets and income statements in vertical columns we can horizontally compare the annual charges in related items. This comparison or horizontal analysis of the accounts reveals a pattern that may suggest managements underlying philosophy, policies and motivations. Also called comparative analysis. 2. Vertical Analysis.

Common-size analysis that compares accounts in the income statement to net sales and amounts in the balance sheet to total assets. When we analyze the financial statements for one period, we often use vertical analysis. It is the process of finding the proportion that an item, such as inventory, represents of a total group. A vertical analysis of annual balance sheets reveals how the mix of assets and financing is changing over time.

3.

RATIO ANALYSIS Common size analysis provides some insight to the financial condition of the

firm. Financial ratios analysis is the next step in the process. Ratios are among the widely used tools of the financial analysis. They are helpful in providing clues and spotting patterns in the direction of better or poorer performance.

Important points to keep in mind when doing ratio analysis are:1. We calculate ratios for specific dates: - If management issues financial

statements infrequently, we may not uncover any seasonal characteristics of the business. 2. Financial statements show what has happened in the past: - An Important

purpose for calculating ratios is to uncover clues to the futures so that we can prepare for the problems and opportunities that lie ahead. When we use ratios we must consider our knowledge of judgement about the future. 3. Ratios are not ends in themselves: - They are tools that can help answer

some of our financial questions, but we must interpret them with care. For example, it is possible to improve the ratio of operating expenses to sales by reducing costs that act to stimulate sales. However, if the cost reduction results in loss of sales or market share, any profit improvement may have an overall detrimental effect. 4. Businesses are not exactly comparable: - There are different ways of

computing and recording some of the items on financial statements. Because the

figures for one business may not correspond exactly to those of another firm, good comparisons require reasoned judgment. Four Categories:1. Efficiency Ratios

Efficiency ratios are used to indicate the efficiency with which assets and resources of the firm are being utilized. These ratios are called turnover ratios because they indicate the speed with Which assets are being converted or turned over into sales. These ratios, thus express the relationship between sales and various assets. A higher turnover ratio generally indicates better use of capital resources which in turn has a favorable effect on the profitability of the firm.

2.

Liquidity Ratios

Liquidity means ability of a firm to meet its current Liabilities. The liquidity ratios, therefore, try to establish a relationship between current liabilities,

which are the obligations soon becoming due and current assets, which presumably provide the source from which these obligations will be met.

3.

Leverage Ratios

Leverage ratios are used to analyze the long term Solvency of any particular business concern. There are two aspects of long term solvency of a Firm (a) ability to repay the principal amount when Due and (b) regular payment of interest. In other words, long term creditors like debenture holders, financial institution etc, are interested in the security of their loan amount as well as the ability of the company to meet interest costs. They, therefore, also consider the earning capacity of the company to know whether it will be able to pay off interest on loan amount. Liquidity ratios discussed earlier indicate short term financial strength whereas solvency ratios judge the ability of a firm to pay off its long term liabilities.

4.

Profitability Ratios

Every business should earn sufficient profits to Survive and grow over a long period of time. Infact efficiency of a business is measured in

Terms of profits. Profitability ratios are calculated to measure the efficiency of the business Profitability of a business may be measured in two ways: 1. 2. Profitability in relation to sales Profitability in relation to investments

Importance of Ratio Analysis 1. Liquidity Position: with the help of ratio analysis can know the liquidity

position of the firm. We can know whether it is able to meet its short term liabilities. This ability is reflected in the liquidity ratios of the firm.

2.

Long Term Solvency: ratio analysis is useful to assessing the long term

financial viability of the firm. This aspect of the financial position is concerned to the long term creditors, security analyst and present and potential owners of a business. The long term solvency is measured by leverage ratios.

3.

Operating Efficiency: it throws light on the degree of efficiency in the

management and utilization of assets. The activity ratios measure the efficiency of the management.

4.

Over-All Profitability: the management is constantly concerned about the

overall growth in the enterprise. It to meet short and long term obligations to creditors 5. Trend Analysis: It shows whether the financial position of the firm is

improving or deteriorating over the years. Significance of trend analysis ratios lies in the fact to know the direction of the financial position.

Limitations of Ratio Analysis 1. Difficulty in Comparison: One serious limitation of ratio analysis arises out

of the difficulty associated with their comparability. The differences may relate to: 1. 2. 3. 4. 5. Differences in the basis of inventory valuation Different depreciation methods. Estimated life of assets Amortization of intangible assets like goodwill, Patents. Amortization of deferred revenue expenditure such as preliminary

expenditure and discount on issue of shares.

6.

Impact of Inflation: weaken ss of traditional finance statements which are

based on historical costs. Assets are acquired at different prices and shown in the balance sheet. These prices may over value or under value. It enters the balance sheet at different book value affect the profitability ratio of the firm. 7. Conceptual Diversity: yet another factor influences the ratios is that there is

a difference of opinion regarding the various concepts used to compute the ratios. There is always room for diversity of opinion as to what constitutes shareholders equity, debt, assts, profit, and so on different firms may use these terms in

different senses or the same firm may use them to different mean different things and different times. Ratios are relative figures reflecting the relationship between variables. Comparison with related facts is the basis of ratio analysis. 8. STATEMENT OF CASH FLOWS

Accrual accounting concepts recognize that it is the economic substance of a transaction that determines the timing of accounting recognition rather than the activity of receipt or payment of cash. However, investors use cash flows and not accrual accounting numbers to value the firm. The statement of cash flows (SCF) is important for understanding the true cash flows of the business. The SCF restates the firms flow of funds from an accrual accounting basis to a cash accounting basis. As such, it eliminates all non cash revenues and expenses recorded by accrual accounting. The cash flow statement shows the true cash inflows and outflows of the firm. We can see how management has employed resources during the period.

