MINOR PROJECT REPORT

Submitted in partial fulfillment of the requirements

for the award of the degree of

Submitted by

RITESH GOYAL
(0211931806)
Submitted to

Mrs. MADHU ARORA

September 2007
(Affiliated to GGSIP University, Delhi)
Narela, Delhi 110 040
1

ACKNOWLEDGEMENT

The present report is based on A Financial Analysis OF HDFC Standard

Life Insurance
It gives me immense pleasure to express my heart felt gratitude and sincere
appreciation to acknowledge all those who helped me, in making this report
a real success. I would like to thank my project guide Mrs. Madhu Arora,
lecturer in Kasturi Ram College Of Higher Education, Delhi without whom
this project report would not be possible.
I am also very thankful to my parents, all my colleagues, and staff member
of HDFC Bank who provide me their much needed support and inspiration
in preparing this project report.

RITESH GOYAL
0211931806
BBA (B&I), KRCHE

CERTIFICATE
This is to certify that Mr. Ritesh Goyal has accomplished the project title A
Financial Analysis Of HDFC Standard Life Insurance under my
supervision and guidance.
He has submitted his project in the partial fulfillment of requirement for the
reward of degree of BBA (B&I) from Guru Gobind Singh Indraprastha
University.
This work has not submitted anywhere else for the award of degree. All
sources of information have been duly mentioned.

PROJECT GUIDE
Mrs. Madhu Arora
Faculty Member, KRCHE

CONTENTS
PAGE NO
1. INTRODUCTION
1.1. Introduction of Study
1.2. Objective of Study

5-7
6
7

2. INTRODUCTION OF HDFC STANDARD LIFE INSURANCE 8-19

2.1. History of HDFC Ltd
9
2.2. History of Standard life
12
2.3. The Joint Venture
12
2.3.1. Board of Directors
13
2.3.2. Subsidiary Company
14
2.4. Key Strengths
15
2.5. Products of HDFC Standard Life Insurance
16
2.6. Life Stage in HDFC insurance plan
16
3. FINANCIAL STATEMENT (01.04.2006-31.07.2007)
3.1. MEANING OF FINANCIAL STATEMENT
3.2. BALANCE SHEET
3.3. PROFIT & LOSS ACCOUNT
3.4. REVENUE ACCOUNT
3.5. CASH FLOW STATEMENT
3.6. SCHEDULES OF ACCOUNTS

20-33
21
26
27
28
29
30

4. ANALYSIS OF FINANCIAL STATEMENT

4.1. Meaning of Financial Statement Analysis
4.2. Study of Balance-sheet
4.3. Study of Profit & Loss Account
4.4. Meaning of Ratio Analysis
4.5. Calculation of Ratios
4.6. Study of Ratios
4.7. Study of Cash flow Statement
4.8. Graphs

34-52
35
36
41
42
46
48
50
51

5. CONCLUSION

53-54

6. BIBLOGRAPHY

55-56

1.1 Introduction Of Study

Nothing is permanent but change. How true these words are, especially
when we look at the market world which full of changes. Marketing scenario
is how very much different from the 10 years ago. Now the patterns have
been change for marketing and new things and techniques are introduced
continuously and that is the reason, this survey is conducted & report has
been made for knowing the current scenario of marketing which is adapted
by few top ranking banks in the banking sector.
This report is based on the marketing strategies of one of the top ranked
banks (HDFC Banks) in banking sector to know the current market scenario.
While writing this report, I have tried my level best to keep its language
simple and explanatory for the user that can understand easily.
This report contains the following:
Profile
Annual Report
Financial analysis
Conclusion

This report is made to help the user in enhancing the overview of todays
market scenario of banking sector, which is fastest growing sector in the
market. No report can ever be complete on any topic. Therefore I look
forward to all the constructive feedback and suggestions for the
improvement.

1.2 Objective Of Study

To study about HDFC standard life insurance and its related aspects
like its product & services, organizational structure, subsidiary
companies etc.
To learn about Balance Sheet, different types of assets & liabilities.
Depiction of financial position of HDFC standard life insurance with
the help of Balance Sheet.
The purpose is to portray the financial position of HDFC standard life
insurance
To evaluate the financial soundness of HDFC standard life insurance.
To evaluate stability of HDFC standard life insurance.
To evaluate liquidity of HDFC standard life insurance.

2.1. HDFC
The Housing Development Finance Corporation Limited (HDFC Bank) was
incorporated in 1977 with a share capital of Rs. 10 crores and the primary
objective of meeting a social need that of promoting home ownership by
providing long-term finance to households for their housing needs; HDFC
has since emerged as the largest residential mortgage finance institution in
the country. The Bank commenced operations as a Scheduled Commercial
Bank in January 1995. HDFC was amongst the first to receive an 'in
principle' approval from the Reserve Bank of India (RBI) to set up a bank in
the private sector, as part of the RBI's liberalization of the Indian Banking
Industry in 1994. The corporation has had a series of share issues raising its
capital to Rs. 119 crores. The net worth of the corporation as on March 31,
2000 stood at Rs. 2,096 crores.
HDFC operates through 75 locations throughout the country with its
Corporate Headquarters in Mumbai, India. HDFC also has an international
office in Dubai, U.A.E., with service associates in Kuwait, Oman and Qatar.
HDFC Bank has a network of over 531 branches spread over 228 cities
across India. All branches are linked on an online real-time basis. HDFC
Banks Customers are serviced through Telephone Banking in over 120

10

locations. The Bank also has a network of about over 1054-networked ATMs
across these cities. HDFC Bank's ATM network can be accessed by all
domestic and international
Visa
MasterCard
Visa Electron
Maestro
Plus
Cirrus and American Express Credit
Charge cardholders.

