Financial Statement Analysis[1]

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, ³Financial 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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FINACIAL STATEMENT ANALYSIS
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 shortterm 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. Longterm 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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FINACIAL STATEMENT ANALYSIS

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 nonmonetary 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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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
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 efficiency with which assets and resources of the firm are being utilized. These ratios are called turnover ratios because they indicate the speed with Which assets are being converted or turned over into sales. These ratios, thus express the relationship between sales and various assets. A higher turnover ratio generally indicates better use of capital resources which in turn has a favorable effect on the profitability of the firm.
1. Inventory turnover ratio 2. Debtor s turnover ratio 3. Fixed assets turnover ratio 4. Working capital turnover ratio 5. Capital turnover ratio

2. Liquidity Ratios Liquidity means ability of a firm to meet its current Liabilities. The liquidity ratios, therefore, try to establish a relationship between current liabilities, which are the obligations soon becoming due and current assets, which presumably provide the source from which these obligations will be met.
1. Current ratio 2. Quick ratio 3. Absolute quick ratio

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3. Leverage Ratios Leverage ratios are used to analyze the long term Solvency of any particular business concern. There are two aspects of long term solvency of a Firm (a) ability to repay the principal amount when Due and (b) regular payment of interest. In other words, long term creditors like debenture holders, financial institution etc, are interested in the security of their loan amount as well as the ability of the company to meet interest costs. They, therefore, also consider the earning capacity of the company to know whether it will be able to pay off interest on loan amount. Liquidity ratios discussed earlier indicate short term financial strength whereas solvency ratios judge the ability of a firm to pay off its long term liabilities.
1. Debt equity ratio 2. Proprietary ratio 3. Interest

4. Profitability Ratios Every business should earn sufficient profits to Survive and grow over a long period of time. Infact efficiency of a business is measured in Terms of profits. Profitability ratios are calculated to measure the efficiency of the business Profitability of a business may be measured in two ways: 1. Profitability in relation to sales 2. Profitability in relation to investments
1. Gross profit ratio 2. Net profit ratio 3. Operating ratio and expense ratio 4. Return on equity 5. Earning per share

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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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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
Components of cash flow y Initial investment y Annual net cash flows y Terminal cash flows Sources and uses of cash Sources Profitable operation Decrease in assets Increase in liabilities Sales proceeds shares, and Cash Dividends Applications Loss from operations Increase in assets Decrease in liabilities Redemption of preference

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Cash flow versus profit

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

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

Profit Cash flow

= =

revenues- expenses- depreciation revenues- expenses- capital expenditure

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

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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
TITLE OF THE STUDY ³FINANCIAL 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 y To analyze the financial statement. y To simplify and summarize a long array of accounting data and make them understandable. y To forecast and prepare the plans for the future. y To reveal the trend of costs, sales, profits and other important facts. y To establish ideal standards of the different items of the business. y To provide useful information to the management.

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SCOPE OF THE STUDY y It is useful for the management. y It gives information to the investors about the earning capacity of the business. y With the help of Ratio Analysis comparison of profitability and financial soundness can be made. y 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. y It gives information to the financial institution for providing the finance to the company y It gives information to the taxation authorities. y It gives information to the researchers for conducting research in respect of profitability, efficiency, financial soundness and growth of that company. METHODOLOGY OF STUDY Research methodology is the study of research method and rules for doing research work. To do a research it is necessary to anticipate all the steps, which must be undertaken. If the project is to be completed successfully proper steps in research process has to be followed. It consists of interrelated activities such as identifying the research problems, description of research design, sources of collecting data etc.

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FINACIAL STATEMENT ANALYSIS
DATA COLLECTION: The data can be of two types: y Primary Data : o Primary data was collected with the help of an interview scheduled with the managers of HDFC Standard life. y 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:y Annual Report y Articles in Journal, Magazines. y Books y Other material and report published by company RESEARCH DESIGN Research Design is the way in which the research is carried out. It works as a blue print. Research Design is the arrangement of conditions for the collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure.

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FINACIAL STATEMENT ANALYSIS
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  Companies web sites  Annual report of company

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FINACIAL STATEMENT ANALYSIS
Limitations of the study. y Study is largely based on secondary published information. y Insufficient time available for the study and submission of the report. y It depends on past information. y Only the last 5 years data is considered for the study y 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.