An analysis of cash flow is useful for short run planning. A firm needs sufficient cash to pay debts maturing in the near future, to pay interest and other expenses and to pay dividends to shareholders. The cash balance can be matched with the firms needs for cash during the year, and accordingly, arrangements can be made to meet the deficit or invest the surplus cash temporarily. A statement of changes in financial position on cash basis, commonly known as the cash flow statement, summarizes the causes of changes in cash position between two balance sheets.

Components of cash flow 1. 2. 3. Initial investment Annual net cash flows Terminal cash flows

Sources and uses of cash Sources Profitable operation Decrease in assets Increase in liabilities Sales proceeds shares, and Cash Dividends Applications Loss from operations Increase in assets Decrease in liabilities Redemption of preference

Cash flow versus profit

Cash flow should not be confused with the profit for 2 reasons.

1.

Profit measured by accountant, is based on accrual concept- revenue is

considered when it is earned, rather than when cash received. Expenses are recognized when it is incurred, rather than when cash paid. 2. Profit involves the entire revenue expenditure and while capital expenditure

are not. Profit calculation charged capital expenditure which does not involves cash flow.

Profit Cash flow

= revenues- expenses- depreciation = revenues- expenses- capital expenditure

AS-3 describes cash equivalent as an item which is of short term nature, highly liquid, and is readily convertible into known amount of cash with insignificant risk of change in value.

Objectives and uses of cash flow statement 1. Useful in cash planning

A cash flow statement proves very useful to management by providing a basis to evaluate the ability of a company to generate cash. A cash flow statement prepared on an estimated basis for the next accounting period enables the management to know how much cash can be generated internally and how much it should arrange from outside. Such estimated amounts are used for preparing cash budget.

2.

Assesses cash flow from operating activities

Cash flow statement provides information about cash generated from operating activities. It provides explanation for the difference net profit and cash from operations. Cash provided by operating activities is very important to assess the cash generated by internal sources.

3.

Payment of dividends.

Decisions to pay dividends cannot be based on net profit only. Availability of profit in the form of cash is also important for dividend disbursement. Thus cash provided by operating activities assumes importance for declaration of dividend.

4.

Cash from investing and financing activities

Cash flow statement provides information not only about cash provided by operating activities but also by non-operating activities under two heads, namely investing activities and financing activities. This helps to explain the overall liquidity position of the enterprise and its ability to meet its cash commitments.

5.

Explains reasons for surplus or shortage of cash.

A business may have made profit and yet running short of cash. Similarly a business may have suffered a loss and still has sufficient cash at the bank. A cash flow statement discloses reasons for such increases or decreases of cash balance.

ACCOUNTING FOR LIFE INSURNCE COMPANIES. The Accounting function of the life insurance companies is quite different from that of other companies. The major reasons for this are due to: 1. Ascertainment of liability in respect of insurance policies issued by the

company 2. 3. The concept of Policyholders Fund and Shareholders Fund The unit linked business and the related investment valuations involved in

the same and 4. Segmental reporting in respect of all the funds maintained by the company

The financial statements of insurance company consist of: 1. 2. 3. 4. 5. Revenue account (policy holders account). Profit and loss account (share holders account) Balance sheet. Receipts and payment account (cash flow statement) The segmental reports relating to funds (revenue account and balance sheet)

The above statements are to be in conformity with the Accounting Standards issued by ICAI, to the extent applicable to the life insurance business except that 1. 2. Cash Flow Statement needs to be prepared under Direct Method and Segmental Reporting shall apply to all insurers irrespective of listing and

turnover mentioned in AS 17. Insurance Regulatory and Development Authority (IRDA) has prescribed specified formats for the preparation of Financial Statements. These formats are in Part V of Schedule A of IRDA (Preparation of Financial Statements and Auditors Report of Insurance Companies

1) Revenue Account (Policyholders Account Technical Account) The Revenue Account sets out all income and expenses relating to the insurance business.

Income: The income of the technical account comprises of:

1. 2. like: 1.

Premium after adjusting reinsurance ceded and reinsurance accepted Income from investments which needs to be shown under different heads

Interest, Dividend and Rents 2. Profit on sale redemption of investments 3. Loss on sale redemption of investments

1. 2.

Transfer gain on revaluation of change in fair value and. Amortization charge

Under the Income head, there will also be Other Income, Foreign exchange gain / Loss and other items. The transfer of funds from Shareholders Fund to Policyholders Account is shown separately in the Revenue Account.

Expenses Expenses include:

1. Commission 2. Operating Expenses 3. Benefits paid 4. Interim bonus paid and 5. Change in valuation of liability against life policies in force.

2) Profit and Loss Account (Shareholders Account Non-Technical Account) This Account represents all income and expenses relating to Shareholders Account (Those not relating to insurance business).

Income The income comprises mainly of investment or other income created out of Shareholders Fund.

Expenses The major components of expenses are:

1.

Depreciation relating to assets held by shareholders fund, investment

expenses, Directors Fees etc. 2. 3. Transfer of funds to Policyholders Fund and Preliminary Expenses written off The profit or loss as per the Account is carried to the Balance Sheet as usual.