HDFC Bank has won many awards for its excellent service. Major among
them are "Best Bank in India" by Hong Kong-based Finance Asia magazine
in 2005 and "Company of the Year" Award for Corporate Excellence

2004-

2005.
The primary objective of HDFC is to enhance residential housing stock in
the country through the provision of housing finance in a systematic and
professional manner, and to promote home ownership. Another objective is
to increase the flow of resources to the housing sector by integrating the
housing finance sector with the overall domestic financial markets.
11

HDFCs main goals are to

Develop close relationships with individual households,
Maintain its position as the premier housing finance institution in the
country,
Transform ideas into viable and creative solutions,
Provide consistently high returns to shareholders,
To grow through diversification by leveraging off the existing client
base.
HDFC has always been market-oriented and dynamic with respect to
resource mobilization as well as its lending programmed. This renders it
more than capable to meet the new challenges that have emerged. Over the
years, HDFC has developed a vast client base of borrowers, depositors,
shareholders and agents, and it hopes to capitalize on this loyal and satisfied
client base for future growth. Internal systems have been developed to be
robust and agile, to take into account changes in the volatile external
environment.
HDFC has developed a network of institutions through partnerships with
some of the best institutions in the world, for providing specialized financial

12

services. Each institution is being fine-tuned for a specific market, while

offering the entire HDFC customer base the highest standards of quality in
product design, facilities and service.

2.2. Standard Life

Standard Life is Europe's largest mutual life assurance company. Standard
Life, which has been in the life insurance business for the past 175 years, is
a modern company surviving quite a few changes since selling its first
policy in 1825. The company expanded in the 19th century from its original
Edinburgh premises, opening offices in other towns and acquiring other
similar businesses.
Standard Life currently has assets exceeding over 70 billion under its
management and has the distinction of being accorded "AAA" rating
consequently for the past six years by Standard & Poor.

2.3. The Joint Venture

HDFC Standard Life Insurance Company Limited was one of the first
companies to be granted license by the IRDA to operate in life insurance
sector. Each of the JV player is highly rated and been conferred with many
awards. HDFC is rated 'AAA' by both CRISIL and ICRA. Similarly,

13

Standard Life is rated 'AAA' both by Moody's and Standard and Poors.
These reflect the efficiency with which HDFC and Standard Life manage
their asset base of Rs. 15,000 Crores and Rs. 600,000 Crores respectively.
HDFC Standard Life Insurance Company Ltd was incorporated on 14th
August 2000. HDFC is the majority stakeholder in the insurance JV with
81.4 % stake and Standard Life has a stake of 18.6%. Mr. Deepak
Satwalekar is the MD and CEO of the venture.
HDFC Standard Life Insurance Company Ltd. is one of India's leading
private insurance companies, which offers a range of individual and group
insurance solutions. It is a joint venture between Housing Development
Finance Corporation Limited (HDFC Ltd.), India's leading housing finance
institution and a Group Company of the Standard Life, UK. HDFC as on
March 31, 2007 holds 81.9 per cent of equity in the joint venture
2.3.1 Board Of Directors
Following are the board of directors of HDFC Standard Life Insurance LTD.
Mr. Deepak S. Parekh (CHAIRMAN)
Mr. K. M. Mistry
Ms. Renu Sud Karnad

14

 Mr. A. M. Crombie
Ms. Marcia D. Campbell
Mr. Norman Keith Skeoch
Mr. G. R. Divan
Mr. Ranjan Pant
Mr. Ravi Narain
Mr. Gerald Edgar Grimstone
Mr. D. M. Satwalekar (MANAGING DIRECTOR & C.E.O)
2.3.2 Subsidiary Companies
Following are the some subsidiary companies of HDFC Standard Life
Insurance LTD.
HDFC Limited (Holding Company)
Standard Life Assurance Company (Investing Party)
HDFC Asset Management Company Limited (Fellow Subsidiary)
HDFC Developers Limited (Fellow Subsidiary)
HDFC Holdings Limited (Fellow Subsidiary)
HDFC Trustee Company Limited (Fellow Subsidiary)
HDFC Realty Limited (Fellow Subsidiary)

15

 HDFC Investment Limited (Fellow Subsidiary)

HDFC Chubb General Insurance Company Limited (Fellow
Subsidiary)
GRUH Finance Limited (Fellow Subsidiary)
Home Loan Service India Private Limited (Fellow Subsidiary)
HDFC Venture Capital Limited (Fellow Subsidiary)
HDFC Venture Trustee Company Limited (Fellow Subsidiary)
HDFC Property Ventures Limited (Fellow Subsidiary)

2.4. Our Key Strengths

Financial Expertise
As a joint venture of leading financial services groups, HDFC Standard Life
has the financial expertise required to manage our long-term investments
safely and efficiently.
Range of Solutions
They have a range of individual and group solutions, which can be easily
customized to specific needs. There group solutions have been designed to
offer us complete flexibility combined with a low charging structure.