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.

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CHAPTER

5:

SUMMARY

OF

FINDINGS,

CONCLUSION

AND

SUGGESTION

CHAPTER 6: BIBLIOGRAPHY AND ANNEXURE.

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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS

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. 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

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FINACIAL STATEMENT ANALYSIS
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 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.

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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 No. of players 1999-00 1 2007-08 18 167 2008-09 22 250 2009-10 23 289 2010-11* 23 304

Capital deployed ( Rs 0 in billions) No. of branches Employees (in µ000) Individual µ000) Total premium (Rs in 263 billions) agents(in 2048 123

8913 254

11,815 285

12,018 270

11,837 262

2014

2218

2655

1253

Note: * Apr-Sep 2010 numbers are provisional

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FINACIAL STATEMENT ANALYSIS

INDIAN LIFE INSURANCE GROWTH STANDS OUT AMONG GLOBAL REGIONS/ COUNTRIES Parameters 1999-00 2007-08 1.8% 2008-09 2.0% 2009-10 2.5%

India¶s share of world 0.5% premium(life) Penetration as % of 1.8% GDP

4.0%

4.0%

4.6%

Regions / countries

Real growth in life premium in 2009

insurance

Industrialized countries Emerging markets Asia India (2009-10) World

-2.8% 4.2% 1.80% 10.1% -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  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.

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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  While life expectancy creates opportunities in pensions, and protection against lifestyle health disorders can also increase.

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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. 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.

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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 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.

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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. 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.

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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 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.

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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. 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:
y

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

y y y

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

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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 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 .

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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 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

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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. 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'.

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Our Values Values that we observe while we work:
y y y y y y

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

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HDFC Standard has received the CIO 100 Award for the third consecutive year. It had received the 2008 CIO Bold Award for Consultant Corner and CIO Security Award for our initiatives for a secure computing environment, including Sesame Identity and Access Management. In 2007, the company received CIO 100 award for Wonders and a Special Award in Storage category. CIO magazine has a long tradition of honoring leading companies for business and technology leadership and innovations through its flagship award program - CIO 100. It's a celebration of 100 organizations (and the people within them) that are using IT in innovative ways to deliver business value, whether by creating competitive advantage, optimizing business processes, enabling growth or improving relationships with customers. Received Diamond EDGE Award 2009

HDFC Standard Life has received the Diamond EDGE Award 2009 for its mobile workforce portal - Consultant Corner. EDGE - Enterprises Driving Growth and Excellence (using IT) is an initiative by the ,Network Computing magazine to identify, recognize, and 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.

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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

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 â¼³in-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.

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

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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 Fun

HDFC Bank

HDFC Mutual

HDFC Sales Financial Services

HDFC ERGO General Insurance

HDB

HDFC Securities

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Other Companies
y y y y y y y y y y

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

HDFC Bank Bank

Saraswat Bank

Indian

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Corporate Agents y HDFC Bank y Indian Bank y Housing Development Finance Corporation Limited y The Saraswat co-operative bank limited y HDFC sales Private limited y HDFC securities Limited y HDB Financial Services limited y 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. 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.

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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 6th 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 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.

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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: 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.

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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 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.

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The Actuary Department: The Actuary Department is the ³Pricing Department´ of an insurance company. It must be understood that the basic premise on which the insurance companies work is ³use 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 AssetLiability Management of the insurance company. It must ensure that the Solvency 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.

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These guidelines are: 1. Not less than 50% of the corpus will be invested in Government Securities (GSec) 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 ³unapproved´ 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 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.

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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:

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.

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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.' 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.'

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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.' 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. Health Plan o HDFC Critical Care Plan o HDFC Surgicare Plan

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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 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.

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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 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.

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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

y 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 assets Total liabilities Net capital

Current 38,69,728 53,25,536 87,57,727

9,537,359 77,44,120

current 26,87,296 39,05,497 62,51,168

90,29,038 1,24,69,202

working 11,82,432 14,20,039 25,06,559

508321

(4,725,082)

Figure 4.1: Net working capital

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

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Analysis : From the above table , shows that the net working capital in the year 2006 having 1182432 was increased in the year 2009 to 1420039 and in 2008 to 2506559 but in 2009 there is a fall in the networking capital and in 2010 there is an adverse balance.

