[1]

Project Report on

RATIO ANALYSIS ON LIC & ICICI PRUDENTIAL

LIFE INSURANCE

Submitted by

HEMANT DHANRAJ SONAWANE

MASTERS IN COMMERCE SEM-II

(ADVANCE ACCOUNTANCY)

ACADEMIC YEAR 2013-2014

Roll No.6272

Submitted to

UNIVERSITY OF MUMBAI

MULUND COLLEGE OF COMMERCE

S.N ROAD, MULUND (W)-MUMBAI 400 080

[2]

DECLARATION

I, Mr. HEMANT DHANRAJ SONAWANE, the student of MULUND

COLLEGE OF COMMERCE, S.N Road, Mulund (W), Mumbai 400 080,

studying in M.Com part-I (ADVANCE ACCOUNTANCY) here by

declaring that I have completed this project “RATIO ANALYSIS ON LIC &

ICICI PRUDENTIAL LIFE INSURANCE ” during the academic year 2013-

14. The information submitted is true and original of best of my knowledge.

Date: Signature:

Place: MUMBAI

[3]

CERTIFICATE

I, Prof. Mr. S. V. RANE / Mrs. ANURADHA GANESH, here by certify that

Mr. HEMANT DHANRAJ SONAWANE of MULUND COLLEGE OF

COMMERCE, S.N Road, Mulund (W), Mumbai 400 080, studying in M.Com

part-I (ADVANCE ACCOUNTANCY) here by declaring that I have completed this

project “RATIO ANALYSIS ON LIC & ICICI PRUDENTIAL LIFE

INSURANCE” during the academic year 2013-14. The information submitted

is true and original of best of my knowledge.

Signature: (Project Guide) Signature (Principal)

Signature: (Co-Ordinator) Signature: (External Examiner)

[4]

ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Principal of Mulund College of

Commerce DR. (Mrs.) Parvathi Venkatesh, Course - Coordinator Prof. Rane and our

project guide Prof. M. S. GANAGI, for providing me an opportunity to do my project

work on “RATIO ANALYSIS ON LIC & ICICI PRUDENTIAL LIFE INSURANCE”.

I also wish to express my sincere gratitude to the non - teaching staff of our college.

I sincerely thank to all of them in helping me to carrying out this project work. Last

but not the least, I wish to avail myself of this opportunity, to express a sense of

gratitude and love to my friends and my beloved parents for their mutual support,

strength, help and for everything.

Date: Name: HEMANT DHANRAJ SONAWANE

Reg. No. Signature:

[5]

CONTENTS

Sr. No. TITLE Page No

1 CHAPTER 1 :

Introduction 6

A Study of Unit Lined Insurance Plans of ICICI Prudential Life Insurance

7

Objectives of Study

11

Scope of Study 12

Statement of Problem 13

Research Methodology

14

2 CHAPTER 2 :

About the Company 15

ICICI Prudential Life Insurance 17

Objectives of LIC 20

3 CHAPTER 3 :

Ratio Analysis 22

4 CHAPTER 4 :

Ratios- What do they tell us? 25

5 CHAPTER 5 :

Balance Sheet 28

Profit and Loss Statement 29

6 CHAPTER 6 :

Calculation of Ratios 30

7 CHAPTER 7 :

Conclusion 35

Bibliography 36

[6]

CHAPTER 1

INTRODUCTION

Life insurance in India made its debut well over 100 years ago. In our country, which is

one of the most populated in the world, the prominence of insurance is not as widely

understood, as it ought to be.

What Is Life Insurance?

Life insurance is a contract that pledges payment of an amount to the person assured (or his

nominee) on the happening of the event insured against. The contract is valid for payment of

the insured amount during:

The date of maturity, or

Specified dates at periodic intervals, or

Unfortunate death, if it occurs earlier.

Among other things, the contract also provides for the payment of premium periodically to

the Corporation by the policyholder. Life insurance is universally acknowledged to be an

institution, which eliminates 'risk', substituting certainty for uncertainty and comes to the

timely aid of the family in the unfortunate event of death of the breadwinner.

By and large, life insurance is civilization’s partial solution to the problems caused by death.

