FINACIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is an information processing system designed to

provide data for people concerned with the economic situation of a firm and
predicting its future course.

Definition

In the words of John N. Myers, “Financial statement analysis is largely a study

of the relationships among the various financial factors in a business as disclosed
by a single set of statements and a study of the trends of these factors as shown in a
series of statements.”

The major groups of users are:-

1. Investors for making portfolio decisions

2. Managers, for evaluating the operational and financial efficiency of the firm.
3. Lenders for determining the credit worthiness of the loan applicants
4. Labour unions, for establishing an economic basis for collective bargaining.
5. Regulatory agencies for controlling the activities of companies under the
jurisdictions.
6. Researchers, for studying firm and individual behavior.

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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

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3. Judging solvency
Solvency refers to the ability o a company to meet its long-term debts. Long-
term creditors like debenture-holders and financial institutions judge the
solvency of a company before any lending decisions. They analyze
company’s profitability over a number of years and its ability to generate
sufficient cash to be able to repay their claims
4. Judging the efficiency of management
Performance and efficiency of management of a company can be easily
judged by analyzing it s financial statements. Profitability of a company is
not the only measure of company’s managerial efficiency. There are a
number of other ways to judge the operational efficiency of management.
Financial analysis tells whether the resources of the business are being used
in the most effective and efficient way
5. Inter-firm comparison
A comparative study of financial and operating efficiency of different firms
is possible only after proper analysis of their financial statements. For this
purpose it is also necessary that the financial statements are kept on a
uniform basis so that the financial data of various firms are comparable
6. Forecasting and budgeting
Financial analysis is the starting point for making plans by forecasting and
preparing budgets. Analysis of the financial statements of the past years
helps a great deal in forecasting for the future.

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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.

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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

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I. COMMON SIZE ANALYSIS AND TRENDS

Common size analysis is a technique that enables us to determine the makeup

and patterns of a company’s balance sheet and income statement. The analysis can
be either horizontal (across years) or vertical (within years). In a financial
statement, common-size analysis reduces absolute numbers to percentages of
components at one point in time or the percentages of change in components
overtime, thereby revealing possible trends.

a. 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.
b. 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.

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II. RATIO ANALYSIS

Common size analysis provides some insight to the financial condition of the
firm. Financial ratio’s analysis is the next step in the process. Ratios are among the
widely used tools of the financial analysis. They are helpful in providing clues and
spotting patterns in the direction of better or poorer performance.

Important points to keep in mind when doing ratio analysis are:-

1. We calculate ratios for specific dates: - If management issues financial
statements infrequently, we may not uncover any seasonal characteristics
of the business.
2. Financial statements show what has happened in the past: - An Important
purpose for calculating ratios is to uncover clues to the futures so that we
can prepare for the problems and opportunities that lie ahead. When we
use ratio’s we must consider our knowledge of judgement about the
future.
3. Ratios are not ends in themselves: - They are tools that can help answer
some of our financial questions, but we must interpret them with care.
For example, it is possible to improve the ratio of operating expenses to
sales by reducing costs that act to stimulate sales. However, if the cost
reduction results in loss of sales or market share, any profit improvement
may have an overall detrimental effect.
4. Businesses are not exactly comparable: - There are different ways of
computing and recording some of the items on financial statements.
Because the figures for one business may not correspond exactly to those
of another firm, good comparisons require reasoned judgment.

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Four Categories:-

1. Efficiency Ratios
Efficiency ratios are used to indicate the
1. Inventory turnover ratio
efficiency with which assets and resources 2. Debtor’s turnover ratio
of the firm are being utilized. 3. Fixed assets turnover ratio
4. Working capital turnover
These ratios are called turnover ratios ratio
because they indicate the speed with 5. Capital turnover ratio
6. Creditors turnover ratio
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 1. Current ratio
2. Quick ratio
to establish a relationship between current liabilities, 3. Absolute quick
ratio
which are the obligations soon becoming due and
current assets, which presumably provide the source from which these
obligations will be met.

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3. Leverage Ratios
Leverage ratios are used to analyze the long term 1. Debt equity
ratio
Solvency of any particular business concern. 2. Proprietary
There are two aspects of long term solvency of a ratio
3. Interest
Firm (a) ability to repay the principal amount when coverage ratio
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 1. Gross profit ratio
2. Net profit ratio
Survive and grow over a long period of time.
3. Operating ratio and
Infact efficiency of a business is measured in expense ratio
4. Return on equity
Terms of profits. Profitability ratios are cal- 5. Earning per share
culated to measure the efficiency of the business
Profitability of a business may be measured in two ways:
1. Profitability in relation to sales
2. Profitability in relation to investments

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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.

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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:
A) Differences in the basis of inventory valuation
B) Different depreciation methods.
C) Estimated life of assets
D) Amortization of intangible assets like goodwill, Patents.
E) Amortization of deferred revenue expenditure such as preliminary
expenditure and discount on issue of shares.

2. 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.
3. 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.

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III. STATEMENT OF CASH FLOWS

Accrual accounting concepts recognize that it is the economic substance of a

transaction that determines the timing of accounting recognition rather than the
activity of receipt or payment of cash. However, investors use cash flows and
not accrual accounting numbers to value the firm.

The statement of cash flows (SCF) is important for understanding the true
cash flows of the business. The SCF restates the firm’s flow of funds from an
accrual accounting basis to a cash accounting basis. As such, it eliminates all non
cash revenues and expenses recorded by accrual accounting. The cash flow
statement shows the true cash inflows and outflows of the firm. We can see how
management has employed resources during the period.

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

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Components of cash flow

 Initial investment
 Annual net cash flows
 Terminal cash flows

Sources and uses of cash

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

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Cash flow versus profit

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

 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.
 Profit involves the entire revenue expenditure and while capital expenditure are
not. Profit calculation charged capital expenditure which does not involves cash
flow.

Profit = revenues- expenses- depreciation

Cash flow = revenues- expenses- capital expenditure

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

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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.

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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.

ACCOUNTING FUNCTION

The Accounting function of the life insurance companies is quite different from
that of other companies. The major reasons for this are due to:

 Ascertainment of liability in respect of insurance policies issued by the

company
 The concept of Policyholders’ Fund and Shareholders’ Fund
 The unit linked business and the related investment valuations involved in
the same and
 Segmental reporting in respect of all the funds maintained by the company

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The financial statements of insurance company consist of:

 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
 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:

 Premium after adjusting reinsurance ceded and reinsurance accepted

 Income from investments which needs to be shown under different heads
like:
1. Interest, Dividend and Rents
2. Profit on sale redemption of investments
3. Loss on sale redemption of investments
4 Transfer gain on revaluation of change in fair value and.
5 Amortization charge

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

Expenses
Expenses include:

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

2) Profit and Loss Account (Shareholders’ Account –Non-Technical Account)

This Account represents all income and expenses relating to Shareholders’
Account (Those not relating to insurance business).

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

Expenses
The major components of expenses are:
1. Depreciation relating to assets held by shareholders’ fund, investment
expenses, Directors Fees etc.
2. Transfer of funds to Policyholders’ Fund and
3. Preliminary Expenses written off
The profit or loss as per the Account is carried to the Balance Sheet as usual.

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3) Balance Sheet

The items in the Balance Sheet of a Life Insurance Company includes, other than
the normal
Items –
1. Shareholders’ Fund
2. Policy Holders Fund
3. Investments related to Policyholders’ Fund, Shareholders’ Fund and Assets held
to cover linked liabilities Shareholders’ Fund includes share capital less
preliminary expenses, reserves and surplus and fair value change account.
Policyholders’ Fund consists of Policy liabilities, Fair value change relating to
policy fund investments, insurance reserves, provision for linked liabilities, Funds
for future appropriations, Surplus allocated to shareholders etc.
The balance in the Funds for future appropriations represents funds, the
allocation of which, either to participating policyholders or to shareholders has not
been determined at the balance sheet date. Transfers to and from the fund reflect
the excess or deficiency of income over expenses and appropriations in each
accounting period arising in the Company’s policyholder fund.