16

Track Record so far

There gross premium income, for the year ending March 31, 2007 stood at
Rs. 2, 856 crores and new business premium income at Rs. 1,624 crores.
The company has covered over 8,77,000 lives year ending March 31, 2007

2.5. Products Of HDFC Standard Life Insurance

HDFC Standard Life Insurance has offered the following products: Money Back
Endowment
Term Assurance Plan
Flexible Bond
Development Insurance Plan
Group Term Plan
Loan Cover Term Assurance
Childrens Plan

2.6. Life Stages In HDFC Insurance Plan

Insurance need will change as our life does, from starting to work to
enjoying our golden years and all the stages in between. Each one of these

17

stages may pose a different insurance need/cover for us. There are basic life
stages, which help us to analyze various insurance needs accordingly.

Stage 1
Young and Single
An important stage where one lays down the foundation of a successful
life ahead. Take advantage of the time and power of compounding to
ensure that you build up your dreams. Start saving early.
Our needs
o Save for a home and wedding
o Tax planning
o Save for golden years

Stage 2
Just married
Marriage brings about a significant change. New dreams and new
opportunities also bring in additional responsibilities. While both of us
look forward to a happy and secure life, it is equally important to ensure
that eventualities dont come in the way of shaping your dreams.
Our needs
18

o Planning for home / securing your home loan liability

o Save for vacation
o Save for your first child

Stage 3
Proud Parents
Once we have children, our need for life insurance is even more. We need
to protect our family from an untoward incident. Ensure our protection
umbrella takes into account the future cost of securing our childs dream.
We will want life to go on for your loved ones, and having enough life
insurance is a way to help ensure that.
Our needs
o Provide for childrens education
o Safeguarding family against loan liabilities
o Savings for post-retirement

Stage 4
Planning for Retirement
While we are busy climbing the ladder of success today, it is important
for us to take time and plan for our life after retirement. Having an early
19

start for retirement planning can make a significant difference to our

savings. Think about our golden years even before we have reached
them. The key is to think ahead and plan well using your time and
money.
Our needs
o Provide for regular income post retirement
o Immediate Tax benefits
o Lead a secure, independent and comfortable life style in
your retirement years

20

21

3.1

Meaning Of Financial Statement

Financial statement are the summarized statements of accounting data

produced at the end of the accounting process by an enterprise through
which it communicates the accounting information to the internal
(management) and external users. The external users can be investors,
lenders, suppliers and trade creditors, customers, government and their
agencies and employees. According to American Institute Of Certified
Public Accountants (AICPA), Financial statements are prepared for the
purpose of presenting a periodical review or report on progress made by the
management and deal with the status of investment in the business and the
result achieved during the period under review. A set of financial statement
includes: Balance Sheet
It is a statement of assets and liabilities, i.e., financial position of an
enterprise at a given date it is also known as Position Statement
Profit and Loss Accounts
It shows the net result of business operation during an accounting period.
It is also known as Income Statement
Schedules and Notes to Accounts

22

The Balance Sheet and Profit and Loss Account are supported by the
Schedules having details of items in the Balance Sheet and Profit and
Loss Account, while the notes to accounts are the statement of accounting
policies and explanation to material items.
Characteristics of financial statement
The characteristics of financial statements are: Financial statements relate to past period and thus, are historical
documents
The statements are expressed in monetary terms
The financial statement shows financial position through Balance
Sheet and profitability through Profit and Loss Accounts.
Nature of financial statement
The information and data included in the financial statement are the result of
the combination of: Recorded Facts
The term Recorded Facts means recording of transactions based on
evidences in the accounting books i.e., figures related to cash in hand,
cash at bank, debtors, sales, purchase, creditors etc. The financial

23

statement being statements prepared on the basis of recorded facts, they

do not depict the unrecorded facts.
Conventions
Certain accounting conventions are followed while preparing financial
statement, for example, on account of convention of conservatism
provision is made of expected losses but expected profit are ignored. This
means that the real financial position of the business may be better than
what has been shown by financial statements. The convention of
materiality is followed in dealing with small items like pen, pencils,
postage stamps, etc. These items are considered as expenditure in the
year in which they are purchased even though they are assets in nature.
The use of accounting conventions makes financial statements simple,
comparable and realistic.
Accounting Concept
While preparing financial statement the accountants make a number of
assumptions known as Accounting Concept such as going concern
concept, money measurement concept, realization concept, etc.
According to going concern concept it is assumed that business of the
concern shall be continued indefinitely. The assets are shown in the
Balance Sheet at their book value rather than their market value. Money

24

measurement concept assumes that the value of money will remain same
in different periods. The realization concept requires that revenue is
earned in the year in which the sales was undertaken even though sale
price may be received in a number of years.
Personal Judgment
Personal judgments also have an important bearing on a financial
statement. For example, the choice of selecting a method of depreciation
(fixed installment or written down value) lies on the accountant.
Similarly, selection of the inventory valuation method also depends on
the personal judgment of the accountant.
Objectives of financial statement
The institute of Charted Accountant of India has stated that the objective of
the financial statements is to provide, Information about the financial
position, performance and cash flow of an enterprise that is useful to a wide
range of users in making economic decisions. The objectives of financial
statement are: To provide financial data on economic resources and obligations of an
enterprise

25

 To reveal implication of operating profit on the financial position of

an enterprise
To provide sufficient and reliable information to various parties
interested in financial statements
To present true and fair view of the business
To serve as the basis of future operations.