Life insurance, in short, is concerned with two hazards that stand across the life-path of every

person:

1. That of dying prematurely leaving a dependent family to fend for itself.

2. That of living till old age without visible means of support.

[7]

A Study of Unit Linked Insurance Plans of ICICI Prudential Life

Insurance

Human life is subject to risks of death and disability due to natural and accidental causes.

When human life is lost or a person is disabled permanently or temporarily, there is a loss of

income to the household. The family is put to hardship. Sometimes, survival itself is at stake

for the dependants. Risks are unpredictable. Death/disability may occur when one least

expects it. An individual can protect himself or herself against such contingencies through

life insurance.

Life insurance is insurance on human beings. Though Human life cannot be valued, a

monetary sum could be determined which is based on loss of income in future years. Hence

in life insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss)

is by way of a ‘benefit’ in the case of life insurance. Life insurance products provide a

definite amount of money to the dependants of the insured in case the life insured dies during

his active income earning period or becomes disabled on account of an accident causing

reduction/complete loss in his income earnings.

Unit Linked Insurance Plans (ULIP)

ULIP are a category of goal-based financial solutions that combine the safety of insurance

protection with wealth creation opportunities. In ULIPs a part of the investment goes towards

providing you life cover. The residual portion of the ULIP is invested in a fund which in turn

is invested in stocks or bonds; the value of such investments alters with the performance of

the underlying fund chosen by the policyholder. The dynamics of the capital market have a

direct bearing on the performance of ULIP. Thus, in ULIPs the investment risk is generally

borne by the investor.

[8]

Contract Of Insurance:

A contract of insurance is a contract of utmost good faith technically known as uberrima

fides. The doctrine of disclosing all material facts is embodied in this important principle,

which applies to all forms of insurance.

At the time of taking a policy, policyholder should ensure that all questions in the proposal

form are correctly answered. Any misrepresentation, non-disclosure or fraud in any document

leading to the acceptance of the risk would render the insurance contract null and void.

Protection:

Savings through life insurance guarantee full protection against risk of death of the saver.

Also, in case of demise, life insurance assures payment of the entire amount assured (with

bonuses wherever applicable) whereas in other savings schemes, only the amount saved (with

interest) is payable.

Aid To Thrift:

Life insurance encourages 'thrift'. It allows long-term savings since payments can be made

effortlessly because of the 'easy installment' facility built into the scheme. (Premium payment

for insurance is either monthly, quarterly, half yearly or yearly).

For example: The Salary Saving Scheme popularly known as SSS, provides a convenient

method of paying premium each month by deduction from one's salary.

In this case the employer directly pays the deducted premium to LIC. The Salary Saving

Scheme is ideal for any institution or establishment subject to specified terms and conditions.

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Liquidity:

In case of insurance, it is easy to acquire loans on the sole security of any policy that has

acquired loan value. Besides, a life insurance policy is also generally accepted as security,

even for a commercial loan.

Tax Relief:

Life Insurance is the best way to enjoy tax deductions on income tax and wealth tax. This is

available for amounts paid by way of premium for life insurance subject to income tax rates

in force. Assesses can also avail of provisions in the law for tax relief. In such cases the

assured in effect pays a lower premium for insurance than otherwise.

Money When You Need It:

A policy that has a suitable insurance plan or a combination of different plans can be

effectively used to meet certain monetary needs that may arise from time-to-time.

Children's education, start-in-life or marriage provision or even periodical needs for cash over

a stretch of time can be less stressful with the help of these policies.

Alternatively, policy money can be made available at the time of one's retirement from

service and used for any specific purpose, such as, purchase of a house or for other

investments. Also, loans are granted to policyholders for house building or for purchase of

flats (subject to certain conditions).

[10]

Who Can Buy A Policy?

Any person who has attained majority and is eligible to enter into a valid contract can insure

himself/herself and those in whom he/she has insurable interest. Policies can also be taken,

subject to certain conditions, on the life of one's spouse or children. While underwriting

proposals, certain factors such as the policyholder’s state of health, the proponent's income

and other relevant factors are considered by the Corporation.

