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MINOR PROJECT REPORT
Submitted in partial fulfillment of the requirements
for the award of the degree of
Submitted by
RITESH GOYAL
(0211931806)
Submitted to
Mrs. MADHU ARORA
September 2007
(Affiliated to GGSIP University, Delhi)
Narela, Delhi 110 040
ACKNOWLEDGEMENT
The present report is based on A Financial Analysis OF HDFC Standard Life Insurance
It gives me immense pleasure to express my heart felt gratitude and sincere appreciation to acknowledge all those who helped me, in making this report a real success. I would like to thank my project guide Mrs. Madhu Arora, lecturer in Kasturi Ram College Of Higher Education, Delhi without whom this project report would not be possible.
I am also very thankful to my parents, all my colleagues, and staff member of HDFC Bank who provide me their much needed support and inspiration in preparing this project report.
RITESH GOYAL
0211931806
BBA (B&I), KRCHE
CERTIFICATE
This is to certify that Mr. Ritesh Goyal has accomplished the project title A Financial Analysis Of HDFC Standard Life Insurance under my supervision and guidance.
He has submitted his project in the partial fulfillment of requirement for the reward of degree of BBA (B&I) from Guru Gobind Singh Indraprastha University.
This work has not submitted anywhere else for the award of degree. All sources of information have been duly mentioned.
PROJECT GUIDE
Mrs. Madhu Arora
Faculty Member, KRCHE
CONTENTS
PAGE NO
1. INTRODUCTION
5-7
1.1. Introduction of Study
6
1.2. Objective of Study
7
2. INTRODUCTION OF HDFC STANDARD LIFE INSURANCE 8-19
2.1. History of HDFC Ltd
9
2.2. History of Standard life
12
2.3. The Joint Venture
12
2.3.1. Board of Directors
13
2.3.2. Subsidiary Company
14
2.4. Key Strengths
15
2.5. Products of HDFC Standard Life Insurance
16
2.6. Life Stage in HDFC insurance plan
16
3. FINANCIAL STATEMENT (01.04.2006-31.07.2007)
20-33
3.1. MEANING OF FINANCIAL STATEMENT
21
3.2. BALANCE SHEET
26
3.3. PROFIT & LOSS ACCOUNT
27
3.4. REVENUE ACCOUNT
28
3.5. CASH FLOW STATEMENT
29
3.6. SCHEDULES OF ACCOUNTS
30
4. ANALYSIS OF FINANCIAL STATEMENT
34-52
4.1. Meaning of Financial Statement Analysis
35
4.2. Study of Balance-sheet
36
4.3. Study of Profit & Loss Account
41
4.4. Meaning of Ratio Analysis
42
4.5. Calculation of Ratios
46
4.6. Study of Ratios
48
4.7. Study of Cash flow Statement
50
4.8. Graphs
51
5. CONCLUSION
53-54
BIBLOGRAPHY
55-56
1.1 Introduction Of Study
Nothing is permanent but change. How true these words are, especially when we look at the market world which full of changes. Marketing scenario is how very much different from the 10 years ago. Now the patterns have been change for marketing and new things and techniques are introduced continuously and that is the reason, this survey is conducted & report has been made for knowing the current scenario of marketing which is adapted by few top ranking banks in the banking sector.
This report is based on the marketing strategies of one of the top ranked banks (HDFC Banks) in banking sector to know the current market scenario. While writing this report, I have tried my level best to keep its language simple and explanatory for the user that can understand easily.
This report contains the following:
Profile
Annual Report
Financial analysis
Conclusion
This report is made to help the user in enhancing the overview of todays market scenario of banking sector, which is fastest growing sector in the market. No report can ever be complete on any topic. Therefore I look forward to all the constructive feedback and suggestions for the improvement.
1.2 Objective Of Study
To study about HDFC standard life insurance and its related aspects like its product & services, organizational structure, subsidiary companies etc.
To learn about Balance Sheet, different types of assets & liabilities.
Depiction of financial position of HDFC standard life insurance with the help of Balance Sheet.
The purpose is to portray the financial position of HDFC standard life insurance
To evaluate the financial soundness of HDFC standard life insurance.
To evaluate stability of HDFC standard life insurance.
To evaluate liquidity of HDFC standard life insurance.
2.1. HDFCThe Housing Development Finance Corporation Limited (HDFC Bank) was incorporated in 1977 with a share capital of Rs. 10 crores and the primary objective of meeting a social need that of promoting home ownership by providing long-term finance to households for their housing needs; HDFC has since emerged as the largest residential mortgage finance institution in the country. The Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The corporation has had a series of share issues raising its capital to Rs. 119 crores. The net worth of the corporation as on March 31, 2000 stood at Rs. 2,096 crores.
HDFC operates through 75 locations throughout the country with its Corporate Headquarters in Mumbai, India. HDFC also has an international office in Dubai, U.A.E., with service associates in Kuwait, Oman and Qatar.