26

3.2

BALANCE SHEET
AS ON 31 MARCH, 07
LIABILITY

SOURCES OF FUND:
SHAREHOLDERS FUND:
Share capital
Share application money
Reserve & Surplus
Credit\(debit) fair value change
BORROWINGS
POLICYHOLDERS FUNDS:
Credit \(Debit) fair value change
Policy Liabilities
Insurance Reserves
Linked Liabilities
Add: fair value change
Future appropriation- provision
CURRENT LIABILTY
PROVISION
TOTAL

2006-07
(Rs. 000)
8,007,148
287,391
65,902
----

91,247
17,391,531
----25,934,264
2,582,499

2005-06
(Rs. 000)

ASSETS

APPLICATION OF FUNDS
INVESTMENTS
6,192,718 Shareholders
----Policyholders
65,902 Assets to cover linked liability
73,105 Loans
Fixed Assets
CURRENT ASSETS
209,569 Cash & Bank Balance
11,487,996 Advances & Other Assets
------9,732,781 SHAREHOLDERS ACCOUNT
2,203,309

59,485

25,516

3,874,652
30,845

2,658,567
28,729

58,324,964 32,678,192

TOTAL

27

2006-07
(Rs. 000)

2005-06
(Rs. 000)

1,529,743 1,380,910
17,782,866 11,695,010
28,516,763 11,936,090
12,638
29,356
736,054
601,345
3,363,556
1,961,980

2,879,622
990,106

4,421,364

3,165,753

58,324,964 32,678,192

3.3

PROFIT & LOSS ACCOUNT

AS ON MARCH 31, 2007

SHAREHOLDERs ACCOUNT (NON-TECHNICAL ACCOUNT)

PARTICULARS

2006-07
(Rs. 000)

2005-06
(Rs. 000)

INCOME FROM INVESTMENTS

(a) Interest, Dividend & Rent Gross
(b) Profit on sale \ Redemption of investments
(c) Loss on sale \ Redemption of investment
(d) Transfer \ gain on revaluation \ change in fair value
(e) Amortisation (charge) \ credit
Other Income
TOTAL (A)

126,836
114,192
(12,470)
(23,909)
(2,375)
764
203,038

138,496
7,989
(6,933)
(6,594)
(8,926)
3,650
127,682

Expenses Other Than Those Directly Related To The Insurance Business

Bad Debts Written Off
Contribution to the policyholders fund
TOTAL (B)

8,252
-----1,450,397
1,458,649

18,251
----1,397,003
1,415,254

PROFIT \ LOSS BEFORE TAX [(A)-(B)]

PROVISION FOR TAX
PROFIT \ LOSS AFTER TAX
ADD: BALANCE AT THE BEGINNING OF THE PERIOD
PROFIT \ LOSS CARRIED FORWARD TO THE BALANCE SHEET

(1,255,611)
------(1,255,611)
(3,165,753)
(4,421,364)

(1,287,572)
-----(1,287,572)
(1,878,181)
(3,165,753)

28

3.4

REVENUE ACCOUNT

AS ON MARCH 31, 2007

POLICYHOLDERs ACCOUNT (TECHNICAL ACCOUNT)
PARTICULARS
PREMIUM EARNED (NET)
(a) Premium
(b) Reinsurance Ceded
INCOME FROM INVESTMENT
(a) Interest, Dividend & Rent Gross
(b) Profit on sale \ redemption of investments
(c) Loss on sale \ redemption of investments
(d) Transfer \ gain on revaluation \ change in fair value
(e) Amortisation charge
OTHER INCOME
(a) Contribution from the Shareholders Account
(b) Other income
TOTAL (A)
Commission
Operating Expenses Related To Insurance Business
Fringe Benefit Tax
TOTAL (B)
Benefits Paid (Net)
Interim Bonuses Paid
Change in valuation of liability against life policies in force
(a) Gross
(b) Amount Ceded in reinsurance
TOTAL (C)
SURPLUS \ (DEFICIT) BEFORE BONUS ALLOCATION [(A)-(B)-(C)]
APPROPRIATION
Funds for future appropriation provision for lapsed policies unlikely to be revived
29

2006-07
(Rs. 000)

2005-06
(Rs. 000)

28,558,656
(332,408)

15,699,126
(229,625)

1,589,497
1,043,415
(411,914)
101,405
(65,762)

689,655
944,930
(14,974)
2,158,993
(60,160)

1,450,397
232,997
32,166,283
2,099,268
5,767,403
35,784
7,902,455
1,745,350
300

1,397,003
232,709
20,817,657
1,203,252
3,984,948
26,791
5,214,991
448,337
417

22,625,262
(141,054)
24,229,858
33,970

15,247,633
(119,237)
15,577,150
25,516

33,970

25,516

3.5

CASH FLOW STATEMENT

PARTICULARS

CASH FLOW FROM OPERATING ACTIVITIES

Amount received from policy holders
Amount paid to policy holders
Amount received \ (paid) to reinsurer
Amount paid to distribution partners
Cash payment to employee and suppliers
Deposit with Reserve Bank Of India
Investment income
Other income
Net cash from operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets
Sale of fixed assets
Proceeds from Sale or Maturity of Investment
Purchase of Investment
Net cash flow from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Issue of Share During the Year
Share application money received pending allotment
Net Cash From Financing Activities
Net Increase in cash & cash equivalents
Cash & Cash Equivalents as at the beginning of the year