4) Receipts and Payments account (Cash Flow Statement)

The cash flow statement of the insurance company needs to be worked out as per
Direct Method as per the IRDA requirement. The statement depicts the receipts
and payments from various business activities. The major items are:

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

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

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

5) Segmental Reporting

As per the regulations, every insurance company has to prepare segment

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

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

Financial summary and Ratios

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

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TITLE OF THE STUDY

“FINANCIAL STATEMENT ANALYSIS” OF HDFC STANDARD LIFE

INSURANCE.

STATEMENT OF PROBLEM

Financial statement analysis of HDFC life is done to know the financial

growth in market. To know the investment plans of organization’s funds. Financial
analysis is the technique which helps to know the financial position of the
company. There is rising competition between HDFC Standard Life and other
companies.

OBJECTIVES OF THE STUDY

 To analyze the financial statement.

 To simplify and summarize a long array of accounting data and make them
understandable.

 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.

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SCOPE OF THE STUDY

 It is useful for the management.

 It gives information to the investors about the earning capacity of the

business.

 With the help of Ratio Analysis comparison of profitability and financial

soundness can be made.

 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.

 It gives information to the financial institution for providing the finance to

the company

 It gives information to the taxation authorities.

 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

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identifying the research problems, description of research design, sources of

collecting data etc.

DATA COLLECTION:

The data can be of two types:

 Primary Data :

o Primary data was collected with the help of an interview scheduled

with the managers of HDFC Standard life.

 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:-

 Annual Report

 Articles in Journal, Magazines.

 Books

 Other material and report published by company

RESEARCH DESIGN

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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

 Insurance company broacher

 IRDA web site

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 Companies web sites

 Annual report of company

Limitations of the study.

 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.
OVERVIEW OF THE CHAPTER SCHEME

CHAPTER 1: INTRODUCTION
It includes subject back ground of the research topic and covers the meaning,
methods of financial statement analysis.

CHAPTER 2: RESEARCH DESIGN

This chapter consists the Title of the study, statement of the problem, objectives
of the study. Limitations of the study, research methodology and chapter scheme.

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CHAPTER 3: COMPANY PROFILE

It includes introduction and incorporation of HDFC life insurance, its vision and
values, awards and accolades, work culture, swot analysis, financial highlights etc.,

CHAPTER 4: DATA ANALYSIS AND INTERPRETATION

This chapter includes a brief explanation of the ratio’s, their calculations along
with respective tables, interpretation and charts.

CHAPTER 5: SUMMARY OF FINDINGS, CONCLUSION AND

SUGGESTION

CHAPTER 6: BIBLIOGRAPHY AND ANNEXURE.

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INDUSTRY PROFILE

Introduction to insurance

Insurance is a system of spreading the risk of one onto the shoulders of many.
While it becomes somewhat impossible for a man to bear by himself 100% loss to
his own property or interest arising out of an unforeseen contingency, insurance is
a method or process which distributes the burden of the loss on a number of
persons within the group formed for this particular purpose. Basic human trait is to
be averse to the idea of risk taking. Insurance, whether life or non-life, provides
people with a reasonable degree of security and assurance that they will be
protected in the event of a calamity or failure of any sort. Insurance may be
described as a social device to reduce or eliminate risk of loss to life and property.
Under the plan of insurance, a large number of people associate themselves by
sharing risks attached to individuals. The risks, which can be insured against,
include fire, the perils of sea, death and accidents and burglary. Any risk
contingent upon these, may be insured against at a premium commensurate with
the risk involved. Thus collective bearing of risk is insurance.

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History of Indian Insurance

The history of life insurance in India dates back to 1818 when it was conceived as
a means to provide for English Widows. Interestingly in those days a higher
premium was charged for Indian lives than the non-Indian lives as Indian lives
were considered more risky for coverage. The Bombay Mutual Life Insurance
Society started its business in 1870. It was the first company to charge same
premium for both Indian and non-Indian lives. The Oriental Assurance Company
was established in 1880. The General insurance business in India, on the other
hand, can trace its Roots to the Triton (Tital) Insurance Company Limited, the first
general insurance company established in the year 1850 in Calcutta by the British.
Till the end of nineteenth century insurance business was almost entirely in the
hands of overseas companies. Insurance..

Insurance can be defined as assurance for uncertainty. Insurance is about

something going wrong. Its’ often about things going right. One of the Wonders of
human nature is that we never believe anything can actually go wrong.

The insurance sector in India has come a full circle from being an open
competitive market to nationalization and back to liberalized market again.

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Tracking the development in Indian insurance sector reveals the 360 degree turn
witnessed over a period of almost two centuries.

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

KEY MILESTONES

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

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

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

1965: 245 Indian and foreign insurers and provident societies take over by the
central government and nationalized. LIC formed by an act of parliament viz. LIC.
Act. 1956, with a capital contribution of Rs.5 Crores from the government of India.

Indian Insurance: Sector Reform

Formation of the Malhotra Committee in 1993 initiated reforms in the Indian

insurance sector. The aim of the Malhotra Committee was to assess the
functionality of the Indian insurance sector. This committee was also in charge of
recommending the future path of insurance in India. The Malhotra Committee
attempted to improve various aspects of the insurance sector, making them more

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appropriate and effective for the Indian market. The recommendations of the
committee put stress on offering operational autonomy to the insurance service
providers and also suggested forming an independent regulatory body.

The Insurance Regulatory and Development Authority Act of 1999 brought about
several crucial policy changes in the insurance sector of India. It led to the
formation of the Insurance Regulatory and Development Authority (IRDA) in
2000. The goals of the IRDA are to safeguard the interests of insurance
policyholders, as well as to initiate different policy measures to help sustain growth
in the Indian insurance sector.

SNAP SHOT OF INDIAN LIFE INSURANCE

 10 years of liberalization of the Indian life insurance industry

 23 players of which 20 are Joint Ventures with global insurers – a high
capital intensive industry Rs. 304 billion deployed (as on 30th September
2010)
 Wide reach through branch network and individual agents

Parameters 1999-00 2007-08 2008-09 2009-10 2010-11*

No. of players 1 18 22 23 23
Capital deployed ( Rs 0 167 250 289 304
in billions)
No. of branches 2048 8913 11,815 12,018 11,837
Employees (in ‘000) 123 254 285 270 262
Individual agents(in

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‘000)
Total premium (Rs in 263 2014 2218 2655 1253
billions)
Note: * Apr-Sep 2010 numbers are provisional

INDIAN LIFE INSURANCE GROWTH STANDS OUT AMONG GLOBAL

REGIONS/ COUNTRIES

Parameters 1999-00 2007-08 2008-09 2009-10

India’s share of world 0.5% 1.8% 2.0% 2.5%
premium(life)
Penetration as % of 1.8% 4.0% 4.0% 4.6%
GDP

Regions / countries Real growth in life insurance

premium in 2009
Industrialized countries -2.8%
Emerging markets 4.2%
Asia 1.80%
India (2009-10) 10.1%
World -2%

 In 66% of the countries, insurance grew faster than GDP, which shows the
robustness of the industry
 India has continuously outpaced global growth in life insurance premiums

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 The 8.9% GDP growth of the Indian economy is the first half of 2010-11
suggests that the economy is operating close to its trend growth rate,
powered mainly by domestic consumption factors.