HDFC Bank has a network of over 531 branches spread over 228 cities across India. All branches are linked on an online real-time basis. HDFC Banks Customers are serviced through Telephone Banking in over 120 locations. The Bank also has a network of about over 1054-networked ATMs across these cities. HDFC Bank's ATM network can be accessed by all domestic and international
Visa
MasterCard
Visa Electron
Maestro
Plus
Cirrus and American Express Credit
Charge cardholders.
HDFC Bank has won many awards for its excellent service. Major among them are "Best Bank in India" by Hong Kong-based Finance Asia magazine in 2005 and "Company of the Year" Award for Corporate Excellence 2004-2005.
The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets.
HDFCs main goals are to
Develop close relationships with individual households,
Maintain its position as the premier housing finance institution in the country,
Transform ideas into viable and creative solutions,
Provide consistently high returns to shareholders,
To grow through diversification by leveraging off the existing client base.
HDFC has always been market-oriented and dynamic with respect to resource mobilization as well as its lending programmed. This renders it more than capable to meet the new challenges that have emerged. Over the years, HDFC has developed a vast client base of borrowers, depositors, shareholders and agents, and it hopes to capitalize on this loyal and satisfied client base for future growth. Internal systems have been developed to be robust and agile, to take into account changes in the volatile external environment.
HDFC has developed a network of institutions through partnerships with some of the best institutions in the world, for providing specialized financial services. Each institution is being fine-tuned for a specific market, while offering the entire HDFC customer base the highest standards of quality in product design, facilities and service.
2.2. Standard Life
Standard Life is Europe's largest mutual life assurance company. Standard Life, which has been in the life insurance business for the past 175 years, is a modern company surviving quite a few changes since selling its first policy in 1825. The company expanded in the 19th century from its original Edinburgh premises, opening offices in other towns and acquiring other similar businesses.
Standard Life currently has assets exceeding over 70 billion under its management and has the distinction of being accorded "AAA" rating consequently for the past six years by Standard & Poor.
2.3. The Joint Venture
HDFC Standard Life Insurance Company Limited was one of the first companies to be granted license by the IRDA to operate in life insurance sector. Each of the JV player is highly rated and been conferred with many awards. HDFC is rated 'AAA' by both CRISIL and ICRA. Similarly, Standard Life is rated 'AAA' both by Moody's and Standard and Poors. These reflect the efficiency with which HDFC and Standard Life manage their asset base of Rs. 15,000 Crores and Rs. 600,000 Crores respectively.
HDFC Standard Life Insurance Company Ltd was incorporated on 14th August 2000. HDFC is the majority stakeholder in the insurance JV with 81.4 % stake and Standard Life has a stake of 18.6%. Mr. Deepak Satwalekar is the MD and CEO of the venture.
HDFC Standard Life Insurance Company Ltd. 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 Ltd.), India's leading housing finance institution and a Group Company of the Standard Life, UK. HDFC as on March 31, 2007 holds 81.9 per cent of equity in the joint venture
2.3.1 Board Of Directors
Following are the board of directors of HDFC Standard Life Insurance LTD.
Mr. Deepak S. Parekh (CHAIRMAN)
Mr. K. M. Mistry
Ms. Renu Sud Karnad
Mr. A. M. Crombie
Ms. Marcia D. Campbell
Mr. Norman Keith Skeoch
Mr. G. R. Divan
Mr. Ranjan Pant
Mr. Ravi Narain
Mr. Gerald Edgar Grimstone
Mr. D. M. Satwalekar (MANAGING DIRECTOR & C.E.O)
2.3.2 Subsidiary Companies
Following are the some subsidiary companies of HDFC Standard Life Insurance LTD.
HDFC Limited (Holding Company)
Standard Life Assurance Company (Investing Party)
HDFC Asset Management Company Limited (Fellow Subsidiary)
HDFC Developers Limited (Fellow Subsidiary)
HDFC Holdings Limited (Fellow Subsidiary)
HDFC Trustee Company Limited (Fellow Subsidiary)
HDFC Realty Limited (Fellow Subsidiary)
HDFC Investment Limited (Fellow Subsidiary)
HDFC Chubb General Insurance Company Limited (Fellow Subsidiary)
GRUH Finance Limited (Fellow Subsidiary)
Home Loan Service India Private Limited (Fellow Subsidiary)
HDFC Venture Capital Limited (Fellow Subsidiary)
HDFC Venture Trustee Company Limited (Fellow Subsidiary)
HDFC Property Ventures Limited (Fellow Subsidiary)
2.4. Our Key Strengths
Financial ExpertiseAs a joint venture of leading financial services groups, HDFC Standard Life has the financial expertise required to manage our long-term investments safely and efficiently.
Range of Solutions They have a range of individual and group solutions, which can be easily customized to specific needs. There group solutions have been designed to offer us complete flexibility combined with a low charging structure.
Track Record so farThere gross premium income, for the year ending March 31, 2007 stood at Rs. 2, 856 crores and new business premium income at Rs. 1,624 crores.