2006-07
(DETAIL)

2006-07
(Rs.000)

28,492,873
(1,708,312)
(217,789)
(2,064,017)
(6,467,443)
(4)
1,541,366
384,782

2005-06
(DETAIL)
15,642,471
(435,195)
(265,037)
(1,172,248)
(2,742,762)
(73,570)
673,038
417,966

19,961,456
(372,874)
-----65,891,941
(87,096,589)

12,044,663
(496,658)
996
22,244,811
(34,647,719)

(21,577,522)
1,812,609
287,391

(12,898,570)
3,000,000

2,100,000
483,934
2,879,622
30

2005-06
(Rs.000)

3,000,000
2,146,093
733,529

CASH & CASH EQUIVALENTS IN THE END OF THE YEAR

AS ON MARCH 31, 2007

3,363,556

31

2,879,622

3.6

SCHEDULES OF ACCOUNT
PARTICULARS

2006-07
(Rs. 000)

2005-06
(Rs. 000)

SCHEDULE 1
PREMIUM
First year premium
Renewal premium
Single premium
Total premium

13,164,385 8,254,735
12,070,128 5,272,607
3,324,143 2,171,784
28,558,656 15,699,126

SHEDULE 2
COMMISSION EXPENSES
Agents
Brokers
Corporate Agency
Referral
Total

970,774
16,371
1,111,327
796
2,099,268

689,408
6,206
506,785
853
1,203,252

SCHEDULE 3
OPERATING EXP RELATED TO BUSINESS
Employees remuneration & welfare benefits
Travel, conveyance & vehicle running expenses
Training expenses
Rent, rate & taxes
Repairs
Printing & stationery
Communication expenses
Legal & professional charges
Medical Fees
Auditors fees, expenses
Advertisement & Publicity
Interest & Bank charges
Others
Service tax
Total

1,905,428
160,255
430,282
234,800
37,807
121,130
193,752
290,842
39,587
1,102
924,383
11,391
1,261,487
155,157
5,767,403

1,117,923
105,088
218,630
168,525
25,005
95,130
143,743
150,038
32,634
1,121
866,042
4,962
943,009
113,098
3,984,948

32

SHEDULE 4
BENEFITS PAID [NET]
Claims by death
Money back payment
Annuities \ Pensions in payment
Vesting of pension policy
Surrenders
Critical illness
Permanent & partial disability
Withdrawals
Others
Total
SHEDULE 5
SHARE CAPITAL
Authorized capital (equity share of Rs.10 each)
Issued capital (equity share of Rs.10 each)
Subscribed capital (equity share of Rs.10 each)
Preliminary expenses (including commission)
Total
SHEDULE 6
LOANS
Secured
a) On mortgage property
b) Loans against policies
c) Others (vehicles)
Unsecured
Total
SHEDULE 7
FIXED ASSETS
Intangible assets (computer software)
Building
Furniture & Fittings
Informational technology equipment
Office equipment
Total
Capital work in progress

107,788
122,414
8,610
8,820
881,684
172
65
615,797
-------1,745,350

80,140
4,934
9,019
-----2,39,305
14
-----112,102
2,823
448,337

15,000,000 15,000,000
8,300,000 6,200,000
8,012,609 6,200,000
(5,461)
(7,282)
8,007,148 6,192,718

2,314
8,426
229
1,669
12,638

4,017
24,894
----445
29,356

26,341
13,648
252,769
209,559
225,191
727,508
8,546

46,009
13,895
192,714
174,962
167,471
595,051
6,294
33

Grand total
SHEDULE 8
CASH & BANK BALANCE
Cash (including cheques in hand, draft, stamps)
Bank Balance Current Account
Monet at call & Short Notice with Banks
Total
SHEDULE 9
ADVANCES & OTHER ASSETS
ADVANCES
1) Prepayments
2) Advance tax paid and taxes deducted at source
3) Others
a) Advances for fixed Assets
b) Security Deposits
c) Advances to employees
d) Other advances
OTHER ASSETS
1) Income accrued on investments
2) Outstanding premiums
3) Agents Balances
4) Due from other entities
5) Due from Subsidiary/holding Company
6) Deposit with Reserve Bank Of India
7) Others
a) Sundry Debtors
b) Due from investing company
c) Service tax unutilized credits
Total
SHEDULE 10
CURRENT LIABILITIES
Agents Balance
Balance due to other insurance company
Premium received in advance
Unallocated premium

736,054

601,345

765,833
1,182,280
1,415,443
3,363,556

514,618
1,753,404
611,600
2,879,622

91,504
5,952

30,108
114

6,758
290,658
411
31,022

3,169
146,239
10
10,063

414,464
761,825
21,386
44,966
12
100,004

239,497
404,259
512
16,906
---100,000

1,463
18,304
173,251
1,961,980

1,629
23,000
14,600
990,106

162,083
197,545
451,850
432,471

105,958
54,866
83,447
509,091
34

Sundry creditors
Claims outstanding
Others
a) Tax deducted to be remitted
b) Service tax liability
b) Security deposits
c) Investment purchased- to be settled
Total
SHEDULE 11
PROVISIONS
Wealth tax
Gratuity
Leave encashment
Fringe benefit tax
Standard loans
Total