Insurance For Women

Prior to nationalization (1956), many private insurance companies would offer insurance to

female lives with some extra premium or on restrictive conditions. However, after

nationalization of life insurance, the terms under which life insurance is granted to female

lives have been reviewed from time-to-time. At present, women who work and earn an

income are treated at par with men. In other cases, a restrictive clause is imposed, only if the

age of the female is up to 30 years and if she does not have an income attracting Income Tax.

Medical And Non-Medical Schemes

Life insurance is normally offered after a medical examination of the life to be assured.

However, to facilitate greater spread of insurance and also to avoid inconvenience, LIC has

been extending insurance cover without any medical examination, subject to certain

conditions.

[11]

OBJECTIVES OF STUDY

1) To study the growth of ICICI Prudential Life Insurance since its inception

2) To study the penetration of ICICI Prudential Life Insurance vis-à-vis that of its

competitors over the period of 10 years from 2000-01 to 2009-10

3) To study whether return of ULIP is related to stock market return

4) To study investors preference for ULIPs and Equity

Fundamental analysis has a very broad scope. One aspect looks at the general (qualitative)

factors of a company. The other side considers tangible and measurable factors (quantitative).

This means crunching and analyzing numbers from the financial statements. If used in

conjunction with other methods, quantitative analysis can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income

statement and cash flow statement. It's comparing the number against previous years, other

companies, the industry or even the economy in general. Ratios look at the relationships

between individual values and relate them to how a company has performed in the past, and

how it might perform in the future. For example, current assets alone don't tell us a whole lot,

but when we divide them by current liabilities we are able to determine whether the company

has enough money to cover short-term debts. In this project report, we'll see how to use ratio

analysis to analyze financial reports. Comparing these ratios against numbers from previous

years, other companies, industry averages and the economy in general can tell you a lot about

where a company might be headed. Valuing a company is no easy task. This project report

will shed some light on how it can be done and, ultimately, help you to make more informed

choices as an investor.

[12]

SCOPE OF STUDY

ICICI Prudential Life Insurance Co offers Life Insurance and Medical Insurance plans. Life

Insurance plans are issued by the company in the following categories:

1) Education solutions

2) Wealth creation plans

3) Premium guarantee plan

4) Protection plans

5) Retirement plans.

The protection plans are purely traditional life insurance plan and hence is beyond the scope

of this study. The researcher has taken one unit linked plan from each category as follows:

a. Education solutions – Smart Kid New Unit linked Regular Premium

b. Wealth creation plans – ICICI Peru Life Stage Assure

c. Premium guarantee plans – Invest Shield Cash Back

d. Retirement plans – Life Stage Pension

The researcher studied performance (i.e. NAV) of above for the period 1st January 2008 to

30th June 2011 at monthly intervals

[13]

STATEMENT OF PROBLEM

ULIP is of recent origin. Over the last few years ULIP have emerged as major players in

savings mobilization. Investors have been showing keen interest by subscribing to various

ULIP Schemes anticipating higher returns and capital gains.

The year 2008 had witnessed the global recessionary trend, whereby the performance of

ULIP had been drastically affected. The BSE Sensex which shot up to 21000 points came

crashing down and stood at 8335 points(12th March 2009) and had greatly affected the Net

Asset Value (NAV) across all the plans of various financial institutions.

There is a relationship of ULIP returns to the general economic environment that directly

affects the investors. Considering these factors the study intends to analyze the Performance

of Unit Linked Insurance Plans of ICICI Prudential with special reference to Pune city.

[14]

RESEARCH METHODOLOGY

Data Collection

The study had used both primary and secondary data.

Primary data was collected from investors by questionnaire method. The study area

refers to Aundh and the areas in its vicinity like Baner and Balewadi in Central Pune. The

researcher undertook Random Sampling for choosing the respondents from Aundh,

Baner and Balewadi region of Pune city. Data was collected from 300 investors which

consisted of 195 from Aundh, 75 from Baner and 30 from Balewadi.