The company has covered over 8,77,000 lives year ending March 31, 2007
2.5. Products Of HDFC Standard Life Insurance
HDFC Standard Life Insurance has offered the following products: -
Money Back
Endowment
Term Assurance Plan
Flexible Bond
Development Insurance Plan
Group Term Plan
Loan Cover Term Assurance
Childrens Plan
2.6. Life Stages In HDFC Insurance Plan
Insurance need will change as our life does, from starting to work to enjoying our golden years and all the stages in between. Each one of these stages may pose a different insurance need/cover for us. There are basic life stages, which help us to analyze various insurance needs accordingly.
Stage 1
Young and SingleAn important stage where one lays down the foundation of a successful life ahead. Take advantage of the time and power of compounding to ensure that you build up your dreams. Start saving early.
Our needs
Save for a home and wedding
Tax planning
Save for golden years
Stage 2
Just marriedMarriage brings about a significant change. New dreams and new opportunities also bring in additional responsibilities. While both of us look forward to a happy and secure life, it is equally important to ensure that eventualities dont come in the way of shaping your dreams.
Our needs
Planning for home / securing your home loan liability
Save for vacation
Save for your first child
Stage 3
Proud Parents
Once we have children, our need for life insurance is even more. We need to protect our family from an untoward incident. Ensure our protection umbrella takes into account the future cost of securing our childs dream. We will want life to go on for your loved ones, and having enough life insurance is a way to help ensure that.
Our needs
Provide for childrens education
Safeguarding family against loan liabilities
Savings for post-retirement
Stage 4
Planning for Retirement
While we are busy climbing the ladder of success today, it is important for us to take time and plan for our life after retirement. Having an early start for retirement planning can make a significant difference to our savings. Think about our golden years even before we have reached them. The key is to think ahead and plan well using your time and money.
Our needs
Provide for regular income post retirement
Immediate Tax benefits
Lead a secure, independent and comfortable life style in your retirement years
3.1 Meaning Of Financial Statement
Financial statement are the summarized statements of accounting data produced at the end of the accounting process by an enterprise through which it communicates the accounting information to the internal (management) and external users. The external users can be investors, lenders, suppliers and trade creditors, customers, government and their agencies and employees. According to American Institute Of Certified Public Accountants (AICPA), Financial statements are prepared for the purpose of presenting a periodical review or report on progress made by the management and deal with the status of investment in the business and the result achieved during the period under review. A set of financial statement includes: -
Balance Sheet
It is a statement of assets and liabilities, i.e., financial position of an enterprise at a given date it is also known as Position Statement
Profit and Loss Accounts
It shows the net result of business operation during an accounting period. It is also known as Income Statement
Schedules and Notes to Accounts
The Balance Sheet and Profit and Loss Account are supported by the Schedules having details of items in the Balance Sheet and Profit and Loss Account, while the notes to accounts are the statement of accounting policies and explanation to material items.
Characteristics of financial statement
The characteristics of financial statements are: -
Financial statements relate to past period and thus, are historical documents
The statements are expressed in monetary terms
The financial statement shows financial position through Balance Sheet and profitability through Profit and Loss Accounts.
Nature of financial statement
The information and data included in the financial statement are the result of the combination of: -
Recorded Facts
The term Recorded Facts means recording of transactions based on evidences in the accounting books i.e., figures related to cash in hand, cash at bank, debtors, sales, purchase, creditors etc. The financial statement being statements prepared on the basis of recorded facts, they do not depict the unrecorded facts.
Conventions
Certain accounting conventions are followed while preparing financial statement, for example, on account of convention of conservatism provision is made of expected losses but expected profit are ignored. This means that the real financial position of the business may be better than what has been shown by financial statements. The convention of materiality is followed in dealing with small items like pen, pencils, postage stamps, etc. These items are considered as expenditure in the year in which they are purchased even though they are assets in nature. The use of accounting conventions makes financial statements simple, comparable and realistic.
Accounting Concept
While preparing financial statement the accountants make a number of assumptions known as Accounting Concept such as going concern concept, money measurement concept, realization concept, etc. According to going concern concept it is assumed that business of the concern shall be continued indefinitely. The assets are shown in the Balance Sheet at their book value rather than their market value. Money measurement concept assumes that the value of money will remain same in different periods. The realization concept requires that revenue is earned in the year in which the sales was undertaken even though sale price may be received in a number of years.
Personal Judgment
Personal judgments also have an important bearing on a financial statement. For example, the choice of selecting a method of depreciation (fixed installment or written down value) lies on the accountant. Similarly, selection of the inventory valuation method also depends on the personal judgment of the accountant.
Objectives of financial statement The institute of Charted Accountant of India has stated that the objective of the financial statements is to provide, Information about the financial position, performance and cash flow of an enterprise that is useful to a wide range of users in making economic decisions. The objectives of financial statement are: -
To provide financial data on economic resources and obligations of an enterprise
To reveal implication of operating profit on the financial position of an enterprise
To provide sufficient and reliable information to various parties interested in financial statements
To present true and fair view of the business
To serve as the basis of future operations.