AN ONGOING GROWTH STORY

 India’s population to increase from 1029 million to 1400 million between

2001-26(as per UN population division) – largest in the world

DEMOGRAPHIC TRANSITION

 With the fall in youth dependency ratio, gross domestic savings will rise
 Participation of women in the workforce is also likely to improve, creating
further wealth
 Larger population with more adults is positive for savings, investment and
overall GDP

ECONOMIC GROWTH WILL PUSH HOUSEHOLD INCOMES HIGHER

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 While life expectancy creates opportunities in pensions, and protection

against lifestyle health disorders can also increase.

HDFC LIFE INSURANCE

Introduction

HDFC Standard Life, one of India's leading private life insurance companies,
offers a range of individual and group insurance solutions. It is a joint venture
between Housing Development Finance Corporation Limited (HDFC), India's
leading housing finance institution and Standard Life plc, the leading provider of
financial services in the United Kingdom.

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HDFC Ltd. holds 72.43% and Standard Life (Mauritius Holding) Ltd. holds
26.00% of equity in the joint venture, while the rest is held by others.

HDFC Standard Life's product portfolio comprises solutions, which meet various
customer needs such as Protection, Pension, Savings, Investment and Health.
Customers have the added advantage of customizing the plans, by adding optional
benefits called riders, at a nominal price. The company currently has 32 retail and
4 group products in its portfolio, along with five optional rider benefits catering to
the savings, investment, protection and retirement needs of customers.

HDFC Standard Life continues to have one of the widest reaches among new
insurance companies with 568 branches servicing customer needs in over 700
cities and towns. The company has a strong presence in its existing markets with a
base of 2,00,000 Financial Consultants.

WHY HDFC LIFE?

Introduction

HDFC Standard Life believes that establishing a strong and ethical foundation is
an essential prerequisite for long-term sustainable growth. To ensure this, we have
concentrated our focus on expansion of branch network, organizing an efficient
and well trained sales force, and setting up appropriate systems and processes with

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optimum use of technology. As all these areas form the basic infrastructure for
establishing the highest possible customer service standards.

Our core values are drilled down to all levels of employees, as these are inviolable.
We continue to promote high integrity in business practices and shun short cuts
and unethical practices, as we wish to be perceived as an institution with high
moral standing. Since our inception in 2000, when the Indian insurance space was
opened for private participation, we have consistently focused on setting
benchmarks in all aspect on insurance business. Being the first private player to be
registered with the IRDA and the first to issue a policy on December 12, 2000, our
differentiators are:

Strong Promoter

HDFC Standard Life is a strong, financially secure business supported by two

strong and secure promoters - HDFC Ltd and Standard Life. HDFC Ltd's excellent
brand strength emerges from its unrelenting focus on corporate governance, high
standards of ethics and clarity of vision. Standard Life is a strong, financially
secure business and a market leader in the UK Life & Pensions sector.

Preferred and trusted brand

Our brand has managed to set a new standard in the Indian life insurance
communication space. We were the first private life insurer to break the ice using
the idea of self-respect instead of 'death' to convey our brand proposition (Sar Utha
Ke Jiyo). Today, we are one of the few brands that customers recognize, like and
prefer to do business. Moreover, our brand thought, Sar Utha Ke Jiyo, is the most
recalled campaign in its category.

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Investment Policy

We follow a conservative investment management philosophy to ensure that our

customer's money is looked after well. The investment policies and actions are
regularly monitored by a formal Investment Committee comprising non-executive
directors and the Principal Officer & Executive Director.

As a life insurance company, we understand that customers have invested their

savings with us for the long term, with specific objectives in mind. Thus, our
investment focus is based on the primary objective of protecting and generating
good, consistent, and stable investment returns to match the investor's long-term
objective and return expectations, irrespective of the market condition.

Need Based Selling Approach

Despite the criticality of life insurance, sales in the industry have been
characterized by over reliance on tax benefits and limited advice-based selling. Our
eight-step structured sales process 'Disha' however, helps customers understand
their latent needs at the first instance itself without focusing on product features or
tax benefits. Need-based selling process, 'Disha', the first of its kinds in the

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industry, looks at the whole financial picture. Customers see a plan not piecemeal
product selling.

Risk Control Framework

HDFC Standard Life has fully implemented a risk control framework to ensure that
all types of risks (not just financial) are identified and measured. These are
regularly reported to the board and this ensures that the company management and
board members are fully aware of any risks and the actions taken to ensure they are
mitigated

Focus on Training

Training is an integral part of our business strategy. Almost all employees have
undergone training to enhance their technical skills or the softer behavioral skills to
be able to deliver the service standards that our company has set for itself. Besides
the mandatory training that Financial Consultants have to undergo prior to being
licensed, we have developed and implemented various training modules covering
various aspects including product knowledge, selling skills, objection handling
skills and so on.

Focus On Long Term Value

HDFC Standard Life does not focus in the business of ramping up the top line
only, but to create maximization of stakeholder's value. Today, we are extremely
satisfied with the base that we have created for the long-term success of this
company.

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Transparent Dealing

We are one of the few companies whose product details, pricing, clauses are
clearly communicated to help customers take the right decision.

Strict Compliance with Regulations

We have initiated and implemented many new processes, some of which were
found useful by the IRDA and later made mandatory for the entire industry. The
agents who successfully completed this training only, were authorized by the
company to sell ULIPs. This has now been made compulsory by IRDA for all
insurance companies under the new Unit Linked Guidelines.

Diversified Product Portfolio

HDFC Standard Life's wide and diversified product portfolio help individuals meet
their various needs, be it:

 Protection: Need for a sound income protection in case of your unfortunate

demise
 Investment: Need to ensure long-term real growth of your money
 Savings: Save for the milestones and protect your savings too
 Pension: Need to save for a comfortable life post retirement

Our Parentage

HDFC Standard Life

HDFC Limited, India's premier housing finance institution has assisted more than
3.4 million families own a home, since its inception in 1977 across 2400 cities and

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towns through its network of over 271 offices. It has international offices in Dubai,
London and Singapore with service associates in Saudi Arabia, Qatar, Kuwait and
Oman to assist NRI's and PIO's to own a home back in India. As of December
2009, the total asset size has crossed more than Rs. 104,560 crores including the
mortgage loan assets of more than Rs.90,400 crores. The corporation has a deposit
base of over Rs. 23,000 crores, earning the trust of nearly one million depositors.
Customer Service and satisfaction has been the mainstay of the organization.
HDFC has set benchmarks for the Indian housing finance industry. Recognition for
the service to the sector has come from several national and international entities
including the World Bank that has lauded HDFC as a model housing finance
company for the developing countries. HDFC has undertaken a lot of consultancies
abroad assisting different countries including Egypt, Maldives, and Bangladesh in
the setting up of housing finance companies .

Standard Life

Standard Life is one of the UK's leading long term savings and investments
companies headquartered in Edinburgh and operating internationally. Established
in 1825, Standard Life provides life assurance, pensions and investment
management propositions to over 6 million customers worldwide. The Standard
Life Group has around 10,000 employees across the UK, Canada, Ireland,
Germany, Austria, India, USA, Hong Kong and mainland China. At the end of

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December 2010 the Group had total assets under administration of £170.1bn.
Standard Life's diverse business includes one of the largest life and pensions
businesses in the UK with more than 4 million customers and Standard Life
Investments, currently manages assets of over £138.7bn globally. On 10 July 2006,
after 80 years as a mutual company, Standard Life Assurance Company
demutualised and Standard Life plc was listed on the London Stock Exchange.
Standard Life now has approximately 1.5 million individual shareholders in over
50 countries around the world.