1,324,021
55,562

900,441
18,223

168,121
---21,441
1,061,558
3,874,652

58,874
41
21,441
906,185
2,658,567

125
5,660
24,328
715
17
30,845

127
4,794
21,494
2,314
---28,729

35

36

4.1 Meaning of Financial Statement Analysis

Analysis of financial statement is a systematic process of the critical
examination of the financial information contained in the financial statements in
order to understand and make decisions regarding the operations of the firm. The
Analysis of Financial statements is a study of relationship among various
financial facts and figures as set out in the financial statements, i.e., Balance
Sheet and Profit and Loss Account. The complex data given in these financial
statements is divided/broken into simple and valuable elements and relationships
are established between the elements of the same statement or different financial
statements. This process of division, establishing relationship and interpretation
thereof to understand the working and financial position of a business is known
as analysis of Financial Statements. According to Myer, Financial statement
analysis is largely a study of relationships among the various financial factors in
a business, as disclosed by a single set of statements, and a study of trends of
these factors, as shown in a series of statements. According to Kennedy and
Muller, The analysis and interpretation of financial statements are an attempt
to determine the significance and meaning of financial statement data so that the
forecast may be made of the prospects for future earnings, ability to pay interest
and debt maturities (both current and long-term) and profitability and dividend
policy.

37

4.2 Study Of Balance Sheet

A Balance sheet is a snap shot of a business financial condition at a specific in a
time, usually at the close of an accounting period. A Balance sheet has the record
of companies Assets, Liabilities & owner/shareholders equity. Assets & liability
are divided into Short & Long-term obligation including cash account such as
checking, money market or government securities. At any given time assets
equal to liability plus owners equity (Assets = Liability + owners equity). As in
this Balance sheet (chapter-3.1) we got to know the financial position of the
company HDFC standard life insurance ltd. And we also able to know the
growth of the company from last year (2005-06) to current year (2006-07). After
studying the Balance sheet of HDFC standard life insurance we get to know the
financial position of the company by knowing the values of various assets and
liability

like Fixed assets-

Rs.3,363,556,000;

Current

Rs.736,054,000;

liabilities-

Cash &

Rs.3,874,652,000;

Bank balanceShare

capital-

Rs.8,007,148,000; Reserves and Surplus- Rs.65,902,000. After seeing above

values we got to know that company has increased every thing like fixed assets
share capital but the Reserve and Surplus account has no change that mean
company doesnt make any reserves this year
Need of Balance sheet

38

A Balance Sheet helps a small business owner quickly get a handle on the
financial strength and capabilities of the business. Is the business in a position to
expand? Can the business easily handle the normal financial ebbs and flows of
revenue and expenses, or should the business take immediate steps to bolster
cash reserves.
Balance sheets can identify and analyze trends, particularly in the areas of
receivables and payables. Is the receivables cycle lengthening? Can receivables
be collected more aggressively? Is some dept uncollectable? Has the business
being slowing down payables to forestall an inevitable cash shortage?
Balance sheets, along with income statements, are the most basic elements
providing financial reporting to potential lenders such as banks, investors,
vendors who are considering how much credit to grant the firm.
A Balance sheet contains two sides. And these sides are Assets and Liabilities
and owners equity
Assets
An asset is anything the business own has monetary value. Assets are sub
divided into current & fixed assets to reflect the ease of liquidity of each asset.
Cash & Bank Balance, for obvious reason is considered the most liquid of all
assets. Fixed assets, such as real estate or machinery are less likely to sell
39

overnight or have the capability to being quickly converted into a current asset
such as Cash & Bank.
1. Current Assets
Current Assets are any assets that can be easily converted into cash within one
calendar. Examples of current assets would be checking or money market
accounts, a receivables & notes receivables that area due within one-year time.
Cash
Money available immediately, such as in checking accounts, is the most
liquid in all short-term assets.
Accounts receivables
This money owed to the business for purchases made by customers, suppliers
& other vendors.
Notes receivables
Notes receivables are due within one year are assets. Notes that cannot be
collected on within one year should be considered long term assets.
2. Fixed Assets
Fixed assets include land, buildings, machinery, & vehicles that are used in
connections with the business.
Land

40

Land is considered a fixed asset but unlike other fixed assets is not
depreciated, because land is considered as an asset that never wears out.
Buildings
Buildings are categorized as fixed assets & are depreciated over time.
Office equipment
This includes office equipments such as copiers; fax machines; printers &
computers used in your business.
Machinery
This figure represents machines & equipments used in firms plant to
produce product. Examples of machinery might include lathes, conveyor
belts, or a printing press.
Vehicles
This would include all vehicles used in business.
Total Fixed Assets
This is the total value of all fixed assets in business, less any accumulated
depreciation.
Liabilities and owners equity
This includes all debts and obligations owed by the business to outside creditors,
vendors, or banks that are payable within one year, plus the owners equity often
this side of the balance sheet is simply referred to as Liabilities.
41