Secondary data was collected from books, journals, websites (www.iciciprulife.com,

www.bseindia.com, www.irda.org, www.swissre.org, www.ssrn.org, www.rbi.org,

www.mospi.gov.in, www.traderji.com), articles and annual reports.

Hypotheses

1) Ho = Fluctuations in stock market do not adversely affect the NAV of ULIP

2) Ho = Income of the investors does not affect the fund option selected by the investors.

3) Ho = Age does not affect the preference for type of insurance (traditional or unit – linked)

selected by the investors.

Statistical Tools for Analysis

The collected data were analyzed through:

1) Net Asset Value (NAV)

2) Karl Pearson’s Coefficient of Correlation

3) Chi-square Test

[15]

CHAPTER 2

ABOUT THE COMPANY

The story of insurance is probably as old as the story of mankind. The same instinct

that prompts modern businessmen today to secure themselves against loss and disaster

existed in primitive men also. They too sought to avert the evil consequences of fire and

flood and loss of life and were willing to make some sort of sacrifice in order to achieve

security. Though the concept of insurance is largely a development of the recent past,

particularly after the industrial era – past few centuries – yet its beginnings date back almost

6000 years.

Life Insurance in its modern form came to India from England in the year 1818. Oriental Life

Insurance Company started by Europeans in Calcutta was the first life insurance company on

Indian Soil. All the insurance companies established during that period were brought up with

the purpose of looking after the needs of European community and Indian natives were not

being insured by these companies. However, later with the efforts of eminent people like

Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But

Indian lives were being treated as sub-standard lives and heavy extra premiums were being

charged on them. Bombay Mutual Life Assurance Society heralded the birth of first Indian

life insurance company in the year 1870, and covered Indian lives at normal rates. Starting as

Indian enterprise with highly patriotic motives, insurance companies came into existence to

carry the message of insurance and social security through insurance to various sectors of

society. Bharat Insurance Company (1896) was also one of such companies inspired by

nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies.

[16]

The United India in Madras, National Indian and National Insurance in Calcutta and the Co-

operative Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative

Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great

poet Rabindranath Tagore, in Calcutta. The Indian Mercantile, General Assurance and

Swadeshi Life (later Bombay Life) were some of the companies established during the same

period. Prior to 1912 India had no legislation to regulate insurance business. In the year 1912,

the Life Insurance Companies Act, and the Provident Fund Act were passed.

The Life Insurance Companies Act, 1912 made it necessary that the premium rate

tables and periodical valuations of companies should be certified by an actuary. But the Act

discriminated between foreign and Indian companies on many accounts, putting the Indian

companies at a disadvantage.The first two decades of the twentieth century saw lot of growth

in insurance business. From 44 companies with total business-in-force as Rs.22.44 crore, it

rose to 176 companies with total business-in-force as Rs.298 crore in 1938. During the

mushrooming of insurance companies many financially unsound concerns were also floated

which failed miserably. The Insurance Act 1938 was the first legislation governing not only

life insurance but also non-life insurance to provide strict state control over insurance

business. The demand for nationalization of life insurance industry was made repeatedly in

the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938

was introduced in the Legislative Assembly. However, it was much later on the 19th of

January, 1956, that life insurance in India was nationalized. About 154 Indian insurance

companies, 16 non-Indian companies and 75 provident were operating in India at the time of

nationalization. Nationalization was accomplished in two stages; initially the management of

the companies was taken over by means of an Ordinance, and later, the ownership too by

means of a comprehensive bill.

[17]

The Parliament of India passed the Life Insurance Corporation Act on the 19th of

June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956,

with the objective of spreading life insurance much more widely and in particular to the rural

areas with a view to reach all insurable persons in the country, providing them adequate

financial cover at a reasonable cost.

ICICI PRUDENTIAL LIFE INSURANCE

The company started with a capital base of Rs. 150 corers and as on 31st December

2009 it stands at Rs. 4780 corers with ICICI Bank holding 74% and Prudential plc holding

26% of the shares. Its growth since incorporation is measured in terms of the following

parameters:

1) Number of new policies

2) Premium income – including first year premium, renewal premium and single

premium.