3) Balance Sheet The items in the Balance Sheet of a Life Insurance Company includes, other than the normal Items 1. Shareholders Fund 2. Policy Holders Fund 3. Investments related to Policyholders Fund, Shareholders Fund and Assets held to cover linked liabilities Shareholders Fund includes share capital less

preliminary expenses, reserves and surplus and fair value change account. Policyholders Fund consists of Policy liabilities, Fair value change relating to policy fund investments, insurance reserves, provision for linked liabilities, Funds for future appropriations, Surplus allocated to shareholders etc. The balance in the Funds for future appropriations represents funds, the allocation of which, either to participating policyholders or to shareholders has not been determined at the balance sheet date. Transfers to and from the fund reflect

the excess or deficiency of income over expenses and appropriations in each accounting period arising in the Companys policyholder fund.

4) Receipts and Payments account (Cash Flow Statement) The cash flow statement of the insurance company needs to be worked out as per Direct Method as per the IRDA requirement. The statement depicts the receipts and payments from various business activities. The major items are:

Operating Activities 1. 2. 3. Receipts and Payments from policyholders Payments to Re insurers Payments to Agents, Employee expenses, investment income

Investing Activities 1. 2. Purchase and sale of investments Purchase of fixed assets

Financing Activities This refers to the issue of share capital or raising of funds from other sources.

5) Segmental Reporting

As per the regulations, every insurance company has to prepare segment wise Revenue Account and Balance Sheet of the business it has done.

Accordingly, the company is required to report segment results separately for Participating, Non-Participating, Pension, Annuity business and Unit Linked business (Group, Individual Life and Individual Pension). For the purpose of working out results of such segments, company will decide on the bases on which revenue, expenses, assets and liabilities are to be allocated. The accounting policies used in the segmental reporting are to be disclosed in the Financial Disclosures.

The IRDA Rules also specify the disclosure requirements, general instructions for preparation of financial statements, and also the contents of the Management Report.

Financial summary and Ratios IRDA has also specified the format for Financial Statement summary for the previous financial years and the relevant ratios to be worked out. The summary and the ratios form part of the financial disclosures.

Chapter- 3 Research Methodology

OBJECTIVES OF THE STUDY 1. 2. To analyze the financial statement. To simplify and summarize a long array of accounting data and make them understandable. 3. 4. 5. 6. To forecast and prepare the plans for the future. To reveal the trend of costs, sales, profits and other important facts. To establish ideal standards of the different items of the business. To provide useful information to the management.

SCOPE OF THE STUDY 1. 2. It is useful for the management. It gives information to the investors about the earning capacity of the business. 3. With the help of Ratio Analysis comparison of profitability and financial soundness can be made. 4. Current year's ratios are compared with those of previous years and if some weak spots are located remedial measures are taken to correct them. 5. It gives information to the financial institution for providing the finance to the company 6. It gives information to the taxation authorities.

7.

It gives information to the researchers for conducting research in respect of profitability, efficiency, financial soundness and growth of that company.

METHODOLOGY OF STUDY Research methodology is the study of research method and rules for doing research work. To do a research it is necessary to anticipate all the steps, which must be undertaken. If the project is to be completed successfully proper steps in research process has to be followed. It consists of interrelated activities such as identifying the research problems, description of research design, sources of collecting data etc.

DATA COLLECTION: The data can be of two types: 1. 1. Primary Data : Primary data was collected with the help of an interview scheduled with the managers of ICICI Pru. 2. Secondary Data:

Secondary Data are those data which are already collected and stored and which has been passed through statistical research. In this project, secondary data has been collected from following sources:-

1. 2. 3. 4.

Annual Report Articles in Journal, Magazines. Books Other material and report published by company

RESEARCH DESIGN Research Design is the way in which the research is carried out. It works as a blue print. Research Design is the arrangement of conditions for the collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure.

The present project is descriptive in nature. In Descriptive Research Design, those studies are taken which are concerned with describing the characteristics of a particular group. The major purpose of descriptive research is the description of state of affairs, as it exists at present. Exploratory Research - an exploratory research focuses on the delivery of ideas and is generally based on secondary data. It is a preliminary investigation a preliminary investigation which does not have a rigid design. This is because a researcher engaged in exploratory study may have to change his focus as a result of new ideas and relation among the variables. The study conducted through exploratory research is with the help of data obtained from the secondary data, there is no specific sample design made or questionnaire used to obtain information

Data Type: The data used for the study is secondary data Source of data 1. 2. 3. 4. Insurance company broacher IRDA web site Companies web sites Annual report of company

Limitations of the study. 1. 2. 3. 4. 5. Study is largely based on secondary published information. Insufficient time available for the study and submission of the report. It depends on past information. Only the last 5 years data is considered for the study Only limited sample size had been considered for the study and therefore,

the conclusions drawn based on this may not be a reflection of the entire industry.

Chapter-IV
ANALYSIS & FINDINGS

1.

Liquidity Ratios

The adequate liquidity in the sense of the ability of a firm to meet current/short term obligations when they become due for payment can hardly be overstressed. 1. Net working capital

It represents the excess of current assets over current liabilities. An enterprise should have sufficient NWC in order to be able to meet the claims of the creditors and the day to day needs of the business. NWC measures the firms reservoir of funds. The greater is the amount of Net Working capital, greater is the liquidity position of the firm.
Net working capital = current assets current liabilities

Table 4.1: Net working capital Particulars 2007 2008 2009 87,57,727 62,51,168 2010 9,537,359 90,29,038 2011 77,44,120 1,24,69,202

Total Current assets 38,69,728 53,25,536 Total current liabilities Net working capital 11,82,432 14,20,039 26,87,296 39,05,497

25,06,559

508321

(4,725,082)

Figure 4.1: Net working capital

Net working capital

3000000 2000000 1000000 0 -1000000 -2000000 -3000000 -4000000 -5000000 -6000000 2006 2007 2008 2009 2010 Net working capital

Analysis : From the above table , shows that the net working capital in the year 2006 having 1182432 was increased in the year 2009 to 1420039 and in 2008 to 2506559 but in 2009 there is a fall in the networking capital and in 2010 there is an adverse balance. Interpretation: Here NWC for the year 2010 is negative. There is in reality deterioration in liquidity position.