 Accounts payable
This is comprises of all short-term obligations owed by business to creditors,
suppliers, and other vendors. Accounts payable can include suppliers and
materials acquired on credit.
Notes payable
This represents money owed on a short-term collection cycle of one year or
less. It may include bank notes, mortgage obligations, or vehicle payments.
Accrued payroll and withholding
This includes any earned wages or withholdings that are owed to or for
employees but not yet have been paid.
Total current liabilities
This is the sum total of all current liabilities owed to creditors that must be
paid within one year time frame.
Long term liabilities
These are any debts or obligations owed by the business that are due more
than one year out from the current date.
Mortgage note payable
This is the Balance of mortgage that extends out beyond the current year. For
example: you may have paid off three year of a 15years mortgage note, of

42

which the remaining 11years not counting the current year, are considered
long term.
Owners equity
Sometimes this is referred to as stockholders equity. Owners equity is made
up of the initial investment in the business as well as any retained earnings
that are reinvesting in the business.
Common stock
This is stock issued as part of the initial or later stage investment in the
business.
Retained earnings
These are earnings reinvested in the business after the deduction of any
distributions to shareholders such as dividend payments.

4.3 Study of Profit and Loss Account

A Profit and Loss Account is an account, which shows the net profit or net loss
earned by the company during a particular period (mainly one year). The
companies Act, 1956 has not prescribed any form in which the profit and loss
account is to be prepared. However, the particulars and information to be given
in profit and loss account are laid in schedule VI, part II of the companies Act,
1956. As a result, in practice, profit and loss account is prepared in different
43

forms based on the requirements of the business and types of industry. Whatever
form of Profit and Loss Account may be, items of income and expenditure of the
business should be under the most convenient heads of account. The Profit and
Loss Account must exhibit a true and fair view of the profit and loss of the
company during the year under reference. As the profit and loss account of
HDFC standard life insurance limited shows the profit of Rs.4,421,364,000
(about four hundred fourty two crores). It shows the financial position of the
company, which is very good. It also shows the amount expended on various
activities and income received by various activities. The profit of the company is
increased from last year which is Rs.3,165,753,000 which shows increase of
Rs.1,255,611,000 which shows growth of 39.66% which is very good
achievement in business.

4.4 Meaning Of Ratio Analysis

Meaning of a Ratio
A Ratio is an arithmetical expression of relationship between two related or
inter dependent items. Ratios when, calculated on the basis of accounting
information, are called Accounting Ratio. Accounting Ratio is thus, an
arithmetical relationship between two accounting variables. But they assume
significance if these variables have cause and effect relationship. In brief

44

accounting ratios provide a quantitative relationship, which the analyst may use
to make a qualitative judgment about various aspects of financial position and
performance of an enterprise. According to J. Betty, The term accounting ratio
is used to describe significant relationships which exist between figures shown
in a Balance Sheet, in a Profit and Loss Account, in a budgetary control system
or in any part of the accounting organization.
Expression of Ratio
Accounting Ratios express the relationship between two financial variables of
the financial statements. They are expressed in anyone of the following forms: Pure
It is expressed as a quotient. For example Current Ratio, which expresses the
relationship between current asset and current liabilities. This type of
relationship shows in pure form (say 1:2)
Percentage
It is expressed in percentage. For example, gross profit ratio, which relates
gross profit to net sales. This type of relationship is shows as percentage (say
25%)
Times

45

It is expressed in a number of times a particular figure is compared to another

figure. For example, stock turnover ratio, which studies relationship between
costs of goods sold and average stock is (say) 4 times
Fraction
It is expressed in fraction. For example, ratio of fixed assets to share capital
is (say) (0.75).
Days
Ratio, sometimes, may be expressed in terms of days also. For example, the
average collection period is (say) 73days.
Types of Ratios
Ratios can be classified from various points of view. In reality, the classification
depends on the objectives and available data. Ratios may be based on amounts
in the Balance Sheet, in profit and loss account or in both. Thus, they may be
worked out on the basis of figures contained in the financial statements and,
therefore, may be classified as follows:
Income statement ratios
This ratio is calculated on the basis of the amounts of income statement
(profit and loss account) only.
Position statement ratio

46

This ratio is calculated on the basis of the amounts of position statement

(Balance Sheet) only.
Inter-statement ratios or composite ratios
This ratio is based on amounts of income statement as well as position
statement.
The above classification is rather crude and unsuitable because analysis of
balance sheet and profit and loss account cannot be carried out in isolation.
Therefore the ratios may also be classified as:
Liquidity Ratios
Solvency Ratios
Activity Ratios
Profitability Ratios
Meaning of Ratio Analysis
According to Myers, Ratio analysis is a study of relationship among various
financial factors in a business.
Ratio analysis is a technique of analyzing financial statements by computating
ratios. In other words, ratio analysis is a process of determining and interpreting
relationship between the items of financial statements to provide a meaningful
understanding of the performance and financial position of an enterprise. Ratio

47

analysis is an accounting tool to present accounting variables in a simple,

concise, intelligible and understandable form.
Objectives of Ratio Analysis
The objective of ratio analysis is to judge the earning capacity, financial
soundness and operating efficiency of a business organization. The use of ratios
in accounting and financial management analysis helps the management to know
the profitability, financial position (liquidity and solvency) and operating
efficiency of an enterprise.
Uses of Ratio Analysis
Useful in analysis of financial statement
Useful in simplifying accounting figures
Useful in judging the operating efficiency of business
Useful in forecasting
Useful in locating the weak spot
Useful in inter firm and intra firm comparisons