Incorporation of HDFC Standard Life Insurance Co. Ltd.:

The company was incorporated on 14th August 2000 under the name of HDFC
Standard Life Insurance Company Limited. Their ambition from the beginning was
to be the first private company to re-enter the life insurance market in India. On the
23rd of October 2000, this Ambition was realized when HDFC Standard Life was
the first life company to be granted a Certificate of registration. HDFC are the
main shareholders in HDFC Standard Life, with 81.4%, while Standard Life owns
18.6%.HDFC Standard Life Insurance Company Ltd. is one of India’s leading
private life 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
one of the subsidiaries of Standard Life plc, leading providers of financial services
in the United Kingdom.

HDFC Incorporated in 1977 with a share capital of Rs 10 Crores, HDFC has since
emerged as the largest residential mortgage finance institution in the country. The
corporation has had a series of share issues raising its capital to Rs. 119 crores.

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HDFC operates through almost 450 locations throughout the country with its
corporate head quarters in Mumbai, India. HDFC also has an International Office
in Dubai, UAE, with service associates in Kuwait, Oman and Qatar.

Our Vision & Values

Our Vision

'The most successful and admired life insurance company, which means that we
are the most trusted company, the easiest to deal with, offer the best value for
money, and set the standards in the industry'.

'The most obvious choice for all'.

Our Values

Values that we observe while we work:

 Integrity
 Innovation
 Customer centric
 People Care "One for all and all for one"
 Team work

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 Joy and Simplicity

Awards and Accolades

2009

Received CIO 'The Ingenious 100 2009' Award

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

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

CIO magazine has a long tradition of honoring leading companies for business and
technology leadership and innovations through its flagship award program - CIO
100. It's a celebration of 100 organizations (and the people within them) that are

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using IT in innovative ways to deliver business value, whether by creating

competitive advantage, optimizing business processes, enabling growth or
improving relationships with customers.

Received Diamond EDGE Award 2009

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

Network Computing magazine is part of CMP Technology, which brings more

than 100 IT media brands to more than 18 million technology and business
decision makers worldwide.

2010

Best Companies to Work for in India in 2010

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HDFC Standard Life has been adjudged one of the Best Companies to Work for in
India in 2010. The company participated in the Great Places to Work study for the
first time and ranked first in the insurance category. It ranked 34th on the Top 50
Best Companies to Work for, in India 2010 list. The company was also awarded
for its unique employee initiative - Mission –in-Genius national quiz. The study
has shown that HDFC Standard Life conscientiously develops employee talent
programmes to keep engaging and motivating its employees. The company
provides some unique platforms such as 'Mission in Genius' national quiz. The
management is accessible to all at all times and sincerely seeks feedback from its
employees through programmes such as 'Sparsh', the study said.

The Best Companies to Work in India is a study conducted by the Great Place to
Work Institute, India in partnership with The Economic Times. The 2010 edition is
the seventh study in India, which received overwhelming response from more than
400 companies, making it the largest such study in India. And only 50 companies
made it to the Best Companies to Work list!

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Young Star Super' Voted 'Product of the Year 2010'

HDFC Standard Life’s Young Star Super has been voted Product of the Year 2010
in the 'Insurance' category by more than 30,000 consumers nationwide across 36
markets. Young Star Super is an unit linked Children Plan with unique benefits
such as bumper additions, double and triple benefits, attractive allocations rates,
and seven different funds.

The consumer study on product innovation in India was conducted by A C Nielsen,

the leading global research firm. Entries were accepted from products that
demonstrate innovation in their product function, design, packaging or process or
any other specified form. Entries were then filtered by a jury of distinguished
industry professionals to ensure that the products meet the innovation criteria
before they were passed on to the consumer votes/survey round.

Product of the Year is an Internationally Recognized Standard that celebrates and

rewards the best innovations in consumer products and services. The Product of the
Year is selected through an independent consumer survey across the country in 26
countries for the past 20 years.

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BOARD MEMBERS.

1. Mr. Deepak S.Parekh – Chairman.

2. Mr. Keki M.Mistry – Vice Chairman and CEO.

3. Ms. Renu S.Karnad – Managing Director.

4. Mr. David Nish – Executive, Europe.

5. Mr. Nathan Paranaby – Chief Executive, Europe and Asia.

6. Mr. Norman K.Skeoch – Chief executive (standard life investments).

7. Mr. Gautam R.Divan – Practising C.A and is a fellow of the institute of

Chartered Accountants in India.

8. Mr. Ranjan Pant – Global Management Consultant.

9. Mr. Ravi Narain – Managing Director and CEO of NSE of India ltd.

10.Mr. A. K. T. Chari – Director.

11.Mr. Gerald E.Grimstone – chairman of Standard life.

12.Mr. Michael G. Connarty – Responsible for standard life’s investments in

life assurance joint ventures in India and China.

13.Mr. Amitabh Chaudhry – MD and CEO of HDFC standard life.

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14.Mr. Paresh Parasnis – Executive Director and chief operating officer of the
company.

MANAGEMENT TEAM

1. Mr. Amitabh Chaudhry – MD and CEO

2. Mr. Paresh Parasnis – Executive Director and Chief Operating Officer

3. Ms. Vibha Padalkar – Chief Financial Officer

4. Mr. Ashely Rebello – Chief Actuary and Appointed Actuary

5. Mr. Vikram Mehta – General Manager, sales and marketing

Associate Companies

HDFC Limited HDFC Bank HDFC Mutual

Fun

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HDFC Sales HDFC ERGO General Insurance HDB

Financial Services

HDFC Securities

Other Companies

 HDFC Trustee Company Ltd.

 GRUH Finance Ltd.
 HDFC Developers Ltd.
 HDFC Property Ventures Ltd.
 HDFC Ventures Trustee Company Ltd.
 HDFC Investments Ltd.
 HDFC Holdings Ltd.
 Credit Information Bureau (India) Ltd
 HDFC Securities
 HDB Financial Services

Banc assurance Partners

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HDFC Bank Saraswat Bank Indian

Bank

Corporate Agents

 HDFC Bank
 Indian Bank
 Housing Development Finance Corporation Limited
 The Saraswat co-operative bank limited
 HDFC sales Private limited
 HDFC securities Limited
 HDB Financial Services limited
 Gulf Employees Charitable Trust

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COMPETITORS

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HDFCSL Milestone

Received the PCQuest Best IT Implementation Award 2008 for Consultant

Corner, the applications for its financial consultants, providing centralized
control over a vast geographical spread for key business units such as
inventory, training, licensing, etc.

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Received the 2008 CIO Bold 100 Award for its mobile workforce portal and
the Special 2008 CIO Security Award for a secure computing environment,
including identity management respectively.

Mr. Deepak M Satwalekar Awarded QIMPRO Gold Standard Award.

HDFCSL expanded its reach in the Banc assurance channel by arrangements

with co-operative banks in the rural areas.

Continued to increase its focus on quality service, by putting in place a

robust mechanism to capture 'Voice of the Customer' through service audits
across its offices. This was complemented by use of technology that enabled
capture of all interactions with customers across all touch points

Sar Utha Ke Jiyo was honoured as 'Among India's 60 Glorious Advertising

Moments. The advertisements of the company were ranked 6 th amongst 'The
10 most effective Advertisements' in September 2007.

Received the PCQuest Best IT Implementation Award 2007 for Wonders, its
path-breaking implementation of an enterprise-wide workflow system. In
addition the company also bagged the EMC storage award for being the
most innovative users of storage and storage management.

Pension Plan Tops Mint's Survey of Best TV Ads.

HDFC Standard Life's advertising created high awareness for the brand and
bagged 2 silver and 1 bronze awards at the ADFEST 2007 National Awards

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organised by the Advertising Agencies Association of India (AAAI). The 3

awards are the highest won by any single brand in the financial services
business (including banking, mutual fund, insurance and other financial
services).

Ranked 29th most trusted Indian Brands amongst the Top 50 Service Brands
of 2006 according to a study conducted by the Brand Equity – Economic
Times, the leading business publication of India.