Interpretation: Here NWC for the year 2010 is negative. There is in reality deterioration in liquidity position.

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

Current ratio = current assets Current liabilities

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Table 4.2: Current ratio Particulars Current assets Current liabilities Current ratio 2006 2007 2008 2009 2010

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

Figure 4.2:Current ratio

current ratio
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2006 2007 2008 2009 2010 current ratio

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.

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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.

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.

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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 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.

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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

Table 4.3: Debt equity ratio Particulars Long Debts Shareholder¶s equity Debt ratio equity 3.73% 5.50% 6.33% 5.29% 9.45% 6,331,725 8,360,441 13,263,132 18,433,462 20,417,327 2006 2007 2008 2009 2010

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

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Figure 4.3:Debt equity ratio

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

debt-equity ratio

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

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FINACIAL STATEMENT ANALYSIS
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

1. Table 4.4: Proprietary ratio Particulars Shareholder¶s equity Total assets Proprietary ratio 44,71,073 60,61,590 99,07,527 1.416 1.3792 1.3387 10,988,705 8,887,897 1.6775 2.2972 2006 2007 2008 2009 2010

6,331,725 8,360,441 13,263,132 18,433,462 20,417,327

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FINACIAL STATEMENT ANALYSIS
Figure 4.4:Propreitory Ratio

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

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

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

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FINACIAL STATEMENT ANALYSIS
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 Total debts 2006 2007 2008 2009 2010

26,292,222 49,874,193 90,141,225 106,398,695 205,371,380 8,360,441 13,263,132 18,433,462 20,417,327

Shareholder¶s 6,331,725 equity Total debt to 4.1524 equity

5.9655

6.7963

5.7720

10.0587

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FINACIAL STATEMENT ANALYSIS
Figure 4.5: Total debt to equity

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

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.

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FINACIAL STATEMENT ANALYSIS
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? Profitability ratios are Profit margin ratio Expenses ratio Return on assets Return on shareholder¶s equity

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FINACIAL STATEMENT ANALYSIS
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

Table 4.6: Profit margin ratio Particulars 2006 2007 (1,255,61 1) 2008 2009 2010 (2,751,844 )

Profit/ loss after (1,287,57 interest and tax 2)

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

Revenues

15,469,50 28,226,24 48,176,16 1 8 6

55,183,763 69,556,324

NET profit Ratio

-.0832329 -.0444838 0.0505456

-0.0911433 -0.0395628

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FINACIAL STATEMENT ANALYSIS
Figure 4.6: Profit margin ratio

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

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

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FINACIAL STATEMENT ANALYSIS
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 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

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Table 4.7: Return on equity Particulars 2006 2007 2008 2009 (5,029,631) 2010 (2,751,844)

Profit/( loss (12,87,572) (12,55,611) (2,435,094) after tax) Net worth (Return equity) 3,165,972 on -0.4066 3,939,077 -0.31875 6,379,641 -0.3817

6,520,340 -0.7714

5,752,361 -0.4783

Figure 4.7; Return on equity

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

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

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FINACIAL STATEMENT ANALYSIS
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. 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

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FINACIAL STATEMENT ANALYSIS
Table 4.8: Management expenses ratio Particulars Management Expenses Total Gross Premium 15,699,12 6 Ratio .3321 28,558,65 6 .2767 2006 5,214,991 2007 7,902,455 2008 13,704,94 6 48,585,61 6 .2820 2009 21,915,90 7 55,646,93 7 .3938 2010 20,345,37 6 70,051,04 4 .2904

4. Figure 4.8: Management expenses ratio

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

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

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FINACIAL STATEMENT ANALYSIS
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

Table 4.9: Administrative expenses ratio

Particulars

2006

2007 8,252

2008 12,596

2009 5,307

2010 3,981

Administrative 18,251 expenses Net revenue

15,469,501 28,226,248 48,176,166 55,183,763 69,556,324 0.02923% 0.02614% 0.00961% 0.00572%

Administrative 0.11798% expenses ratio

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FINACIAL STATEMENT ANALYSIS

1. Figure 4.9: Administrative expenses ratio

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

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

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FINACIAL STATEMENT ANALYSIS

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

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

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number.