3.2 BALANCE SHEET
AS ON 31 MARCH, 07 LIABILITY2006-07
(Rs. 000)2005-06
(Rs. 000) ASSETS2006-07
(Rs. 000)2005-06
(Rs. 000)
SOURCES OF FUND:APPLICATION OF FUNDS
SHAREHOLDERS FUND:INVESTMENTS
Share capital 8,007,148 6,192,718Shareholders 1,529,743 1,380,910
Share application money 287,391 -----Policyholders17,782,86611,695,010
Reserve & Surplus 65,902 65,902Assets to cover linked liability28,516,76311,936,090
Credit\(debit) fair value change ---- 73,105Loans 12,638 29,356
Fixed Assets 736,054 601,345
BORROWINGS
POLICYHOLDERS FUNDS:CURRENT ASSETS
Credit \(Debit) fair value change 91,247 209,569Cash & Bank Balance 3,363,556 2,879,622
Policy Liabilities17,391,53111,487,996Advances & Other Assets 1,961,980 990,106
Insurance Reserves ----- -------
Linked Liabilities25,934,264 9,732,781SHAREHOLDERS ACCOUNT 4,421,364 3,165,753
Add: fair value change 2,582,499 2,203,309
Future appropriation- provision 59,485 25,516
CURRENT LIABILTY 3,874,652 2,658,567
PROVISION 30,845 28,729
TOTAL58,324,96432,678,192 TOTAL58,324,96432,678,192
3.3 PROFIT & LOSS ACCOUNT
AS ON MARCH 31, 2007
SHAREHOLDERs ACCOUNT (NON-TECHNICAL ACCOUNT)
PARTICULARS2006-07
(Rs. 000)2005-06
(Rs. 000)
INCOME FROM INVESTMENTS
(a) Interest, Dividend & Rent Gross 126,836138,496
(b) Profit on sale \ Redemption of investments 114,192 7,989
(c) Loss on sale \ Redemption of investment (12,470) (6,933)
(d) Transfer \ gain on revaluation \ change in fair value (23,909) (6,594)
(e) Amortisation (charge) \ credit (2,375) (8,926)
Other Income 764 3,650
TOTAL (A)203,038127,682
Expenses Other Than Those Directly Related To The Insurance Business 8,252 18,251
Bad Debts Written Off ------ -----
Contribution to the policyholders fund1,450,3971,397,003
TOTAL (B)1,458,6491,415,254
PROFIT \ LOSS BEFORE TAX [(A)-(B)](1,255,611)(1,287,572)
PROVISION FOR TAX ------- ------
PROFIT \ LOSS AFTER TAX(1,255,611)(1,287,572)
ADD: BALANCE AT THE BEGINNING OF THE PERIOD(3,165,753)(1,878,181)
PROFIT \ LOSS CARRIED FORWARD TO THE BALANCE SHEET (4,421,364)(3,165,753)
3.4 REVENUE ACCOUNT
AS ON MARCH 31, 2007
POLICYHOLDERs ACCOUNT (TECHNICAL ACCOUNT)
PARTICULARS2006-07
(Rs. 000)2005-06
(Rs. 000)
PREMIUM EARNED (NET)
(a) Premium28,558,65615,699,126
(b) Reinsurance Ceded (332,408) (229,625)
INCOME FROM INVESTMENT
(a) Interest, Dividend & Rent Gross 1,589,497 689,655
(b) Profit on sale \ redemption of investments 1,043,415 944,930
(c) Loss on sale \ redemption of investments (411,914) (14,974)
(d) Transfer \ gain on revaluation \ change in fair value 101,405 2,158,993
(e) Amortisation charge (65,762) (60,160)
OTHER INCOME
(a) Contribution from the Shareholders Account 1,450,397 1,397,003
(b) Other income 232,997 232,709
TOTAL (A)32,166,283 20,817,657
Commission 2,099,268 1,203,252
Operating Expenses Related To Insurance Business 5,767,403 3,984,948
Fringe Benefit Tax 35,784 26,791
TOTAL (B) 7,902,455 5,214,991
Benefits Paid (Net) 1,745,350 448,337
Interim Bonuses Paid 300 417
Change in valuation of liability against life policies in force
(a) Gross22,625,262 15,247,633
(b) Amount Ceded in reinsurance (141,054) (119,237)
TOTAL (C)24,229,858 15,577,150
SURPLUS \ (DEFICIT) BEFORE BONUS ALLOCATION [(A)-(B)-(C)] 33,970 25,516
APPROPRIATION
Funds for future appropriation provision for lapsed policies unlikely to be revived 33,970 25,516
3.5 CASH FLOW STATEMENT PARTICULARS2006-07
(DETAIL)2006-07
(Rs.000)2005-06
(DETAIL)2005-06
(Rs.000)
CASH FLOW FROM OPERATING ACTIVITIES
Amount received from policy holders28,492,87315,642,471
Amount paid to policy holders (1,708,312) (435,195)
Amount received \ (paid) to reinsurer (217,789) (265,037)
Amount paid to distribution partners (2,064,017) (1,172,248)
Cash payment to employee and suppliers (6,467,443) (2,742,762)
Deposit with Reserve Bank Of India (4) (73,570)
Investment income 1,541,366 673,038
Other income 384,782 417,966
Net cash from operating activities19,961,45612,044,663
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (372,874) (496,658)
Sale of fixed assets ------ 996
Proceeds from Sale or Maturity of Investment 65,891,941 22,244,811
Purchase of Investment(87,096,589) (34,647,719)
Net cash flow from investing activities(21,577,522)(12,898,570)
CASH FLOW FROM FINANCING ACTIVITIES
Issue of Share During the Year 1,812,609 3,000,000
Share application money received pending allotment 287,391
Net Cash From Financing Activities 2,100,000 3,000,000
Net Increase in cash & cash equivalents 483,934 2,146,093
Cash & Cash Equivalents as at the beginning of the year 2,879,622 733,529
CASH & CASH EQUIVALENTS IN THE END OF THE YEAR 3,363,556 2,879,622
AS ON MARCH 31, 2007
3.6 SCHEDULES OF ACCOUNT
PARTICULARS2006-07
(Rs. 000)2005-06
(Rs. 000)
SCHEDULE 1
PREMIUM