FUNCTIONAL DEPARTMANT OF THE ORGANIZATION

1. Human resource department:

The HR department performs the role of recruiting the efficient employees and
financial consultants for the company. It also takes care of their appraisal to track
their performance and contribution to the company. It gets the resume of applicants
and processes it to check for its eligibility criteria, after that put that resume for the
further processing of selection.

2. Marketing department:

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Marketing department takes care of the marketing of all the products of the
company. It helps in the increase of the business. It plays the major role in making
the people aware of their product. It concentrates on making the strategies of how
to increase the sales of the products. How they can segment the market to tap out
its maximum potential profits. It also works on sales promotion to increase the
sales of company.

3. Sales department:

Controlling the sales force that brings the business to the company. Maintain the
regular flow of information about the product. These are sales manager only who
see after the acquiring and maintaining their agents.

The sales manager goes to different places and acquires the sales agents who are
IRDA certified.

4. Finance department:

This department keeps the proper track record of all the transactions taking place.
It maintains the record of all the insurance policies being issued and their premium
payments.

The finance department of HDFC Standard Life Insurance is headed by the

General Manager (Finance), who reports to the MD and CEO. There are four other
departments under the Finance Departments. These are:
1. Accounts Department

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2. Actuary Department
3. Investment Department
4. Underwriting Department

The Accounts Department:

The Accounts Department functions like any other Accounts department. It is
concerned with the disbursement of salaries, reimbursements, incentives,
commissions to agents. It also handles the payments due to other agencies with
which the Company interacts, viz. event management companies etc. The work of
an Accounts department assumes much importance in an insurance company
because it has to be able to pay the claims arising time to time.

The Actuary Department:

The Actuary Department is the “Pricing Department” of an insurance company. It
must be understood that the basic premise on which the insurance companies work
is “use the corpus of policy holders for disbursement for any claim”. Based on this
principle, this department decides the amount of premium to be charged from a
client for a particular policy. This is normally done with the help of Mortality
Tables, which can either be prepared by the company itself, or the company can
use the existing tables available for its use. The IRDA (Insurance Regulation
Development Authority) has prescribed the use of the mortality tables used by LIC
for all other companies. The Actuary Department is also responsible for Asset-
Liability Management of the insurance company. It must ensure that the Solvency

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margin (Assets-Liabilities) must be at least Rs 50 crores, as prescribed by IRDA.

95% of the surplus above this has to be distributed to the investors a bonus. HDFC
Standard Life has till now declared three bonuses to its policyholders

The Investment Department:

The Investment Department is responsible for the investment of the money of the
investors. Since the basic reason for the investors investing their money in Life
Insurance is security, IRDA has put certain regulations on such companies for
investments so that the money of investors is safe.

These guidelines are:

1. Not less than 50% of the corpus will be invested in Government Securities (G-
Sec)
2. Up to15% of the corpus will be invested in infrastructure, social and rural
sectors.
3. Not less than 20% can be invested in government and other equities.
4. Remaining 15% can be invested in “unapproved” equities. Till recent time,
HDFC has not been investing in equities. But now it has decided to follow the
footsteps of its Joint-Venture partner Standard Life, which invests around 75% of
its corpus in equities. The Investment

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Department is also responsible for calculating the returns of the investment to the
investors. Here also the insurance companies are bound by regulations and
guidelines. According to IRDA, the returns have to be in the range of 6 %-9 %.

The Underwriting Department

This department is responsible for taking the decision on whether to insure a
person or not. For this it must take into account the risk premium associated, the
reinsurance opportunities etc. normally, there are charts available with the people
of this department on the basis of which they can come to a viable decision.

Work Culture

The company attributes its success to the contributions made by its employees. We
believe that our strength is our people, so our endeavor is to surpass their
expectations and give them the best possible work environment and benefits that
match the best in the industry.

Talent management initiatives in HDFC Standard Life are driven by a set of

organizational core competencies (Mantra 10) as well as position-specific
competencies. The competency set includes knowledge, skills, experience, and
personal traits (demonstrated through defined behaviors) based on the bedrock of
sharp vision and strong values of HDFC Standard Life.

In this endeavor of shaping and nurturing our talent pool, HDFC Standard Life
adopts a four-step model:

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Acquiring and Retaining Talent

HDFC Standard Life believes in building capability for superior performance

leading to a superior shareholder value. We have a bouquet of people processes
like Assessments, Potential Review, Defined Career plans that identify and invest
to create effective leaders.

Our path breaking career progression programme -- Frontline Assessment and

Growth Program (FLAG) -- for the retail channel is designed towards achievement
orientation. It recognizes achievers through fast track career progression coupled
with attractive remuneration. The above is true for all levels as we believe that
providing opportunity to employees is the key to motivate them to aspire for higher
responsibility. As HDFC Standard Life is a performance-driven organization,
achievers move up the career ladder, effortlessly.

Competency Mapping and Developing Capability

Competencies are the desired business behaviors, which enable an individual to

contribute towards organizational growth. We have a set of identified core
competencies, which help employees to imbibe and achieve a consistent business
performance. We have branded our competency model as 'Mantra 10.'

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We believe in integrating our HR processes on the basis of 'Mantra 10', to create a

competency driven culture.

Engaging Talent

In today's environment, employee engagement has become a business imperative.

Capturing employee insights as to the strengths and concerns of the organization is
the starting point of the Engagement journey.

HDFC Standard Life partners with reputed global organization such as Gallup to
assess employee perception on critical engagement dimensions that consistently
correlates to business outcomes. These findings help us to prioritize areas for
employee engagement action across the organization and specific to various
departments. Through concerted efforts at the organizational, functional and work
group level, together we strive towards attaining the goal of making HDFC
Standard Life 'a great workplace.'

Rewarding and Nurturing

We believe that raising the bar of performance keeps employee challenged and the
generation enjoys the stretch. We have robust employee recognition programs in
place for employees who achieve 'above & beyond.'

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We take pride when we talk about learning opportunities we offer to employees.

We have set the trend in Learning & Development in the Insurance space. We have
training plans for employees at all levels and for our financial consultants, we have
created a training infrastructure with 3 training centers of our own at Delhi,
Bangalore and Lonavala (Mumbai). These temples of learning provide a unique
learning environment to employees to hone their skills & capabilities through our
internal trainers in Sales, Behavioral Sciences and E- Learning.

PRODUCTS

Protection Plans.

o HDFC Term Assurance Plan

o HDFC Premium Guarantee Plan

o HDFC Loan Cover Term Assurance Plan

o HDFC Home Loan Protection Plan

Children’s Plans

o HDFC Children Plan

o HDFC SL Young Star Super II

o HDFC SL young Star Super Premium

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Retirement Plans

o HDFC Personal Pension Plan

o HDFC Immediate Annuity

o HDFC SL Pension Maximus

Savings and Investment Plans

o HDFC Endowment Assurance Plan

o HDFC SL Crest

o HDFC SL Pro growth Super II

o HDFC SL Pro growth flexi

o HDFC SL Pro growth Maxi miser

o HDFC SL New Money Back Plan

o HDFC Single Premium Whole Life Insurance Plan

o HDFC Assurance Plan

o HDFC Savings Assurance Plan

o Endowment Gain Insurance Plan

o Classic Assure Insurance Plan.

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Health Plan

o HDFC Critical Care Plan

o HDFC Surgicare Plan

SWOT ANALYSIS

STRENGTH
1. Domestic image of HDFC supported by Standard Life’s international image is
strength of the company.
2. Strong and well spread network of qualified intermediaries and sales person.
3. Strong capital and reserve base.
4. The company provides customer service of the highest order.
5. Huge basket of product range which are suitable to all age and income groups.
6. Large pool of technically skilled manpower with in depth knowledge and
understanding of the market.
7. The company also provides innovative products to cater to different needs of
different customers.