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FINACIAL STATEMENT ANALYSIS

Table 4.10: Earnings per share

Particulars

2006

2007

2008

2009 (5,029,631)

2010 (2,751,544)

Net profit/(loss) (1,287,572 (1,255,611 (2,435,094) ) as per profit and ) loss account Weighted 440,287,6 average number 72 of equity shares for basic EPS Basic Earning (2.92) per share Weighted 440,287,6 average number 72 of equity shares for diluted EPS Diluted earnings (2.92) per share 687,450,1 09 1,004,398,9 04

1,534,219,7 18

1,819,347,9 45

(1.83)

(2.42)

(3.28)

(1.51)

693,229,4 22

1,004,398,9 04

1,534,219,1 78

1,819,347,9 45

(1.81)

(2.42)

(3.28)

(1.52)

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FINACIAL STATEMENT ANALYSIS
Figure 4.10: Earnings per share
0 2006 -0.5 -1 -1.5 -2 -2.5 -3 -3.5 2007 2008 2009 2010

Basic EPS Diluted EPS

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

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

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FINACIAL STATEMENT ANALYSIS
OTHER IMPORTNANT RATIOS 1. Net Retention ratio Net retention ratio is the relationship between net premium and gross premium. This measures the ability of the insurer to retain investment made by the insured (policyholder). The difference between net premium and gross premium is reinsurance ceded. Reinsurance plays an important role in the insurance business of virtually every type. The service provided by the reinsurer is similar to that provided by the insurance company to their policyholders. In general insurance there are risks, which because of their magnitude or nature, one insurance company cannot afford to cover, in such cases, an insurance company insures the whole risk itself and lays off the amount it has accepted to other insurance or reinsurance companies, retaining only that much risk which it can absorb.

Retention ratio = net premium income Gross premium income

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FINACIAL STATEMENT ANALYSIS
Table 4.11: Net Retention ratio Particulars Net Premium Gross Premium Retention ratio .98537 .98836 0.99157 0.99167 0.99293 2006 2007 2008 2009 55,183,763 55,646,937 2010 69,556,324 70,051,044

15,469,501 28,226,248 48,176,166 15,699,126 28,558,656 48,585,616

Figure: Net Retention ratio

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

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

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FINACIAL STATEMENT ANALYSIS

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

Table 4.12: Commission Ratio Particulars Gross commission Gross premium Ratio 7.66% 7.35% 7.23% 7.64% 7.50% 15,699,126 28,558,656 48,585,616 55,646,937 70,051,044 2006 1,203,252 2007 2,099,268 2008 3,512,586 2009 4,248,904 2010 5,254,973

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FINACIAL STATEMENT ANALYSIS

Figure 4.12: Commission Ratio

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

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

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FINACIAL STATEMENT ANALYSIS
Table 4.13: Growth rate of shareholder¶s fund Particulars Shareholder¶s fund Growth rate 140.53% 24.42% 61.96% 2.21% (11.78%) 2006 3,165,972 2007 3,939,077 2008 2009 2010 5,752,361

6,379,640 6,520,340

Figure 4.13: Growth rate of shareholder¶s fund

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

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

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FINACIAL STATEMENT ANALYSIS
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 Net worth Change 2006 3,165,972 1,849,703 2007 3,939,077 773,105 2008 2009 2010 5,752,361 (767,980)

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

Figure 4.14: Change in net worth

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

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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
CASH FLOW STATEMENT Table 4.15 - RECEIPTS AND PAYMENTS ACOUNT FOR THE YEAR ENDED 31ST MARCH 2010 2010 CASH FLOW FROM OPERATING ACITIVITIES Amounts received from 70,817,804 policy holders Amounts paid to policy holders Amounts received/(paid) Reinsurers Amounts commission paid as to (13,207,483) _ (309,142) (15,583,363) 100,004 (230,833) 355,744 39,821,183 29,453,152 (312,168) (5,417,619) (384,636) (4,136,736) (12,053,422) 54,747,190 (5,414,218) 2009