First year premium13,164,385 8,254,735
Renewal premium12,070,128 5,272,607
Single premium 3,324,143 2,171,784
Total premium28,558,65615,699,126
SHEDULE 2
COMMISSION EXPENSES
Agents 970,774 689,408
Brokers 16,371 6,206
Corporate Agency 1,111,327 506,785
Referral 796 853
Total 2,099,268 1,203,252
SCHEDULE 3
OPERATING EXP RELATED TO BUSINESS
Employees remuneration & welfare benefits 1,905,428 1,117,923
Travel, conveyance & vehicle running expenses 160,255 105,088
Training expenses 430,282 218,630
Rent, rate & taxes 234,800 168,525
Repairs 37,807 25,005
Printing & stationery 121,130 95,130
Communication expenses 193,752 143,743
Legal & professional charges 290,842 150,038
Medical Fees 39,587 32,634
Auditors fees, expenses 1,102 1,121
Advertisement & Publicity 924,383 866,042
Interest & Bank charges 11,391 4,962
Others 1,261,487 943,009
Service tax 155,157 113,098
Total 5,767,403 3,984,948
SHEDULE 4
BENEFITS PAID [NET]
Claims by death 107,788 80,140
Money back payment 122,414 4,934
Annuities \ Pensions in payment 8,610 9,019
Vesting of pension policy 8,820 ------
Surrenders 881,684 2,39,305
Critical illness 172 14
Permanent & partial disability 65 ------
Withdrawals 615,797 112,102
Others -------- 2,823
Total 1,745,350 448,337
SHEDULE 5
SHARE CAPITAL
Authorized capital (equity share of Rs.10 each)15,000,00015,000,000
Issued capital (equity share of Rs.10 each) 8,300,000 6,200,000
Subscribed capital (equity share of Rs.10 each) 8,012,609 6,200,000
Preliminary expenses (including commission) (5,461) (7,282)
Total 8,007,148 6,192,718
SHEDULE 6
LOANS
Secured
a) On mortgage property 2,314 4,017
b) Loans against policies 8,426 24,894
c) Others (vehicles) 229 -----
Unsecured 1,669 445
Total 12,638 29,356
SHEDULE 7
FIXED ASSETS
Intangible assets (computer software) 26,341 46,009
Building 13,648 13,895
Furniture & Fittings 252,769 192,714
Informational technology equipment 209,559 174,962
Office equipment 225,191 167,471
Total 727,508 595,051
Capital work in progress 8,546 6,294
Grand total 736,054 601,345
SHEDULE 8
CASH & BANK BALANCE
Cash (including cheques in hand, draft, stamps) 765,833 514,618
Bank Balance Current Account 1,182,280 1,753,404
Monet at call & Short Notice with Banks 1,415,443 611,600
Total 3,363,556 2,879,622
SHEDULE 9
ADVANCES & OTHER ASSETS
ADVANCES
1) Prepayments 91,504 30,108
2) Advance tax paid and taxes deducted at source 5,952 114
3) Others
a) Advances for fixed Assets 6,758 3,169
b) Security Deposits 290,658 146,239
c) Advances to employees 411 10
d) Other advances 31,022 10,063
OTHER ASSETS
1) Income accrued on investments 414,464 239,497
2) Outstanding premiums 761,825 404,259
3) Agents Balances 21,386 512
4) Due from other entities 44,966 16,906
5) Due from Subsidiary/holding Company 12 ----
6) Deposit with Reserve Bank Of India 100,004 100,000
7) Others
a) Sundry Debtors 1,463 1,629
b) Due from investing company 18,304 23,000
c) Service tax unutilized credits 173,251 14,600
Total 1,961,980 990,106
SHEDULE 10
CURRENT LIABILITIES
Agents Balance 162,083 105,958
Balance due to other insurance company 197,545 54,866
Premium received in advance 451,850 83,447
Unallocated premium 432,471 509,091
Sundry creditors 1,324,021 900,441
Claims outstanding 55,562 18,223
Others
a) Tax deducted to be remitted 168,121 58,874
b) Service tax liability ---- 41
b) Security deposits 21,441 21,441
c) Investment purchased- to be settled 1,061,558 906,185
Total 3,874,652 2,658,567
SHEDULE 11
PROVISIONS
Wealth tax 125 127
Gratuity 5,660 4,794
Leave encashment 24,328 21,494
Fringe benefit tax 715 2,314
Standard loans 17 ----
Total 30,845 28,729
4.1 Meaning of Financial Statement AnalysisAnalysis of financial statement is a systematic process of the critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm. The Analysis of Financial statements is a study of relationship among various financial facts and figures as set out in the financial statements, i.e., Balance Sheet and Profit and Loss Account. The complex data given in these financial statements is divided/broken into simple and valuable elements and relationships are established between the elements of the same statement or different financial statements. This process of division, establishing relationship and interpretation thereof to understand the working and financial position of a business is known as analysis of Financial Statements. According to Myer, Financial statement analysis is largely a study of relationships among the various financial factors in a business, as disclosed by a single set of statements, and a study of trends of these factors, as shown in a series of statements. According to Kennedy and Muller, The analysis and interpretation of financial statements are an attempt to determine the significance and meaning of financial statement data so that the forecast may be made of the prospects for future earnings, ability to pay interest and debt maturities (both current and long-term) and profitability and dividend policy.
