Ratio Analysis Of Life Insurance Companies

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Ratio Analysis of Life Insurance Companies in Bangladesh

(Insurance and Risk management: B-206)

Submitted to:

Mr. Md. Shahidul Islam Lecturer Department of Banking University of Dhaka

Submitted by:

Group 06 1. Md. Mezbaul Haider 2. Nazim Reza 3. Tauhidul Islam 4. Md. Mashroor Ali 5. Rafsan Mahtab 6. Jakir Hossain 7. Rezaur Rahman 8. Avijit Kumar Saha 9. Sharmin Sorker 10. Md. Mokbul Islam 16th Batch Department of Banking University of Dhaka 16-030 16-011 16-071 16-031 16-087 16-048 16-040 16-039 16-057 16-038

Date of Submission: 26th October, 2011

To Mr. Md. Shahidul Islam Course Instructor Insurance and Risk Management Course Code: B-206 Department of Banking Faculty of business studies University of Dhaka, Bangladesh.

Dear Sir, It gives us pleasure to submit the report on Ratio analysis of Life insurance Companies in Bngladesh. It was a fantastic opportunity for us to prepare the report under your guidance, which really was a great experience for us.

We have worked hard and tried our best to prepare the report. But due to some limitations we failed to collect more accurate data. We will be very pleased to provide further information if necessary.

Sincerely, Md. Mezbaul Haider (16-030) On behalf of the Group

Acknowledgement

To begin with, We would like to express our infinite gratitude towards Almighty Allah and our course teacher Mr. Md. Shahidul Islam, Lecturer, department of Banking, Faculty of Business Studies, University of Dhaka, to provide not only extremely well arranged guidelines to complete our report work but would also help us to confront problems in our future career. We would like to express our heartiest appreciation to our all classmates, who have been a constant support to us and have patiently helped us throughout our report. We wish to extend our thanks to the computer lab assistant and all the peers of the Department who made it possible to work comfortably even in tough times.

Table of Contents
SL 01 02 03 04 05 06 07 08 Topic Executive Summary Liquidity Measurement Ratios Profitability Indicator Ratios Debt Ratios Operating Performance Ratio Cash flow indicator Ratio Investment Valuation Ratios Conclusion Pages 01 02 03 05 07 09 11 12

Executive summary
Ratio is a way of expressing the relationship between one accounting result and another, which is intended to provide a useful comparison. Ratios assist in measuring the efficiency and profitability of a company based on its financial reports. Accounting ratios form the basis of fundamental analysis. The ratios can be used to evaluate the financial condition of a company, including the company's strengths and weaknesses.

Here our report is about Comparative ratio analysis of Life Insurance Companies. In this report different types of ratios are calculated and compared according to the standard norm, of eight pioneer and dominating life insurance companies in Bangladesh.

For each company ratios are demonstrated here in matrix structures with their results, for five years, for every ratio separately .

Introduction:
Various types of financial institutions exist in the economy of Bangladesh. Among these types insurance companies play a major role in our economy. These companies contribute a lot in the economy by diversifying risk among many people. There are two types of insurance companiesgeneral insurance companies and life insurance companies. The subject matter of this report is to analyze the performance of the life insurance companies of Bangladesh. Life insurance companies bear the risk of peoples lives. There are eight listed life insurance companies in Bangladesh. Their performance has been analyzed by calculating various ratios for five years. The necessary information for this ratio analysis has been collected from their respective annual reports.