2.Current ratio It is the ratio of total current assets to total current liabilities. Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm's assets are working to grow the business. Typical values for the current ratio vary by firm and industry. For example, firms in cyclical industries may maintain a higher current ratio in order to remain solvent during downturns.
Current ratio = current assets Current liabilities

Table 4.2: Current ratio Particulars Current assets Current liabilities Current ratio 2007 2008 2009 2010 2011

38,69,728 53,25,536 87,57,727 9,537,359 77,44,120 26,87,296 39,05,497 62,51,168 90,29,038 1,24,69,202 1.44:1 1.36:1 1.4:1 1.05:1 0.62:1

Figure 4.2:Current ratio

current ratio
11% 24% 18% 2006 2007 2008 2009 23% 24% 2010

Analysis: From the above table the current ratio in the year 2006 was 1.4:1 in the year 2007 it decreased to 1.36:1 and there was an increase of 1.4:1 in2008 and 1.05:1 in 1009 also there was a fall of 0.62:1 in 2010.

Interpretation: It shows rupee value of current asset for each rupee of current liabilities. The higher the current ratio, the larger is the amount of rupees available per rupee of current liability and therefore more is the firms ability to meet current obligations and greater is the safety of funds of short term liabilities. Current assets of 0.62 are available to meet the current liabilities. In the previous year current ratio is 1.07:1 signifies that current assets are 1.07 times its short term obligations. The liquidity position is better in previous year as compared to current year.

2.

Turnover ratio

Another way of examining the liquidity is to determine how quickly certain current assets are converted into cash. The different turnover ratios are as follows 1. 2. 3. 4. Debtors turnover ratio. Creditors turnover ratio. Inventory turnover ratio. Fixed asset turnover ratio. Debtors turnover ratio is determined by dividing the net credit sales by average debtors outstanding during the year. Debtors turnover ratio = net credit sales/average debtors. Since its insurance company turnover ratios are not applicable.

5.

Leverage ratio/ capital structure ratio

It is the ratio to calculate the long term liquidity position of the firm. There are thus 2 aspects of the long term solvency of the firm. Ability to repay principle when due.Regular payment of the interest. There are 2 different types of leverage ratios 1. Ratios which are based on relationship between borrowed funds and owners capital. 1. 2. Debt-equity ratio Debt-asset / capital ratio

3. 1. 2. 3. 4.

Ratio which are based on profit and loss account (coverage ratios) Interest coverage ratio Dividend coverage ratio Total fixed coverage ratio Cash flow coverage ratio

1.

Debt equity ratio

It indicates the relative proportions of debt and equity in financing the asset of the firm. There 2 approaches in calculating debt equity ratio. The debt equity ratio is the relationship between borrowed funds and owners capital is a popular measure of the long term financial solvency of the firm. Total long term debt does not include current liabilities like sundry creditors banks credit etc, which are ostensibly short term, are renewed year by year and remain by and large permanently in the business. The debt equity ratio shows the safety margin of the firm. This is an important tool of financial analysis to appraise the financial structure of a firm. It has important implications from the view point of creditors, owners and the firm by itself. High ratio shows a large share of financing by outsider which implies that the owners are putting up relatively less money of their own. It is danger signal for the creditors. A lower debt equity ratio has just the opposite implications to the creditors. The relatively high stake of the owners implies sufficiently safety margin and substantial protection against shrinkage in assets.

Debt equity ratio =

long term debts Shareholders equity

Table 4.3: Debt equity ratio Particulars Long Term Debts Shareholders equity Debt equity ratio 2007 2008 2009 2010 2011

23,633,655 45,999,541 84,012,076 97,578,470 193,089,795 6,331,725 8,360,441 13,263,132 18,433,462 20,417,327 3.73% 5.50% 6.33% 5.29% 9.45%

Figure 4.3:Debt equity ratio

debt-equity ratio
10 9 8 7 6 5 4 3 2 1 0 2006 2007 2008 2009 2010

debt-equity ratio

Analysis: From the above table the debt equity ratio in the year 2006 was increase to 6.33 compared to the previous 2 years and there is an immediate fall in 2007 which was increased to 9.45 in 2010 Interpretation: The debt equity ratio for the year 2010 is high. This leads to inflexibility in the operations of the firm as creditors would exercise pressure and interfere in management. Therefore firm would able to borrow only under restrictive terms and conditions.

1.

Proprietary ratio

It is a variant of debt equity ratio. It measures the relationship between shareholders funds and total assets. Proprietary ratio shows the extent to which

shareholders own the business and thus indicates the general financial strength of the business. The higher the proprietary ratio, the greater the long term stability of the company and consequently greater protection to creditors. However, a very high proprietary ratio may not necessarily be good because if funds of outsiders are not used for long term financing, a firm may not be able to take advantage of trading on equity.
Proprietary ratio = shareholders equity Total assets

1. Particulars Shareholders equity Total assets Proprietary ratio 2007

Table 4.4: Proprietary ratio 2008 2009 2010 2011

6,331,725 8,360,441 13,263,132 18,433,462 20,417,327 44,71,073 60,61,590 99,07,527 10,988,705 8,887,897 1.416 1.3792 1.3387 1.6775 2.2972

Figure 4.4:Propreitory Ratio

propreitory ratio
2.5 2 1.5 1 0.5 0 2006 2007 2008 2009 2010 propreitory ratio

Analysis: From the above table the proprietary ratio was decreased in the year 2007 and 2008 and further it increased to 1.6775 in the year 2009 and 2.2972 in 2010.