4.2 Study Of Balance SheetA Balance sheet is a snap shot of a business financial condition at a specific in a time, usually at the close of an accounting period. A Balance sheet has the record of companies Assets, Liabilities & owner/shareholders equity. Assets & liability are divided into Short & Long-term obligation including cash account such as checking, money market or government securities. At any given time assets equal to liability plus owners equity (Assets = Liability + owners equity). As in this Balance sheet (chapter-3.1) we got to know the financial position of the company HDFC standard life insurance ltd. And we also able to know the growth of the company from last year (2005-06) to current year (2006-07). After studying the Balance sheet of HDFC standard life insurance we get to know the financial position of the company by knowing the values of various assets and liability like Fixed assets- Rs.736,054,000; Cash & Bank balance- Rs.3,363,556,000; Current liabilities- Rs.3,874,652,000; Share capital- Rs.8,007,148,000; Reserves and Surplus- Rs.65,902,000. After seeing above values we got to know that company has increased every thing like fixed assets share capital but the Reserve and Surplus account has no change that mean company doesnt make any reserves this year
Need of Balance sheet
A Balance Sheet helps a small business owner quickly get a handle on the financial strength and capabilities of the business. Is the business in a position to expand? Can the business easily handle the normal financial ebbs and flows of revenue and expenses, or should the business take immediate steps to bolster cash reserves.
Balance sheets can identify and analyze trends, particularly in the areas of receivables and payables. Is the receivables cycle lengthening? Can receivables be collected more aggressively? Is some dept uncollectable? Has the business being slowing down payables to forestall an inevitable cash shortage?
Balance sheets, along with income statements, are the most basic elements providing financial reporting to potential lenders such as banks, investors, vendors who are considering how much credit to grant the firm.
A Balance sheet contains two sides. And these sides are Assets and Liabilities and owners equity
Assets
An asset is anything the business own has monetary value. Assets are sub divided into current & fixed assets to reflect the ease of liquidity of each asset. Cash & Bank Balance, for obvious reason is considered the most liquid of all assets. Fixed assets, such as real estate or machinery are less likely to sell overnight or have the capability to being quickly converted into a current asset such as Cash & Bank.
1. Current AssetsCurrent Assets are any assets that can be easily converted into cash within one calendar. Examples of current assets would be checking or money market accounts, a receivables & notes receivables that area due within one-year time.
Cash
Money available immediately, such as in checking accounts, is the most liquid in all short-term assets.
Accounts receivables
This money owed to the business for purchases made by customers, suppliers & other vendors.
Notes receivables
Notes receivables are due within one year are assets. Notes that cannot be collected on within one year should be considered long term assets.
2. Fixed Assets
Fixed assets include land, buildings, machinery, & vehicles that are used in connections with the business.
Land
Land is considered a fixed asset but unlike other fixed assets is not depreciated, because land is considered as an asset that never wears out.
Buildings
Buildings are categorized as fixed assets & are depreciated over time.
Office equipment
This includes office equipments such as copiers; fax machines; printers & computers used in your business.
Machinery
This figure represents machines & equipments used in firms plant to produce product. Examples of machinery might include lathes, conveyor belts, or a printing press.
Vehicles
This would include all vehicles used in business.
Total Fixed Assets
This is the total value of all fixed assets in business, less any accumulated depreciation.
Liabilities and owners equity
This includes all debts and obligations owed by the business to outside creditors, vendors, or banks that are payable within one year, plus the owners equity often this side of the balance sheet is simply referred to as Liabilities.