4.5 Calculation Of Ratio

1. Current Ratio
Current ratio= current assets\current liability

48

=5325536\3874652
Current Ratio= 1.37:1

2. Debt-equity Ratio
Debt-equity ratio=debt \ equity
=17482778 \ 8360441
Debt-equity ratio=2.09:1

3. Total Assets to Debt Ratio

Total Assets to Debt Ratio=Total assets \ Long term debts
= 58324964 \ 17482778
Total Assets to Debt Ratio= 3.37:1

4. Proprietary Ratio
Proprietary Ratio=(Shareholders Fund\ Total Assets) * 100
=(8360441\ 58324964) * 100
=0.1433 * 100
Proprietary Ratio=14.33%

49

4.6 Study Of Ratios

Current ratios
Current ratio is a relationship of current assets to current liabilities. Current
ratio is generally accepted that current assets should be 2 times the current
liabilities, and then only will realization from current assets be sufficient to
pay the current liabilities on time and enable the firm to meet other Day-today expenses. But the company has only 1.37 times the current assets to
current liabilities, which is not good for the company. The company needs to
improve the ratio for which they have to increase the current assets or
decrease the current liabilities.
Debt-equity ratio
The debt-equity ratio is computed to ascertain soundness of the long-term
financial policies of the firm. This ratio expresses a relationship between debt
(external equities) and the equity (internal equities). Debt-equity ratio
indicates the proportion between shareholders funds and the long term
borrowed funds. A higher ratio indicates the risky financial position while
lower the ratio indicates safer financial position. It is generally accepted as
2:1 but the company has 2.09:1 that is almost equal to the acceptable ratio, so
the company needs not to worry much about the ratio. But for much safer

50

financial position company needs to decrease the debt or increase the equity
of the company.
Total Assets to Debt Ratio
Total assets to debt ratio establish a relationship between total assets and total
long-term debts. It measures the safety margin available to the providers of
long-term debts. A higher the ratio represents higher security to lenders for
extending long-term loans to the business while lower the ratio represents the
risky financial position. The company has 3.37:1 debt equity ratio, which is
acceptable by the lenders and the company.
Proprietary Ratio
The objective of computing the proprietary ratio is to establish the
relationship between the proprietors fund and the total assets. Proprietary
ratio highlights the general financial position of the enterprise. Higher the
ratio better it is for all concerned. A ratio below 50% may be the alarming for
the creditors since they may have to lose heavily in the event of companys
liquidation on account of heavy losses. Company has only 14.33%
proprietary ratio, which is not good for the creditors and the company as the
creditors are in heavy risk to have losses as well as the company has a lot of
problem.

51

4.7 Study of Cash Flow Statement

Cash Flow is a statement that shows the net cash from various activities like
operating activities, investing activities, etc.

From the cash flows statement of HDFC Standard life insurance Ltd. We came
to know that its net cash from operating activities was increased from Rs.1, 2
04.47 crores to Rs.1, 996.15 crores that was an increment of Rs.791.68 crores
which are an increment of 65.73%, which is a fabulous achievement by the
company.

The net cash from investing activities was increased from Rs.-1289.86 crores to
Rs.- 2157.75 crores which is a increment of Rs.-867.89 crores which is a
increment of 67.29% which is again a fabulous achievement by the company.

The net cash from financing activities was decreased by Rs.90 crores, which is
again good for the company so the overall conclusion from the cash flow
statement was that the company is growing faster and superbly in the market,
which may be the sign of bright future of the company.

52

4.8 Graphs
1. Graph to show profit or loss made by the company in previous
year amount in (Rs.000)

200000

0
2002-03

2003-04

2004-05

2005-06

2006-07

-200000

-400000

-600000

profit & loss

-800000

-1000000

-1200000

-1400000

53

2. Graph to show the rate of share (100 shares) year by year

700

600

500

400
AMOUNT
300

200

100

0
2002-03

2003-04

2004-05

2005-06

2006-07

54

55

As we analyses the financial statement of HDFC Standard life insurance Ltd we

came to know that the company is having a fabulous growth in this year in
comparison to last year. But the overall conclusion is that the company is not in
sound financial position because the company had large amount of losses in last
year even the company has loss in this year too. But it is less than the last year
loss. Which result in the decrease in the rate of shares of HDFC standard life
insurance Ltd. (as shown in the graph). Which shows that investors are less
willing to invest in the company even they want to sell there shares in the
market as soon as possible. There is continuous decrease in the rate of share of
the company from last five years except the last year (2005-06).

Suggestions
The overall suggestion for the company is that they must launch various new
products and provide best services to the customer to make customer more
satisfy and then they can create goodwill in the market. And later on they can
earn huge profit for a long run. Afterwards the market share value will be
increased as the company can able to pay dividend to the shareholders.

56

57

MAGAZINES

1. Headlines Today
2. Economics Times
3. Business Today
WEBSITES

1. www.hdfcinsurance.com
2. www.hdfcbank.com
3. www.hdfc.com
4. www.hdfcfund.com

58