Interpretation: The proprietary ratio for the year 2010 is higher compared to the year 2009 which shows that the creditors are protected. We can see the ratio has been increasing from the last three years, showing that the company is on the path of becoming stable.

2.

Total debt to equity.

Indicates what proportion of equity and debt that the company is using to finance its assets. A ratio greater than one means assets are mainly financed with debt, less than one means equity provides a majority of the financing.

Total debt to equity =

current liabilities + long term debts Share holders equity

Table 4.5: Total debt to equity Particulars Total debts 2007 2008 2009 2010 2011

26,292,222 49,874,193 90,141,225 106,398,695 205,371,380

Shareholders equity 6,331,725 8,360,441 13,263,132 18,433,462 20,417,327 Total debt to equity 4.1524 5.9655 6.7963 5.7720 10.0587

Figure 4.5: Total debt to equity

total debt to equity

12 10 8 6 4 2 0 2006 2007 2008 2009 2010 total debt to equity

Analysis: From the above table the debt equity ratio in the year 2006 was increase to 6.33 compared to the previous 2 years and there is an immediate fall in 2007 which was increased to 9.45 in 2010.

Interpretation: Here the total debt equity ratio is quite high which indicates that assets are mainly financed with debt and therefore the company is in a risky position.

3.

Profitability ratios

Apart from the creditors both short term and long term, also interested in the financial soundness of a firm are the owners and management. The management of the firm is naturally eager to measure its operating efficiency. The operating efficiency depends ultimately on the profit earned by it. The profitability ratios are designed to provide answers to questions such as Is the profit earn by the firm adequate? What rate of return does it represent? What is the rate of profit for various divisions and segments of the firm? What are the earnings per share? What is the rate of return to equity holders etc? Profitability ratios are Profit margin ratio Expenses ratio Return on assets Return on shareholders equity

1.

Profit margin ratio

Net profit margin ratio measures the relation between profit and revenues of a firm. The net profit margin is indicative of managements ability to operate the business with sufficient success and better control over its costs. A high return margin would ensure adequate return to the owners as well as enable a firm to withstand adverse economic conditions when revenues is declining and demand for the product is falling.
Net profit margin ratio = earnings after tax and interest Revenues

Table 4.6: Profit margin ratio Particulars Profit/ loss 2007 2008 2009 2010 2011

after (1,287,572) (1,255,611) (2,435,094) (5,029,631) (2,751,844)

interest and tax Revenues NET profit Ratio 15,469,501 28,226,248 48,176,166 55,183,763 69,556,324 -.0832329 -.0444838 -0.0505456 -0.0911433 -0.0395628

Figure 4.6: Profit margin ratio

profit margin ratio

0 -0.01 -0.02 -0.03 -0.04 -0.05 -0.06 -0.07 -0.08 -0.09 -0.1 profit margin ratio 2006 2007 2008 2009 2010

Analysis: From the above table the loss was decreased in 2007 and 2008 and there was an increase in 2009 which was again decreased in 2010. Interpretation: Here the profit and loss account shows negative balance. So the ratio of net loss to the revenues is (0.0395628). But we can notice that the quantum of losses has decreased in the current year when compared to the last four years.

2.

Return on equity (ROE)

It is one of the profitability ratios which show the relationship between the profit and loss account and the equity (Net Worth) of the firm. Common or ordinary share holders are entitled to residual profit. Rate of dividend is not fixed; the earnings may be distributed to shareholders. Never the less, the profits after taxes represent their returns. A return on shareholders equity is calculated to see the profitability of owners investment. The shareholders equity or net worth will include paid up capital, share premium and reserves and surplus less accumulated losses. Net worth can also be found by subtracting total liabilities from total assets. The ROE indicates how well the firm has used the resources of owners. In fact this ratio is one of the most important relationships in financial analysis. The earning of a satisfactory return is the most desirable objective of a business. The ratio of net profit to owners equity reflects the extent to which this objective has been accomplished. This will reveal the relative performance and strength of the companys in attracting future investments.

Return on equity =

profit/ (loss) after tax Net worth

Table 4.7: Return on equity Particulars Profit/( after tax) Net worth (Return equity) 3,165,972 3,939,077 6,379,641 on -0.4066 -0.31875 -0.3817 6,520,340 -0.7714 5,752,361 -0.4783 2007 2008 2009 2010 (5,029,631) 2011 (2,751,844)

loss (12,87,572) (12,55,611) (2,435,094)

Figure 4.7; Return on equity

return on equity
0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 -0.9 return on equity 2006 2007 2008 2009 2010

Analysis: The above table shows that the Return on equity is totally negative in all the years, compared to 2009 the previous years has a better negative rates.

Interpretation: Here the current years ratio is -0.4783 which is more than previous years ratio is 0.7714, comparatively current year relative performance of the company in attracting future investment is quite good.

3.