3) Sum assured on basic policy

4) APE – annualized premium equivalent. The premium collected by the life insurance

company is in the form of regular premium and single premium policies. The single

premium policies involve the payment of premium only at the commencement of policy.

Thus, the total premium collected by a company includes regular premium paid by the

policyholder for one year and single premium paid for a tenure depending upon the

duration of the policy. The comparison between different companies on the basis of such

figures may not give a fair picture of the position of the company. Hence annualized

[18]

premium equivalent is calculated which normalizes the single premium payments to

recurring premium payment equivalent. This helps in comparison of sales accurately.

From Table 1 it can be observed that the number of new policies has shown a steady

increase till 2008. In 2009 on account of fall in the stock markets and global recession it

decreased by 9.5%, while in 2010 it decreased by 33.18%. However, premium income

increased by 13.24% and 7.14% during the same period. This could be on account of the top-

ups paid by the policy holders and high sum assured policies sold during the year. The

annualized premium equivalent increased 15 times in 2002, 2.7 times in 2003 and by 48% in

2008. This amount then reduced by 18.67% in 2009 and in 2011 it stood at Rs. 3975.

For the year ending 31st March 2011 the total new business premium received by the

company is Rs. 7862 corers as compared to Rs. 6334 corers in the preceding year. It has

underwritten over 12.74 million policies since inception and has assets under management

(AUM) of over Rs. 68150 corers.

Penetration of ICICI Prudential Life Insurance in Life Insurance Industry

LIC of India is the market leader amongst all life insurers all through the 10 years (Table 2).

However its share is coming down over the year with the entry of private players. ICICI

Prudential was the market leader with 92.59% share amongst the private life insurance

companies. As more and more players entered the life insurance market, share of ICICI

Prudential came down to 42% in 2001-02 and stood at 20.83% in 2009-10. (Table 3)

The private life insurers have played a major role in increasing the popularity of linked plans.

Of the total business, 82.3% was contributed by ULIPs and rest by way of traditional plans.

[19]

They consolidated their position in 2006-07 by increasing it further to 88.75% and 90.33% in

2007-08.

LIC which predominantly sold the traditional plans had only 29.76% of its overall business

coming from ULIP. However with the growing popularity they also introduced new policies

which helped them to increase the share of linked business to 62.31% in 2007-08.

Thus for the industry as a whole the linked business accounted for around 70% of total

business in 2007-08. (Table 4)

Performance evaluation of four unit linked insurance plans

To analyze the performance, Karl Pearson’s coefficient of correlation is calculated by taking

into consideration the independent variable - BSE SENSEX as variable ‘X’ and the

dependent variable - NAV under the scheme for various fund options as variable ‘Y’. (Table

5)

Hypothesis – 1:

Ho = Fluctuations in stock market do not adversely affect the NAV of ULIP

The NAV under Equity based fund options e.g. flexi-balancer, flexi-growth, maximiser,

multiplier and R.I.C.H were approximately 0.99. Hence we can say that the fluctuations in

stock market will adversely affect the NAV. The upward movement in Sensex will increase

the NAV under equity based options and vice-versa. Thus the hypothesis was rejected.

However, the NAV for Debt based options like preserver, protector and Investshield Cashbak

was showing a consistent increase over a period of time irrespective of movement in Sensex.

Hence for debt based fund options we can say that a fluctuation in stock market does not

affect the NAV. Hence the hypothesis was accepted.

[20]

OBJECTIVES OF LIC:

Spread Life Insurance widely and in particular to the rural areas and to the socially

and economically backward classes with a view to reaching all insurable persons in

the country and providing them adequate financial cover against death at a

reasonable cost.

Maximize mobilization of people's savings by making insurance- linked savings

adequately attractive.

Bear in mind, in the investment of funds, the primary obligation to its policyholders,

whose money it holds in trust, without losing sight of the interest of the community

as a whole; the funds to be deployed to the best advantage of the investors as well as

the community as a whole, keeping in view national priorities and obligations of

attractive return.

Conduct business with utmost economy and with the full realization that the moneys

belong to the policyholders.

Act as trustees of the insured public in their individual and collective capacities.

Meet the various life insurance needs of the community that would arise in the

changing social and economic environment.