Accounts payable
This is comprises of all short-term obligations owed by business to creditors, suppliers, and other vendors. Accounts payable can include suppliers and materials acquired on credit.
Notes payable
This represents money owed on a short-term collection cycle of one year or less. It may include bank notes, mortgage obligations, or vehicle payments.
Accrued payroll and withholding
This includes any earned wages or withholdings that are owed to or for employees but not yet have been paid.
Total current liabilities
This is the sum total of all current liabilities owed to creditors that must be paid within one year time frame.
Long term liabilities
These are any debts or obligations owed by the business that are due more than one year out from the current date.
Mortgage note payable
This is the Balance of mortgage that extends out beyond the current year. For example: you may have paid off three year of a 15years mortgage note, of which the remaining 11years not counting the current year, are considered long term.
Owners equity
Sometimes this is referred to as stockholders equity. Owners equity is made up of the initial investment in the business as well as any retained earnings that are reinvesting in the business.
Common stock
This is stock issued as part of the initial or later stage investment in the business.
Retained earnings
These are earnings reinvested in the business after the deduction of any distributions to shareholders such as dividend payments.4.3 Study of Profit and Loss Account
A Profit and Loss Account is an account, which shows the net profit or net loss earned by the company during a particular period (mainly one year). The companies Act, 1956 has not prescribed any form in which the profit and loss account is to be prepared. However, the particulars and information to be given in profit and loss account are laid in schedule VI, part II of the companies Act, 1956. As a result, in practice, profit and loss account is prepared in different forms based on the requirements of the business and types of industry. Whatever form of Profit and Loss Account may be, items of income and expenditure of the business should be under the most convenient heads of account. The Profit and Loss Account must exhibit a true and fair view of the profit and loss of the company during the year under reference. As the profit and loss account of HDFC standard life insurance limited shows the profit of Rs.4,421,364,000 (about four hundred fourty two crores). It shows the financial position of the company, which is very good. It also shows the amount expended on various activities and income received by various activities. The profit of the company is increased from last year which is Rs.3,165,753,000 which shows increase of Rs.1,255,611,000 which shows growth of 39.66% which is very good achievement in business.
4.4 Meaning Of Ratio Analysis
Meaning of a Ratio
A Ratio is an arithmetical expression of relationship between two related or inter dependent items. Ratios when, calculated on the basis of accounting information, are called Accounting Ratio. Accounting Ratio is thus, an arithmetical relationship between two accounting variables. But they assume significance if these variables have cause and effect relationship. In brief accounting ratios provide a quantitative relationship, which the analyst may use to make a qualitative judgment about various aspects of financial position and performance of an enterprise. According to J. Betty, The term accounting ratio is used to describe significant relationships which exist between figures shown in a Balance Sheet, in a Profit and Loss Account, in a budgetary control system or in any part of the accounting organization.
Expression of Ratio
Accounting Ratios express the relationship between two financial variables of the financial statements. They are expressed in anyone of the following forms: -
Pure
It is expressed as a quotient. For example Current Ratio, which expresses the relationship between current asset and current liabilities. This type of relationship shows in pure form (say 1:2)
Percentage
It is expressed in percentage. For example, gross profit ratio, which relates gross profit to net sales. This type of relationship is shows as percentage (say 25%)
Times
It is expressed in a number of times a particular figure is compared to another figure. For example, stock turnover ratio, which studies relationship between costs of goods sold and average stock is (say) 4 times
Fraction
It is expressed in fraction. For example, ratio of fixed assets to share capital is (say) (0.75).
Days
Ratio, sometimes, may be expressed in terms of days also. For example, the average collection period is (say) 73days.
Types of Ratios
Ratios can be classified from various points of view. In reality, the classification depends on the objectives and available data. Ratios may be based on amounts in the Balance Sheet, in profit and loss account or in both. Thus, they may be worked out on the basis of figures contained in the financial statements and, therefore, may be classified as follows:
Income statement ratios
This ratio is calculated on the basis of the amounts of income statement (profit and loss account) only.
Position statement ratio
This ratio is calculated on the basis of the amounts of position statement (Balance Sheet) only.
Inter-statement ratios or composite ratios
This ratio is based on amounts of income statement as well as position statement.
The above classification is rather crude and unsuitable because analysis of balance sheet and profit and loss account cannot be carried out in isolation. Therefore the ratios may also be classified as:
Liquidity Ratios
Solvency Ratios
Activity Ratios
Profitability Ratios
Meaning of Ratio Analysis
According to Myers, Ratio analysis is a study of relationship among various financial factors in a business.
Ratio analysis is a technique of analyzing financial statements by computating ratios. In other words, ratio analysis is a process of determining and interpreting relationship between the items of financial statements to provide a meaningful understanding of the performance and financial position of an enterprise. Ratio analysis is an accounting tool to present accounting variables in a simple, concise, intelligible and understandable form.