Management expenses ratio

It is another ratio which shows the relationship between expenses and gross premium of the business. The management ratio explains the changes in the profit margin. This ratio is computed by dividing management expenses viz, operating expenses relating to insurance business excluding interest. A higher management expenses ratio is unfavorable since it will leave a small amount of operating income to meet interest dividend etc. To get a comprehensive idea of the behavior of operating expenses, variations in the ratio over a number of years should be analyzed. The year to year variation in the management expenses ratio is temporary in nature arising due to some temporary condition. This ration is a yard stick of operating efficiency of the firm.
Management expenses ratio = management expenses Total gross premium

Table 4.8: Management expenses ratio Particulars 2007 2008 7,902,455 2009 2010 2011

Management Expenses 5,214,991

13,704,946 21,915,907 20,345,376

Total Gross Premium 15,699,126 28,558,656 48,585,616 55,646,937 70,051,044 Ratio .3321 .2767 .2820 .3938 .2904

4.

Figure 4.8: Management expenses ratio

manangement expenses ratio

0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2006 2007 2008 2009 2010 manangement expenses ratio

Analysis: The above table shows that the expenses have been maintained in 2007 and 2008 when compared to 2006 which increased in 2009 and it was maintained in the year 2010.

Interpretation: Here the management expenses ratio is 29.04% which is lower compared to previous years ratio which is 39.38%. This indicates company is efficient to meet other obligations 1. Administrative expenses ratio It is another profitability ratio related to revenue. It is computed by dividing expenses by revenue.

Administrative expenses ratio = administrative expenses Net revenue

Table 4.9: Administrative expenses ratio

Particulars

2007

2008 8,252

2009 12,596

2010 5,307

2011 3,981

Administrative expenses 18,251 Net revenue

15,469,501 28,226,248 48,176,166 55,183,763 69,556,324

Administrative expenses 0.11798% 0.02923% 0.02614% 0.00961% 0.00572% ratio

1.

Figure 4.9: Administrative expenses ratio

administration expenses ratio

0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2006 2007 2008 2009 2010 administration expenses ratio

Analysis: The above table shows that the administration expenses have been increasing year by year while comparing to the year 2006. Interpretation: Here we can notice that the administrative expenses ratio is decreasing from year to year. This shows that the company is managing its funds in a better manner.

2.

Earnings per share

Measures the profit available to the equity shareholders on a per share basis, is the share they can get on every share held. Earnings per share serve as an indicator of a company's profitability.

When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. Table 4.10: Earnings per share

Particulars Net

2007

2008

2009

2010 (5,029,631)

2011 (2,751,544)

profit/(loss) (1,287,572) (1,255,611) (2,435,094)

as per profit and loss account Weighted average 440,287,672 687,450,109 1,004,398,90 1,534,219,71 1,819,347,94 number of equity shares for basic EPS 4 8 5

Basic Earning per (2.92) share

(1.83)

(2.42)

(3.28)

(1.51)

Weighted average 440,287,672 693,229,422 1,004,398,90 1,534,219,17 1,819,347,94 number of equity shares for diluted EPS Diluted earnings (2.92) per share (1.81) (2.42) (3.28) (1.52) 4 8 5

Figure 4.10: Earnings per share

0 2006 -0.5 -1 -1.5 -2 -2.5 -3 -3.5 Basic EPS Diluted EPS 2007 2008 2009 2010

Analysis: The Earning per share is decreased in the year 2007 and 2008 while compare to 2006 which increased in 2009 and again there is a fall in 2010.

Interpretation: Here we can notice that the EPS of company is negative, this indicates the company is not profitable.

OTHER IMPORTNANT RATIOS 1. Net Retention ratio

Net retention ratio is the relationship between net premium and gross premium. This measures the ability of the insurer to retain investment made by the insured (policyholder). The difference between net premium and gross premium is reinsurance ceded. Reinsurance plays an important role in the insurance business of virtually every type. The service provided by the reinsurer is similar to that provided by the insurance company to their policyholders. In general insurance there are risks, which because of their magnitude or nature, one insurance company cannot afford to cover, in such cases, an insurance company insures the whole risk itself and lays off the amount it has accepted to other insurance or reinsurance companies, retaining only that much risk which it can absorb.

Retention ratio = net premium income Gross premium income

Table 4.11: Net Retention ratio Particulars Net Premium 2007 2008 2009 2010 55,183,763 55,646,937 0.99167 2011 69,556,324 70,051,044 0.99293

15,469,501 28,226,248 48,176,166

Gross Premium 15,699,126 28,558,656 48,585,616 Retention ratio .98537 .98836 0.99157

Figure: Net Retention ratio

Net Retention Ratio

0.994 0.992 0.99 0.988 0.986 0.984 0.982 0.98 2006 2007 2008 2009 2010 Net Retention Ratio

Analysis: From the above table it shows that there is a continuous increase in the net retention ratio in all the years.

Interpretation: Here the current years retention ratio is 0.99293. Company is retaining 99.29% of risk with itself. In the previous year retention ratio is 0.99167. This shows company has taken high risk compared to previous year.

1.

Commission Ratio

This ratio indicates the amount of commission that is paid out of the gross premium.
Commission ratio = gross commission Gross premium

Table 4.12: Commission Ratio Particulars Gross commission Gross premium 15,699,126 28,558,656 48,585,616 Ratio 7.66% 7.35% 7.23% 55,646,937 7.64% 70,051,044 7.50% 2007 2008 2009 2010 4,248,904 2011 5,254,973

1,203,252 2,099,268 3,512,586

Figure 4.12: Commission Ratio

Commission ratio
7.7 7.6 7.5 7.4 7.3 7.2 7.1 7 2006 2007 2008 2009 2010 Commission ratio

Analysis: The above table shows that there is a fall in the commission ratio in the years 2007, 2008, 2009 and 2010 while comparing the ratio of 2006. Interpretation: Here we can notice that the commission ratio has decreased from 7.64% to 7.50% in the current year, though there was an increase in the commission paid, this is because the premium s received increased at a higher rate.