Involve all people working in the Corporation to the best of their capability in

furthering the interests of the insured public by providing efficient service with

courtesy.

Promote amongst all agents and employees of the Corporation a sense of

[21]

participation, pride and job satisfaction through discharge of their duties with

dedication towards achievement of Corporate Objective.

[22]

CHAPTER 3

RATIO ANALYSIS

A financial ratio (or accounting ratio) is a relative magnitude of two selected

numerical values taken from an enterprise's financial statements. Often used in accounting,

there are many standard ratios used to try to evaluate the overall financial condition of a

corporation or other organization. Financial ratios may be used by managers within a firm, by

current and potential shareholders (owners) of a firm, and by a firm's creditors. Financial

analysts use financial ratios to compare the strengths and weaknesses in various companies.If

shares in a company are traded in a financial market, the market price of the shares is used in

certain financial ratios.

Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent

percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios

that are usually or always less than 1, such as earnings yield, while others are usually quoted

as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these

latter are also called multiples. Given any ratio, one can take its reciprocal; if the ratio was

above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same

information, but may be more understandable: for instance, the earnings yield can be

compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20

corresponds to an earnings yield of 5%.

Values used in calculating financial ratios are taken from the balance sheet, income

statement, statement of cash flows or (sometimes) the statement of retained earnings. These

comprise the firm's "accounting statements" or financial statements. The statements' data is

based on the accounting method and accounting standards used by the organization.

[23]

Financial ratios quantify many aspects of a business and are an integral part of the

financial statement analysis. Financial ratios are categorized according to the financial aspect

of the business which the ratio measures. Liquidity ratios measure the availability of cash to

pay debt.Activity ratios measure how quickly a firm converts non-cash assets to cash assets.

Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure

the firm's use of its assets and control of its expenses to generate an acceptable rate of return.

Market ratios measure investor response to owning a company's stock and also the cost of

issuing stock. These are concerned with the return on investment for shareholders, and with

the relationship between return and the value of an investment in company’s shares.

Financial ratios allow for comparisons

between companies

between industries

between different time periods for one company

between a single company and its industry average

Ratios generally are not useful unless they are benchmarked against something else, like

past performance or another company. Thus, the ratios of firms in different industries, which

face different risks, capital requirements, and competition are usually hard to compare.

Financial ratios may not be directly comparable between companies that use different

accounting methods or follow various standard accounting practices. Most public companies

are required by law to use generally accepted accounting principles for their home countries,

but private companies, partnerships and sole proprietorships may not use accrual basis

accounting. Large multi-national corporations may use International Financial Reporting

Standards to produce their financial statements, or they may use the generally accepted

[24]

accounting principles of their home country. There is no international standard for calculating

the summary data presented in all financial statements, and the terminology is not always

consistent between companies, industries, countries and time periods.

It refers to the systematic use of ratios to interpret the financial statements in terms of

the operating performance and financial position of a firm. It involves comparison for a

meaningful interpretation of the financial statements. In view of the needs of various uses of

ratios the ratios, which can be calculated from the accounting data are classified into the

following broad categories

A. Liquidity Ratio

B. Turnover Ratio

C. Solvency or Leverage ratios

D. Profitability ratios

[25]

CHAPTER 4

RATIOS – WHAT DO THEY TELL US?

CURRENT RATIO

The current ratio measures the short-term solvency of the firm. It establishes the relationship

between current assets and current liabilities. It is calculated by dividing current assets by

current liabilities. Current assets include cash and bank balances, marketable securities,

inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills

receivables and prepaid expenses. Current liabilities includes sundry creditors, bills payable,

short- term loans, income-tax liability, accrued expenses and dividends payable.

Current Ratio = Current Asset

Current Liabilities

DEBTOR TURNOVER RATIO

This indicates the number of times average debtors have been converted into cash during a

year. It is determined by dividing the net credit sales by average debtors.