Objectives of Ratio Analysis
The objective of ratio analysis is to judge the earning capacity, financial soundness and operating efficiency of a business organization. The use of ratios in accounting and financial management analysis helps the management to know the profitability, financial position (liquidity and solvency) and operating efficiency of an enterprise.
Uses of Ratio Analysis
Useful in analysis of financial statement
Useful in simplifying accounting figures
Useful in judging the operating efficiency of business
Useful in forecasting
Useful in locating the weak spot
Useful in inter firm and intra firm comparisons
4.5 Calculation Of Ratio
1. Current Ratio
Current ratio= current assets\current liability
=5325536\3874652
Current Ratio= 1.37:1
2. Debt-equity Ratio
Debt-equity ratio=debt \ equity
=17482778 \ 8360441
Debt-equity ratio=2.09:1
3. Total Assets to Debt Ratio
Total Assets to Debt Ratio=Total assets \ Long term debts
= 58324964 \ 17482778
Total Assets to Debt Ratio= 3.37:1
4. Proprietary Ratio
Proprietary Ratio=(Shareholders Fund\ Total Assets) * 100
=(8360441\ 58324964) * 100
=0.1433 * 100
Proprietary Ratio=14.33%
4.6 Study Of Ratios
Current ratios
Current ratio is a relationship of current assets to current liabilities. Current ratio is generally accepted that current assets should be 2 times the current liabilities, and then only will realization from current assets be sufficient to pay the current liabilities on time and enable the firm to meet other Day-to-day expenses. But the company has only 1.37 times the current assets to current liabilities, which is not good for the company. The company needs to improve the ratio for which they have to increase the current assets or decrease the current liabilities.
Debt-equity ratio
The debt-equity ratio is computed to ascertain soundness of the long-term financial policies of the firm. This ratio expresses a relationship between debt (external equities) and the equity (internal equities). Debt-equity ratio indicates the proportion between shareholders funds and the long term borrowed funds. A higher ratio indicates the risky financial position while lower the ratio indicates safer financial position. It is generally accepted as 2:1 but the company has 2.09:1 that is almost equal to the acceptable ratio, so the company needs not to worry much about the ratio. But for much safer financial position company needs to decrease the debt or increase the equity of the company.
Total Assets to Debt Ratio
Total assets to debt ratio establish a relationship between total assets and total long-term debts. It measures the safety margin available to the providers of long-term debts. A higher the ratio represents higher security to lenders for extending long-term loans to the business while lower the ratio represents the risky financial position. The company has 3.37:1 debt equity ratio, which is acceptable by the lenders and the company.
Proprietary Ratio
The objective of computing the proprietary ratio is to establish the relationship between the proprietors fund and the total assets. Proprietary ratio highlights the general financial position of the enterprise. Higher the ratio better it is for all concerned. A ratio below 50% may be the alarming for the creditors since they may have to lose heavily in the event of companys liquidation on account of heavy losses. Company has only 14.33% proprietary ratio, which is not good for the creditors and the company as the creditors are in heavy risk to have losses as well as the company has a lot of problem. 4.7 Study of Cash Flow StatementCash Flow is a statement that shows the net cash from various activities like operating activities, investing activities, etc.
From the cash flows statement of HDFC Standard life insurance Ltd. We came to know that its net cash from operating activities was increased from Rs.1, 2 04.47 crores to Rs.1, 996.15 crores that was an increment of Rs.791.68 crores which are an increment of 65.73%, which is a fabulous achievement by the company.
The net cash from investing activities was increased from Rs.-1289.86 crores to Rs.- 2157.75 crores which is a increment of Rs.-867.89 crores which is a increment of 67.29% which is again a fabulous achievement by the company.
The net cash from financing activities was decreased by Rs.90 crores, which is again good for the company so the overall conclusion from the cash flow statement was that the company is growing faster and superbly in the market, which may be the sign of bright future of the company.
4.8 Graphs1. Graph to show profit or loss made by the company in previous year amount in (Rs.000)2. Graph to show the rate of share (100 shares) year by year
As we analyses the financial statement of HDFC Standard life insurance Ltd we came to know that the company is having a fabulous growth in this year in comparison to last year. But the overall conclusion is that the company is not in sound financial position because the company had large amount of losses in last year even the company has loss in this year too. But it is less than the last year loss. Which result in the decrease in the rate of shares of HDFC standard life insurance Ltd. (as shown in the graph). Which shows that investors are less willing to invest in the company even they want to sell there shares in the market as soon as possible. There is continuous decrease in the rate of share of the company from last five years except the last year (2005-06).
Suggestions
The overall suggestion for the company is that they must launch various new products and provide best services to the customer to make customer more satisfy and then they can create goodwill in the market. And later on they can earn huge profit for a long run. Afterwards the market share value will be increased as the company can able to pay dividend to the shareholders.
MAGAZINES
1. Headlines Today
2. Economics Times
3. Business Today
WEBSITES
1. www.hdfcinsurance.com2. www.hdfcbank.com3. www.hdfc.com4. www.hdfcfund.com EMBED MSGraph.Chart.8 \s
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