WEAKNESS

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1. Heavy management expenses and administrative costs.

2. Low customer confidence on the private players.
3. Vertical hierarchical reporting structure with many designations and cadres
leading to power politics at all levels without any exception.
4. Poor retention percentage of tied up agents.

OPPORTUNITIES
1. Insurable population: According to IRDA only 10% of the population is insured
which represents around 30% of the insurable population. This suggests more than
300m people, with the potential to buy insurance, remain uninsured.
2. There will be inflow of managerial and financial expertise from the world’s
leading insurance markets. Further the burden of educating consumers will also be
shared among many players.
3. International companies will help in building world class expertise in local
market by introducing the best global practices.

THREATS
1. Other private insurance companies also vying for the same uninsured
population.
2. Big public sector insurance companies like Life Insurance Corporation (LIC) of
India, National Insurance Company Limited, Oriental Insurance Limited, New

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India Assurance Company Limited and United India Insurance Company Limited.
People trust and go to them more.
3. Poaching of customer base by other companies.
4. Most people don’t understand the need or are not willing to take insurance
policies in general.

FINANCIAL HIGHLIGHTS (nine months ended Dec 2010)

Premium income

• A robust 25% growth in individual new business (regular premium)

• Focus on single premium polices in Q3 results in growth of 435%
• High quality of existing policies & continuous focus on persistency lead to 40%
increase in renewal premium
• A growth of 31% in total premium

Chart showing premium income

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MARKET SHARE

•Ranked # 3 in private sector; # 5 during same period last year.

•Strongest market share gain of 3.3% in private space in 9 months FY11 over same
period last year.

•Early signs of adapting well to post September 1, 2010 regime. Ranked # 1 in Q3

FY 11 in among private insurance companies

Chart showing market share

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GROWTH

 New business growth in 9 months FY11

 One of the very few private insurer to achieve positive growth
in 9M FY11
 We are fastest growing among top 10 private life insurers.
 New ULIP regulations have negatively impacted the growth in
Q3 FY11.
 Similar trends exist in total WRP (including group business

Chart showing the growth

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I. Liquidity Ratios

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

1. Net working capital

It represents the excess of current assets over current liabilities. An enterprise

should have sufficient NWC in order to be able to meet the claims of the creditors
and the day to day needs of the business. NWC measures the firm’s reservoir of
funds. The greater is the amount of Net Working capital, greater is the liquidity
position of the firm.

Net working capital = current assets – current liabilities

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Table 4.1: Net working capital

Particulars 2006 2007 2008 2009 2010

Total Current 38,69,728 53,25,536 87,57,727 9,537,359 77,44,120

assets
Total current 26,87,296 39,05,497 62,51,168 90,29,038 1,24,69,202
liabilities

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Net working 11,82,432 14,20,039 25,06,559 508321 (4,725,082)

capital
Figure 4.1: Net working capital

Net working capital

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

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.

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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 2006 2007 2008 2009 2010

Current assets 38,69,728 53,25,536 87,57,727 9,537,359 77,44,120

Current liabilities 26,87,296 39,05,497 62,51,168 90,29,038 1,24,69,202
Current ratio 1.44:1 1.36:1 1.4:1 1.05:1 0.62:1

Figure 4.2:Current ratio

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FINACIAL STATEMENT ANALYSIS

current ratio
1.6
1.4
1.2
1
current ratio
0.8
0.6
0.4
0.2
0
2006 2007 2008 2009 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 firm’s ability to meet current obligations
and greater is the safety of funds of short term liabilities. Current assets of 0.62 are
available to meet the current liabilities. In the previous year current ratio is 1.07:1
signifies that current assets are 1.07 times its short term obligations. The liquidity
position is better in previous year as compared to current year.

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II. Turnover ratio

Another way of examining the liquidity is to determine how quickly certain

current assets are converted into cash. The different turnover ratios are as follows

1. Debtors turnover ratio.

2. Creditors turnover ratio.
3. Inventory turnover ratio.
4. Fixed asset turnover ratio.

Debtor’s turnover ratio is determined by dividing the net credit sales by

average debtors outstanding during the year. Debtors turnover ratio = net credit
sales/average debtors. Since its insurance company turnover ratio’s are not
applicable.

III. 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

I. Ratios which are based on relationship between borrowed funds and owners
capital.
1. Debt-equity ratio

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2. Debt-asset / capital ratio

II. Ratio which are based on profit and loss account (coverage ratios)

1. Interest coverage ratio

2. Dividend coverage ratio
3. Total fixed coverage ratio
4. Cash flow coverage ratio
1. Debt equity ratio

It indicates the relative proportions of debt and equity in financing the asset of the
firm. There 2 approaches in calculating debt equity ratio. The debt equity ratio is
the relationship between borrowed funds and owner’s capital is a popular measure
of the long term financial solvency of the firm. Total long term debt does not
include current liabilities like sundry creditors banks credit etc, which are
ostensibly short term, are renewed year by year and remain by and large
permanently in the business.

The debt equity ratio shows the safety margin of the firm. This is an important tool
of financial analysis to appraise the financial structure of a firm. It has important
implications from the view point of creditors, owners and the firm by itself. High
ratio shows a large share of financing by outsider which implies that the owners
are putting up relatively less money of their own. It is danger signal for the
creditors. A lower debt equity ratio has just the opposite implications to the
creditors. The relatively high stake of the owners implies sufficiently safety margin
and substantial protection against shrinkage in assets.

Debt equity ratio = long term debts

Shareholder’s equity

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Table 4.3: Debt equity ratio

Particulars 2006 2007 2008 2009 2010

Long Term 23,633,655 45,999,541 84,012,076 97,578,470 193,089,795

Debts
Shareholder’s 6,331,725 8,360,441 13,263,132 18,433,462 20,417,327
equity
Debt equity 3.73% 5.50% 6.33% 5.29% 9.45%
ratio

Figure 4.3:Debt equity ratio

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

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Analysis:

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

Interpretation:

The debt equity ratio for the year 2010 is high. This leads to inflexibility in the
operations of the firm as creditors would exercise pressure and interfere in
management. Therefore firm would able to borrow only under restrictive terms
and conditions.

1. Proprietary ratio

It is a variant of debt equity ratio. It measures the relationship between

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

Proprietary ratio = shareholder’s equity

Total assets
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1. Table 4.4: Proprietary ratio

Particulars 2006 2007 2008 2009 2010

Shareholder’s 6,331,72 8,360,441 13,263,132 18,433,462 20,417,327

equity 5
Total assets 44,71,07 60,61,590 99,07,527 10,988,705 8,887,897
3
Proprietary ratio 1.416 1.3792 1.3387 1.6775 2.2972

Figure 4.4:Propreitory Ratio

propreitory ratio
2.5

1.5 propreitory ratio

0.5

0
2006 2007 2008 2009 2010

Analysis:

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FINACIAL STATEMENT ANALYSIS

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

Interpretation:

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

2. Total debt to equity.

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

Total debt to equity = current liabilities + long term debts

Share holder’s equity

Table 4.5: Total debt to equity

Particulars 2006 2007 2008 2009 2010

Total debts 26,292,222 49,874,193 90,141,225 106,398,69 205,371,380

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5
Shareholder’s 6,331,725 8,360,441 13,263,132 18,433,462 20,417,327
equity
Total debt to 4.1524 5.9655 6.7963 5.7720 10.0587
equity

Figure 4.5: Total debt to equity

total debt to equity

12

10

8
total debt to equity
6

0
2006 2007 2008 2009 2010

Analysis:

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FINACIAL STATEMENT 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.

IV. 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?

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Profitability ratios are

Profit margin ratio
Expenses ratio
Return on assets
Return on shareholder’s equity

1. Profit margin ratio

Net profit margin ratio measures the relation between profit and revenues of a firm.
The net profit margin is indicative of management’s ability to operate the business
with sufficient success and better control over its costs.