Debtor Turnover Ratio = Net Credit Sales

Average Trade Debtors

Net credit sales consist of gross credit sales minus sales return. Trade debtor includes sundry debtors

and bill’s receivables. Average trade debtors (Opening + Closing balances / 2). When the

[26]

information about credit sales, opening and closing balances of trade debtors is not available

then the ratio can be calculated by dividing total sales by closing balances of trade debtor.

Debtor Turnover Ratio = Total Sales

Trade Debtors

EXPENSES RATIO

While some of the expenses may be increasing and other may be declining to know the

behavior of specific items of expenses the ratio of each individual operating expenses to net

sales should be calculated. The various variants of expenses are

Cost of goods sold = Cost of goods sold X 100

Net Sales

Administrative Expenses Ratio = Administrative Expenses X 100

Net sales

Selling and distribution expenses ratio = Selling and distribution expenses X 100

Net sales

DEBT EQUITY RATIO

Debt equity ratio shows the relative claims of creditors (Outsiders) and owners (Interest)

against the assets of the firm. Thus this ratio indicates the relative proportions of debt and

equity in financing the firm’s assets. It can be calculated by dividing outsider funds (Debt)

by shareholder funds (Equity)

Debt equity ratio = Outsider Funds (Total Debts)

Shareholder Funds or Equity

[27]

The outsider fund includes long-term debts as well as current liabilities. The shareholder

funds include equity share capital, preference share capital, reserves and surplus including

accumulated profits. However fictitious assets like accumulated deferred expenses etc should

be deducted from the total of these items to shareholder funds. The shareholder funds so

calculated are known as net worth of the business.

PROPRIETARY (EQUITY) RATIO

This ratio indicates the proportion of total assets financed by owners. It is calculated by

dividing proprietor (Shareholder) funds by total assets.

Proprietary (equity) ratio = Shareholder funds

Total assets

[28]

CHAPTER 5

BALANCE SHEET

PARTICULARS MARCH 2013 MARCH 2012

SOURCES OF FUNDS

Owners' Fund

Equity Share Capital 101.00 101.00

Share Application Money 0.00 0.00

Preference Share Capital 0.00 0.00

Reserves & Surplus 6,380.29 5,581.21

Loan Funds

Secured Loans 54,975.35 44,614.54

Unsecured Loans 3,729.83 3,255.37

Total 65,186.47 53,552.12

USES OF FUNDS

Fixed Assets

Gross Block 115.25 108.15

Less: Revaluation Reserve 0.00 0.00

Less: Accumulated Depreciation 52.88 45.92

Net Block 62.37 62.24

Capital Work-in-progress 0.00 14.53

Investments 184.63 164.03

Net Current Assets

Current Assets, Loans & Advances 80,313.23 64,191.79

Less : Current Liabilities & Provisions

15,373.76 10,880.45

Total Net Current Assets 64,939.47 53,311.34

Miscellaneous Expenses not written 0.00 0.00

Total 65,186.47 53,552.12

[29]

PROFIT AND LOSS STATEMENT

PARTICULARS MARCH 2013 MARCH 2012

Income :

Operating Income 7,575.92 6,114.86

Expenses

Material Consumed 0.00 0.00

Manufacturing Expenses 0.00 0.00

Personnel Expenses 90.41 72.44

Selling Expenses 0.00 110.85

Administrative Expenses 262.78 202.46

Expenses Capitalized 0.00 0.00

Cost Of Sales 353.18 385.75

Operating Profit 7,222.74 5,729.11

Other Recurring Income 82.96 23.09

Adjusted PBDIT 7,305.70 5,752.21

Financial Expenses 5,924.60 4,591.07

Depreciation 7.53 7.42

Other Write offs 0.00 0.00

Adjusted PBT 1,373.57 1,153.72

Tax Charges 350.36 316.72

Adjusted PAT 1,023.21 837.00

Non Recurring Items 0.00 77.09

Other Non Cash adjustments 0.00 0.11

Reported Net Profit 1,023.21 914.20

Earnings Before Appropriation 1,712.14 1,445.03

Equity Dividend 191.77 181.68

Preference Dividend 0.00 0.00

Dividend Tax 32.35 29.42

Retained Earnings 1,488.02 1,233.93

[30]

CHAPTER 6

CALCULATION OF RATIOS

Current Ratio = Current Assets

Current Liabilities

Current Year = 80313.23

15373.36

= 5.22:1

Previous Year = 64191.79

10880.45

= 5.89: 1

COMMENTS – Current ratio is also known as Bankers Ratio/Working Capital Ratio.