Table 4.13: Growth rate of shareholders fund Particulars Shareholders fund Growth rate 140.53% 24.42% 61.96% 2.21% (11.78%) 2007 3,165,972 2008 3,939,077 2009 2010 2011 5,752,361

6,379,640 6,520,340

Figure 4.13: Growth rate of shareholders fund

Growth Rate
160 140 120 100 80 60 40 20 0 -20 2006 2007 2008 2009 2010 Growth Rate

Analysis: The table shows that the growth rate is consistently decreasing in all the years while comparing to the year 2006 also there is a negative rate of (11.78%) in the year 2010.

Interpretation: Growth rate of shareholders fund has decreased in the current year. In fact the growth rate is negative indicating that there was a decrease in the shareholders fund 1. Change in net worth Table 4.14: Change in net worth Particulars Net worth Change 2007 3,165,972 1,849,703 2008 3,939,077 773,105 2009 2010 2011 5,752,361 (767,980)

6,379,640 6,520,340 2,440,563 140,699

Figure 4.14: Change in net worth

Change in Net worth

3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 -500,000 -1,000,000 2006 2007 2008 2009 2010 Change in Net worth

Analysis: The above table shows the net worth of the company is having Rs1849703 in 2006 but in 2007 it is decreased to Rs 773105 later in this period it increased, Compared to the last 2 years and also there is a negative figure shown in the year 2010 Interpretation: The net worth of the company has also decreased considerably.

CASH FLOW STATEMENT Table 4.15 - RECEIPTS AND PAYMENTS ACOUNT FOR THE YEAR ENDED 31ST MARCH 2010
Particulars CASH FLOW FROM OPERATING ACITIVITIES Amounts received from policy holders Amounts paid to policy holders Amounts received/(paid) to Reinsurers Amounts paid as commission Payments to employees and suppliers Deposit with RBI Income Tax paid Other Income Net cash from operating activities (13,207,483) _ (309,142) 303,213 39,821,183 (15,583,363) 100,004 (230,833) 355,744 29,453,152 (312,168) (5,417,619) (384,636) (4,136,736) 70,817,804 (12,053,422) 54,747,190 (5,414,218) 2011 2010

CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets Sale of fixed assets Investments (net) Interest income Dividend income Net cash flow from investing activities

(2,177,582) 5,444 (48,767,468) 4,817,558 1,338,737 (42,823,481)

(581,822) 319 (39,057,231) 3,805,029 745,975 (35,087,730)

CASH FLOW FROM FINANCING ACTIVITIES Issue of shares during the year Net cash flow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year (1,282,298) (384,578) 1,720,000 5,250,000 1,720,000 5,250,000

4,108,660

4,493,238

2,826,362

4,108,660

NOTE: CASH AND CASH EQUIVALENTS 2011 AT END OF THE PERIOD INCLUDE: Cash and cheques in hand Bank balances Fixed deposit Total cash and cash equivalents 299,148 1,206,633 1,340,581 2,826,362 668,726 1,653,161 1,786,773 4,108,660 2010

Analysis of cash flow statement Operating activities Here high profitable operation shows the firms cash inflow. A huge amount of inflow received from policyholders remains positive after deducting all operating expenses. The operating expenses are, amounts paid to Policyholders, amounts received / (paid) to Reinsurers, amounts paid as Commission, taxes paid etc. these expenses paid reduces the current liabilities of the firm. Reduction in current liability shows cash outflow of the firm. Comparative analysis of cash flow statement shows that the amount received from policyholders is increased by 16,070,614 and the amount paid to employees and suppliers is reduced by 2,375,880.

Investment activities Here the purchase of fixed assets is more than the sale of fixed assets. There is increase in investments by 9,710,237. There is also increase in return on investment, dividend income. The investment activities show negative balance due to huge increase in investment. Financial activities This year the cash inflow is increased by 897,720. It increases the cash inflow of the firm. The overall net cash inflow is reduced due to over investment. The cash flow carry to the balance sheet is reduced to 2,826,362 from 4,108,660.

COMPARATIVE FINANCIAL STATEMENTS Table 4.16 - Comparative Balance Sheet

31stmarch 2010
SOURCES OF FUNDS Share capital Reserves and surplus Credit/(Debit) fair value change account POLICY HOLDERs FUNDS Credit/(debit) fair value change account Policy liabilities Total Provision for linked liabilities Fund for future appropriations Fund for future appropriationsProvision for lapsed policies 68,782,936 586,395 531,970 155,217,800 1,490,013 1,064,831 86,343,864 903,618 532,861 88.57 154.10 100.10 (296,885) 29,092,419 205,087 37,666,908 -91,798 8,574,489 (30.92) 29.47 (77,610) 184,435 262,045 337.64 17,958,180 552,892 19,680,000 552,892 1,721,820 9.5 -

Item

31stmarch 2011

Absolute increase

Percentage

APPLICATION OF FUNDS INVESTMENTS Shareholders Policy holders Assets held to cover linked liabilities Loans Fixed assets Current assets Cash and bank balances Advances and other assets Sub total A Current liabilities Provisions Sub total B Net current assets C= A-B Debit balance in profit and loss account 11,913,122 14,664,966 4,108,660 5,428,699 9,537,359 8,820,225 208,813 9,029,038 508,321 2,826,362 4,917,758 7,744,120 12,281,585 187,617 12,469,202 (4,725,082) 3,461,360 (21,196) 39.24 10.15 (1,282,298) (510,941) (31.21) (9.41) 68,782,936 30,248 1,451,346 155,217,800 40,366 1,143,777 86,434,864 10,118 (307,569) 125.66 33.45 (21.19) 4,291,597 30,152,727 6,304,757 43,415,382 2,010,160 13,262,655 46.84 43.98