A high return margin would ensure adequate return to the owners as well as enable
a firm to withstand adverse economic conditions when revenues is declining and
demand for the product is falling.

Net profit margin ratio = earnings after tax and interest

Revenues

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Table 4.6: Profit margin ratio

Particulars 2006 2007 2008 2009 2010

Profit/ loss after (1,287,57 (1,255,61 (2,435,094 (5,029,631 (2,751,844)

interest and tax 2) 1) ) )

Revenues 15,469,50 28,226,24 48,176,16 55,183,763 69,556,324

1 8 6
NET profit Ratio -.0832329 -.0444838 - -0.0911433 -0.0395628
0.0505456

Figure 4.6: Profit margin ratio

profit margin ratio

0
-0.01 2006 2007 2008 2009 2010

-0.02
-0.03
-0.04 profit margin ratio
-0.05
-0.06
-0.07
-0.08
-0.09
-0.1

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.

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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 shareholder’s equity is calculated to see the
profitability of owner’s investment. The shareholders equity or net worth will
include paid up capital, share premium and reserves and surplus less accumulated
losses. Net worth can also be found by subtracting total liabilities from total assets.

The ROE indicates how well the firm has used the resources of owners. In fact this
ratio is one of the most important relationships in financial analysis. The earning of
a satisfactory return is the most desirable objective of a business. The ratio of net
profit to owner’s equity reflects the extent to which this objective has been

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accomplished. This will reveal the relative performance and strength of the
company’s in attracting future investments.

Return on equity = profit/ (loss) after tax

Net worth

Table 4.7: Return on equity

Particulars 2006 2007 2008 2009 2010

Profit/( loss (12,87,572 (12,55,611) (2,435,094) (5,029,631) (2,751,844)
after tax) )

Net worth 3,165,972 3,939,077 6,379,641 6,520,340 5,752,361

(Return on -0.4066 -0.31875 -0.3817 -0.7714 -0.4783
equity)

Figure 4.7; Return on equity

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

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 year’s ratio is
-0.7714, comparatively current year relative performance of the company in
attracting future investment is quite good.

3. Management expenses ratio

It is another ratio which shows the relationship between expenses and gross
premium of the business. The management ratio explains the changes in the profit
margin. This ratio is computed by dividing management expenses viz, operating
expenses relating to insurance business excluding interest.

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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 2006 2007 2008 2009 2010
Management 5,214,991 7,902,455 13,704,94 21,915,90 20,345,37
Expenses 6 7 6
Total Gross Premium 15,699,12 28,558,65 48,585,61 55,646,93 70,051,04
6 6 6 7 4
Ratio .3321 .2767 .2820 .3938 .2904

4. Figure 4.8: Management expenses ratio

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FINACIAL STATEMENT ANALYSIS

manangement expenses ratio

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

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 year’s ratio which is 39.38%. This indicates company is efficient to meet
other obligations

1. Administrative expenses ratio

It is another profitability ratio related to revenue. It is computed by dividing

expenses by revenue.

Administrative expenses ratio = administrative expenses

Net revenue

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Table 4.9: Administrative expenses ratio

Particulars 2006 2007 2008 2009 2010

Administrative 18,251 8,252 12,596 5,307 3,981

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

Administrative 0.11798% 0.02923% 0.02614% 0.00961% 0.00572%

expenses ratio

1. Figure 4.9: Administrative expenses ratio

administration expenses ratio

0.14

0.12

0.1
administration expenses
0.08 ratio
0.06

0.04

0.02

0
2006 2007 2008 2009 2010

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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.

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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 2006 2007 2008 2009 2010

Net profit/(loss) (1,287,572 (1,255,611 (2,435,094) (5,029,631) (2,751,544)
as per profit and ) )
loss account
Weighted 440,287,6 687,450,1 1,004,398,9 1,534,219,7 1,819,347,9
average number 72 09 04 18 45
of equity shares
for basic EPS

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Basic Earning (2.92) (1.83) (2.42) (3.28) (1.51)

per share
Weighted 440,287,6 693,229,4 1,004,398,9 1,534,219,1 1,819,347,9
average number 72 22 04 78 45
of equity shares
for diluted EPS
Diluted earnings (2.92) (1.81) (2.42) (3.28) (1.52)
per share

Figure 4.10: Earnings per share

0
2006 2007 2008 2009 2010
-0.5

-1

-1.5
Basic EPS
Diluted EPS
-2

-2.5

-3

-3.5

Analysis:

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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.

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Retention ratio = net premium income

Gross premium income

Table 4.11: Net Retention ratio

Particulars 2006 2007 2008 2009 2010
Net Premium 15,469,501 28,226,24 48,176,166 55,183,763 69,556,324
8
Gross 15,699,126 28,558,65 48,585,616 55,646,937 70,051,044
Premium 6
Retention .98537 .98836 0.99157 0.99167 0.99293
ratio

Figure: Net Retention ratio

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FINACIAL STATEMENT ANALYSIS

Net Retention Ratio

0.99

0.99

0.99

0.99 Net Retention Ratio

0.99

0.98

0.98

0.98
2006 2007 2008 2009 2010

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 year’s retention ratio is 0.99293. Company is retaining 99.29% of
risk with itself. In the previous year retention ratio is 0.99167. This shows
company has taken high risk compared to previous year.

1. Commission Ratio

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

Commission ratio = gross commission

Gross premium

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Table 4.12: Commission Ratio

Particulars 2006 2007 2008 2009 2010

Gross 1,203,252 2,099,268 3,512,586 4,248,904 5,254,973
commission
Gross 15,699,126 28,558,65 48,585,616 55,646,937 70,051,044
premium 6
Ratio 7.66% 7.35% 7.23% 7.64% 7.50%

Figure 4.12: Commission Ratio

Commission ratio
7.7

7.6

7.5

7.4 Commission ratio

7.3

7.2

7.1

7
2006 2007 2008 2009 2010

Analysis:

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FINACIAL STATEMENT 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 shareholder’s fund

Particulars 2006 2007 2008 2009 2010

Shareholder’s 3,165,972 3,939,077 6,379,640 6,520,340 5,752,361
fund
Growth rate 140.53% 24.42% 61.96% 2.21% (11.78%)

Figure 4.13: Growth rate of shareholder’s fund

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

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 shareholder’s fund has decreased in the current year. In fact the
growth rate is negative indicating that there was a decrease in the shareholder’s
fund

1. Change in net worth

Table 4.14: Change in net worth

Particulars 2006 2007 2008 2009 2010

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Net worth 3,165,972 3,939,077 6,379,640 6,520,340 5,752,361

Change 1,849,703 773,105 2,440,563 140,699 (767,980)

Figure 4.14: Change in net worth

Change in Net worth

3,000,000

2,500,000

2,000,000

1,500,000 Change in Net worth

1,000,000

500,000

0
2006 2007 2008 2009 2010
-500,000

-1,000,000

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.