This ratio shows the relationship between current assets and current liabilities. It also shows

the short term solvency position of the organization. Ideal current ratio should be 2:1.

Proprietary ratio = Proprietors funds × 100

Total Assets

Current Year = 55209.68 × 100

101876.93

= 54.09 %

[31]

Previous Year = 52216.46 × 100

95802.99

= 54.50 %

COMMENTS :- This ratio shows the relationship between proprietors fund and total

assets. It also shows long tern stability and solvency position of the organization. Ideally it

should be between 65 % to 70 %.

Debt Equity Ratio = Borrowed funds

Proprietor’s funds

Current Year = 23636.51

55209.68

= 42.82: 100

Previous Year = 21418.82

55216.46

= 38.79 : 100

COMMENTS: - This ratio shows the relationship between borrowed funds and

proprietors funds. It also shows the composition and structure of the capital invested in the

business. Standard ratio should be 2:1

[32]

Debtors Turn Over Ratio = Net Credit Sales

Average Receivables

= Net Credit Sales

Average (Debtors + Bills receivables)

Current Year = 38199.43

796.92

= 47.93 times

Previous Year = 33933.46

904.08

= 37.53 times

Comments :- This ratio is an activity ratio which shows the number of times good sold

to debtors and payment received from them. HIGHER the ratio is FAVAROUBLE and vice

versa.

Creditors Turn Over Ratio = Net Credit Purchases

Average Payables

= Net Credit Purchases

Average (Creditors + Bills payables)

Current Year = 9877.40

[33]

6369.91

= 1.55 times

Previous Year = 8014.37

5883.92

= 1.36 times

Comments:- This ratio is an activity ratio which shows the number of times goods

purchased on credit basis and payments made to creditors. HIGHER the ratio is

FAVOURABLE and vice versa.

Expense Ratio : Employee Benefit Expense Ratio × 100

Net Sales

Current Year = 90.41 × 100

7575.92

= 1.19 %

Previous Year = 72.44 × 100

6114.86

= 1.18 %

[34]

Gross Profit Ratios :- Gross Profit ×100

Net sales

= Sales – COGS × 100

Net sales

Current year = 7575.92 – 353.18 ×100

7575.92

= 95.33%

Previous year = 6114.86-385.75 ×100

6114.86

= 93.69%

Comments : This ratio indicates the relationship between gross profit and net sales. It is

a profitability ratio which shows the efficiency of the company to earn trading surplus.

[35]

CHAPTER 7

CONCLUSION

The study was conducted to study the performance of ULIP of ICICI Prudential Life

Insurance Co Ltd. It was found that the schemes where the investors have chosen equity

based fund the returns are directly proportional to the stock market. However the debt based

fund has shown increasing returns over the time. They are neutral to the volatility shown by

the stock market.

The survey showed that around 40% of the investors had invested in ULIP of ICICI

Prudential Life Insurance Co Ltd. The company’s brand image has captured the attention of

investors in Pune. The primary objective for investing in such plans was found to be capital

appreciation and children education. The investors found the allocation charges to be average

and the consequent returns also to be average. It was observed that the switch option was not

exercised by nearly half the investors. Thus, it can be said that the investors are not

monitoring their investment properly. The investors have to understand the working of ULIP

in a better way to maximize their returns.

[36]

BIBLIOGRAPHY

http://economictimes.indiatimes.com/lic-housing-finance-ltd/stocks/companyid-

10823.cms

http://www.investopedia.com/terms/r/ratioanalysis.asp

http://en.wikipedia.org/wiki/Financial_ratio

http://www.demonstratingvalue.org/resources/financial-ratio-analysis

http://www.moneycontrol.com/financials/lichousingfinance/ratios/LIC

www.iciciprulife.com

www.bseindia.com

www.irda.org

Newspapers:

The Times of India

The Indian Express

Economic Times