Total

117,130,297

216,061,966

Table 4.17 - Comparative profit and loss account Particulars 31st march 31st march 2010 Amounts transferred from the policy holders account(technical account) 794,984 Income from investments a. Interest, dividends and rent - gross b. Profit on sale/redemption of investments. c. (Loss on sale/redemption of investments.) d. Transfer/gain on revaluation/ change in fair value e. Amortization of (premium)/ discount on investments Sub Total (2,965) Other income 329,343 300 Total A 1,124,627 335,133 3,522 811,585 3,222 1074 (2,634) 331 11.16 51,887 51,887 100 (35,870) (487) (35,383) (98.64) 13,924 49,152 35,228 253.00 302,367 289,102 (13,625) (4.39) 472,930 (322,054) (40.5) 2011 Absolute increase/decrease Percentage

Expenses other than those directly related to the insurance business 5,307 Contribution to policy holders fund Total B Profit/loss before tax Provision for taxation Profit/loss after tax 6,148,951 6,154,258 3,559,448 3,563,429 (45.29) (45.29) (2,589,503) (42.11) 3,981 (1326) (24.98)

(5,029,631) (2,751,844) (2,277,787) -

(5,029,631) (2,751,844) (2,277,787)

FINDINGS
After analyzing the financial statements of the firm, following are the findings during the course of study. 1. 2. Net working capital of the firm for the year ended march 2010 is negative i.e. (4,725,082) The liquidity position of the firm has deteriorated which is significant from the decrease in current ratio. 3. 4. Debt equity ratio is high indicating increased pressure from creditors. The company is on the path of becoming stable and this is evident from the increase in the proprietary ratio. 5. Assets are being financed to a greater extent by debt and this is indicated by the high total debt to equity ratio. 6. Profit margin ratio is negative, as the company is undergoing loss, but the quantum of losses has decreased. 7. ROE has improved when compared to previous year and this is due to reduction in the amount of losses in the current year. 8. Management expenses ratio has decreased indicates that the company will be capable of meeting other obligations. 9. Administrative expenses are also decreasing and this shows the increasing efficiency of the firm. 10. 11. 12. 13. 14. EPS of the firm is negative, but when compared to previous year it seems to be better. The company is retaining a higher portion of the risk. There is decrease in the shareholders fund of the company. Net worth of the company has also declined. Amount received from policyholders is increased by 16,070,614 and amount paid to employees and suppliers is reduced by 2,375,880. 15. Since the inflow from policyholders was huge it remained positive after deducting all operating expenses and also operating expenses have reduced during the current financial year. 16. The investment activities show negative balance due to huge increase in investment.

17. 18.

Cash flow is increased by 897,720. Overall net cash inflow is reduced due to over investment.

Chapter V
SUGGESTION AND CONCLUSION

CONCLUSION :
A study on financial statement analysis was carried out in ICICI Prudential. Financial Statement Analysis is one of the important factors in analyzing companys performance hence while knowing the companys growth and profitability financial analysis would be helpful. The data was collected from various sources and also through tools like companys annual report and relevant transactions with the company staffs. The were identified in the form of findings and suitable suggestions were put forth to the concerned authorities for further discussion.

SUGGESSIONS:
1. Companys working capital for 2011 is showing a negative balance, there fore company should increase its working capital or else there are chances of losing its reputation. 2. Companys liquidity position is not good according to the analysis, company should increase its liquidity position because customers can anytime come to collect their funds. 3. 4. Company should reduce its debt equity ratio. Company should increase its profit margins, last year profits margin increase in its value basis but still it is not covered in percentage basis compared to the competitors. 5. Companys managerial expenses is decreased, it shows good control on managerial cost but still company should adopt more techniques to control the managerial cost to increase the companys profit. 6. 7. Company should look forward to increase the EPS or else it will lose its Finance. Risk management techniques should be adopted in order to avoid investing in risky projects. 8. Found there was a decrease in shareholders founds comparing to the previous years may be because of loss in those years so company should increase its profits to retain its investors. 9. The company should take steps in training and development program in upgrading the technological knowledge for their employees. 10. Company should also follow some qualitative techniques in order to overcome the future risk.

11.

If the company is not able to satisfy the appraisals of their employees, at least should look forward for a Rewards and Recognitions program to motivate the employees.

BIBILOGRAPHY

REFERENCE BOOKS: PRASANNA CHANDRA: FINANCIAL MANAGEMENT, (TMH), 6/e, 2004 M.Y. KHAN & P.K. JAIN: FINANCIAL MANAGEMENT, (TMH), 4/e, 2004

WEBSITES: http://www.iciciprulife.com/public/default.htm http://www.iciciprulife.com/public/Life-plans/Plan-Life-need.htm http://www.iciciprulife.com/public/Life-plans/Plan-Life-need.htm http://www.iciciprulife.com/public/Others/Download-Center.htm http://www.iciciprulife.com/public/Why-Us/Buying-life-insurance-policy.htm http://www.iciciprulife.com/public/About-us/Prudential-Edge.htm http://www.iciciprulife.com/public/Investor-Relations/IR-Main-page.htm