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CASH FLOW STATEMENT

Table 4.15 - RECEIPTS AND PAYMENTS ACOUNT FOR THE YEAR
ENDED 31ST MARCH 2010

2010 2009
CASH FLOW FROM
OPERATING
ACITIVITIES
Amounts received from 70,817,804 54,747,190

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policy holders (12,053,422 (5,414,218)

Amounts paid to policy )
holders (384,636)
Amounts (312,168) (4,136,736)
received/(paid) to (5,417,619)
Reinsurers (15,583,363
Amounts paid as (13,207,483 )
commission ) 100,004
Payments to employees _ (230,833)
and suppliers (309,142) 39,821,183 355,744 29,453,152
Deposit with RBI 303,213
Income Tax paid
Other Income
Net cash from
operating activities
CASH FLOW FROM
INVESTING
ACTIVITIES (2,177,582) (581,822)
Purchase of fixed assets 5,444 319
Sale of fixed assets (48,767,468 (39,057,231
Investments (net) ) )
Interest income 4,817,558 3,805,029
Dividend income 1,338,737 745,975
Net cash flow from (42,823,481 (35,087,730)
investing activities )

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CASH FLOW FROM

FINANCING
ACTIVITIES 1,720,000 5,250,000
Issue of shares during
the year 1,720,000 5,250,000
Net cash flow from
financing activities (1,282,298) (384,578)
Net increase in cash
and cash equivalents 4,108,660 4,493,238
Cash and cash
equivalents at the 2,826,362 4,108,660
beginning of the year
Cash and cash
equivalents at the end
of the year

NOTE:

CASH AND CASH 2010 2009

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

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Analysis of cash flow statement

Operating activities

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

Investment activities

Here the purchase of fixed assets is more than the sale of fixed assets. There is
increase in investments by 9,710,237. There is also increase in return on
investment, dividend income. The investment activities show negative balance due
to huge increase in investment.

Financial activities

This year the cash inflow is increased by 897,720. It increases the cash inflow of
the firm. The overall net cash inflow is reduced due to over investment. The cash
flow carry to the balance sheet is reduced to 2,826,362 from 4,108,660.

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COMPARATIVE FINANCIAL STATEMENTS

Table 4.16 - Comparative Balance Sheet

Item 31st march 31st march Absolute Percentage

2009 2010 increase
SOURCES OF FUNDS
Share capital 17,958,180 19,680,000 1,721,820 9.5
Reserves and surplus 552,892 552,892 - -
Credit/(Debit) fair value
change account (77,610) 184,435 262,045 337.64
POLICY HOLDER’s

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FUNDS
Credit/(debit) fair value (296,885) 205,087 -91,798 (30.92)
change account 29,092,419 37,666,908 8,574,489 29.47
Policy liabilities
Total Provision for linked 68,782,936 155,217,80 86,343,864 88.57
liabilities 586,395 0 903,618 154.10
Fund for future 1,490,013
appropriations 531,970 532,861 100.10
Fund for future 1,064,831
appropriations-
Provision for lapsed
policies
Total 117,130,297 216,061,96
6
APPLICATION OF
FUNDS
INVESTMENTS 4,291,597 6,304,757 2,010,160 46.84
Shareholder’s 30,152,727 43,415,382 13,262,655 43.98
Policy holder’s
Assets held to cover linked 68,782,936 155,217,80 86,434,864 125.66
liabilities 30,248 0 10,118 33.45
Loans 1,451,346 40,366 (307,569) (21.19)
Fixed assets 1,143,777
Current assets 4,108,660 (1,282,298) (31.21)
Cash and bank balances 5,428,699 2,826,362 (510,941)
(9.41)
Advances and other assets 9,537,359 4,917,758

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Sub total A 8,820,225 7,744,120 3,461,360

Current liabilities 208,813 12,281,585 (21,196) 39.24
Provisions 9,029,038 187,617 10.15
Sub total B 508,321 12,469,202
Net current assets C= A- (4,725,082)
B 11,913,122
Debit balance in profit 14,664,966
and loss account
Total 117,130,297 216,061,96
6

Table 4.17 - Comparative profit and loss account

Particulars 31st march 31st march Absolute Percentage
2009 2010 increase/decrease
Amounts transferred
from the policy
holders 794,984 472,930 (322,054) (40.5)
account(technical
account)
Income from 302,367 289,102 (13,625) (4.39)
investments
a. Interest, dividends 13,924 49,152 35,228 253.00

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FINACIAL STATEMENT ANALYSIS

and rent - gross

b. Profit on (35,870) (487) (35,383) (98.64)
sale/redemption of
investments. 51,887 - 51,887 100
c. (Loss on
sale/redemption of (2,965) (2,634) 331 11.16
investments.) 329,343 335,133
d. Transfer/gain on 300 3,522 3,222 1074
revaluation/ change
in fair value
e. Amortization of
(premium)/ discount
on investments
Sub Total
Other income
Total A 1,124,627 811,585
Expenses other than
those directly related
to the insurance 5,307 3,981 (1326) (24.98)
business 6,148,951 3,559,448 (2,589,503) (42.11)
Contribution to
policy holder’s fund
Total B 6,154,258 3,563,429
Profit/loss before tax (5,029,631 (2,751,844) (2,277,787) (45.29)
Provision for taxation ) - - -
Profit/loss after tax - (2,751,844) (2,277,787) (45.29)
(5,029,631

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FINDINGS
After analyzing the financial statements of the firm, following are the findings
during the course of study.
1. Net working capital of the firm for the year ended march 2010 is negative
i.e. (4,725,082)
2. The liquidity position of the firm has deteriorated which is significant from
the decrease in current ratio.
3. Debt equity ratio is high indicating increased pressure from creditors.
4. The company is on the path of becoming stable and this is evident from the
increase in the proprietary ratio.
5. Assets are being financed to a greater extent by debt and this is indicated by
the high total debt to equity ratio.

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6. Profit margin ratio is negative, as the company is undergoing loss, but the
quantum of losses has decreased.
7. ROE has improved when compared to previous year and this is due to
reduction in the amount of losses in the current year.
8. Management expenses ratio has decreased indicates that the company will
be capable of meeting other obligations.
9. Administrative expenses are also decreasing and this shows the increasing
efficiency of the firm.
10.EPS of the firm is negative, but when compared to previous year it seems to
be better.
11.The company is retaining a higher portion of the risk.
12.There is decrease in the shareholders fund of the company.
13.Net worth of the company has also declined.
14.Amount received from policyholders is increased by 16,070,614 and amount
paid to employees and suppliers is reduced by 2,375,880.
15.Since the inflow from policyholders was huge it remained positive after
deducting all operating expenses and also operating expenses have reduced
during the current financial year.
16.The investment activities show negative balance due to huge increase in
investment.
17.Cash flow is increased by 897,720.
18.Overall net cash inflow is reduced due to over investment.

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CONCLUSION :

A study on financial statement analysis was carried out in HDFC STANDARD

LIFE. Financial Statement Analysis is one of the important factors in analyzing
company’s performance hence while knowing the company’s growth and
profitability financial analysis would be helpful.

The data was collected from various sources and also through
tools like company’s annual report and relevant transactions with the company
staffs. The were identified in the form of findings and suitable suggestions were
put forth to the concerned authorities for further discussion.

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FINACIAL STATEMENT ANALYSIS

SUGGESSIONS:

1) Company’s working capital for 2010 is showing a negative balance, there

fore company should increase its working capital or else there are chances of
losing its reputation.
2) Company’s liquidity position is not good according to the analysis, company
should increase its liquidity position because customers can anytime come to
collect their funds.
3) Company should reduce its debt equity ratio.

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4) Company should increase its profit margins, last year profits margin increase
in its value basis but still it is not covered in percentage basis compared to
the competitors.
5) Company’s managerial expenses is decreased, it shows good control on
managerial cost but still company should adopt more techniques to control
the managerial cost to increase the company’s profit.
6) Company should look forward to increase the EPS or else it will lose its
Finance.
7) Risk management techniques should be adopted in order to avoid investing
in risky projects.
8) Found there was a decrease in shareholder’s founds comparing to the
previous years may be because of loss in those years so company should
increase its profits to retain its investors.
9) The company should take steps in training and development program in
upgrading the technological knowledge for their employees.
10) Company should also follow some qualitative techniques in order to
overcome the future risk.
11) If the company is not able to satisfy the appraisals of their employees,
at least should look forward for a “Rewards and Recognitions” program to
motivate the employees.

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