Payments to employees 303,213 and suppliers Deposit with RBI Income Tax paid Other Income Net cash from

operating activities CASH FLOW FROM INVESTING

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FINACIAL STATEMENT ANALYSIS
ACTIVITIES (2,177,582) (581,822) 319 (39,057,231) 3,805,029 745,975

Purchase of fixed assets 5,444 Sale of fixed assets Investments (net) Interest income Dividend income Net cash flow from investing activities (42,823,481) (48,767,468) 4,817,558 1,338,737

(35,087,730)

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

equivalents

beginning of the year Cash and cash

equivalents at the end of the year

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FINACIAL STATEMENT ANALYSIS
NOTE: CASH AND CASH 2010 2009

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

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.

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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
COMPARATIVE FINANCIAL STATEMENTS Table 4.16 - Comparative Balance Sheet 31st march 31st march Absolute 2009 SOURCES OF FUNDS Share capital Reserves and surplus Credit/(Debit) fair value change account POLICY FUNDS Credit/(debit) fair value (296,885) change account Policy liabilities Total Provision for linked 68,782,936 liabilities Fund for future 531,970 future 1,064,831 532,861 100.10 586,395 155,217,800 86,343,864 88.57 1,490,013 903,618 154.10 29,092,419 205,087 37,666,908 -91,798 8,574,489 (30.92) 29.47 HOLDER¶s (77,610) 184,435 262,045 337.64 17,958,180 552,892 19,680,000 552,892 1,721,820 9.5 2010 increase

Item

Percentage

appropriations Fund for

appropriationsProvision policies Total APPLICATION OF 117,130,297 216,061,966 for lapsed

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FINACIAL STATEMENT ANALYSIS
FUNDS INVESTMENTS Shareholder¶s Policy holder¶s Assets held to cover linked 68,782,936 liabilities Loans Fixed assets Current assets Cash and bank balances Advances and other assets Sub total A Current liabilities Provisions Sub total B Net current assets C= AB Debit balance in profit and loss account Total 117,130,297 216,061,966 11,913,122 14,664,966 4,108,660 5,428,699 9,537,359 8,820,225 208,813 9,029,038 508,321 2,826,362 4,917,758 7,744,120 12,281,585 187,617 12,469,202 (4,725,082) 3,461,360 (21,196) 39.24 10.15 (1,282,298) (31.21) (510,941) (9.41) 30,248 1,451,346 155,217,800 86,434,864 125.66 40,366 1,143,777 10,118 (307,569) 33.45 (21.19) 4,291,597 30,152,727 6,304,757 43,415,382 2,010,160 46.84

13,262,655 43.98

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FINACIAL STATEMENT ANALYSIS
Table 4.17 - Comparative profit and loss account Particulars 31st march 31st march Absolute 2009 Amounts transferred from holders account(technical account) Income investments a. Interest, dividends 13,924 and rent - gross b. Profit on (35,870) of 51,887 on of (2,965) 329,343 (2,634) 335,133 3,522 3,222 1074 331 11.16 51,887 100 (487) (35,383) (98.64) 49,152 35,228 253.00 from 302,367 289,102 (13,625) (4.39) the policy 794,984 472,930 (322,054) (40.5) 2010 increase/decrease Percentage

sale/redemption investments. c. (Loss

sale/redemption investments.)

d. Transfer/gain on 300 revaluation/ in fair value e. Amortization of change

(premium)/ discount on investments Sub Total

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FINACIAL STATEMENT ANALYSIS
Other income Total A Expenses other than those directly related to the insurance 5,307 6,148,951 to 3,981 3,559,448 (1326) (2,589,503) (24.98) (42.11) 1,124,627 811,585

business Contribution

policy holder¶s fund Total B Profit/loss before tax Provision for taxation Profit/loss after tax 6,154,258 3,563,429 (45.29) (45.29)

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

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

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FINACIAL STATEMENT ANALYSIS
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. 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.

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FINACIAL STATEMENT ANALYSIS
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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FINACIAL STATEMENT ANALYSIS
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. 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.

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FINACIAL STATEMENT ANALYSIS
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 ³Rewards and Recognitions´ program to motivate the employees.

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