Liquidity Measurement Ratios:

1. Current Ratio
The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. The concept behind this ratio is to ascertain whether a company's short-term assets such as cash, cash equivalents, marketable securities, receivables and inventory are readily available to pay off its short-term liabilities such as notes payable, current portion of term debt, payables, accrued expenses and taxes. In theory, the higher the current ratio, the better. Formula:

The current ratios of the listed life insurance companies of Bangladesh are presented belowName of Companies Delta Life Insurance Co. Ltd. 2006 4.02 : 1 2007 3.06 : 1 2.88 : 1 4.12 : 1 3.65 : 1 4.29 : 1 2.13 : 1 5.18 : 1 4.01 : 1 2008 5.75 : 1 4.92 : 1 3.57 : 1 5.51 : 1 5.46 : 1 3.98 : 1 4.63 : 1 5.23 : 1 2009 4.45 : 1 6.69 : 1 5.49 : 1 3.79 : 1 3.76 : 1 4.23 : 1 6.06 : 1 5.62 : 1 2010 7.89 : 1 7.95 : 1 6.68 : 1 2.97 : 1 5.97 : 1 3.11 : 1 5.37 : 1 5.21 : 1

Fareast Islami Life Insurance Co. 3.79 : 1 Ltd. 2.56 : 1 Prime Life Insurance Co. Ltd. Rupali Life Insurance Co. Ltd. Pragati Life Insurance Co. Ltd. Meghna Life Insurance Co. Ltd. Progressive Life Insurance Co. Ltd. Popular Life Insurance Co. Ltd. 2.35 : 1 2.46 : 1 1.92 : 1 3.84 : 1 2.95 : 1

Performance analysis:
Considering the above calculations, the year wise performance analysis of these companies, on the basis of current ratios, have been described below-

2006: In 2006, the top three life insurance companies holding the best current ratio, in other words
having the highest ability to pay off their short term liabilities are1. Delta Life Insurance company current ratio 4.02 : 1 2. Fareast Islami Life Insurance Company current ratio 3.79 : 1 3. Popular Life Insurance Company current ratio 2.95 : 1

2007: The top three life insurance companies in respect of current ratio in 2007 are1. Progressive Life Insurance Co. Ltd. current ratio 5.18 : 1 2. Pragati Life Insurance Co. Ltd. current ratio 4.29 : 1 3. Prime Life Insurance Co. Ltd. current ratio 4.12 : 1

2008: The top three life insurance companies in 2008 are

1. Delta Life Insurance Co. Ltd. current ratio 5.75 : 1 2. Rupali Life Insurance Co. Ltd. current ratio 5.51 : 1 3. Pragati Life Insurance Co. Ltd. current ratio 5.46 : 1

2009: The three companies holding highest current ratio in 2009 are
1. Fareast Islami Life Insurance Co. Ltd. current ratio 6.69 : 1 2. Progressive Life Insurance Co. Ltd. current ratio 6.06 : 1 3. Popular Life Insurance Co. Ltd. current ratio 5.62 : 1

2010: The best three companies in respect of current ratio in 2010 are
1. Fareast Islami Life Insurance Co. Ltd. current ratio 7.95: 1 2. Delta Life Insurance Co. Ltd. current ratio 7.89: 1 3. Pragati Life Insurance Co. Ltd. current ratio 5.97: 1

2. Quick Ratio:
The quick ratio also known as the acid-test ratio - is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position. The quick ratio is a more conservative measure of liquidity than the current ratio as it removes inventory from the current assets used in the ratio's formula. By excluding inventory, the quick ratio focuses on the more-liquid assets of a company. The basics and use of this ratio are similar to the current ratio in that it gives users an idea of the ability of a company to meet its short-term liabilities with its short-term assets. Another beneficial use is to compare the quick ratio with the current ratio. If the current ratio is significantly higher, it is a clear indication that the company's current assets are dependent on inventory.

Formula:

The quick ratios of the listed life insurance companies of Bangladesh are presented below-

Name of companies Delta Life Insurance Co. Ltd. Fareast Islami Life Insurance Co. Ltd. Prime Life Insurance Co. Ltd. Rupali Life Insurance Co. Ltd. Pragati Life Insurance Co. Ltd. Meghna Life Insurance Co. Ltd. Progressive Life Insurance Co. Ltd. Popular Life Insurance Co. Ltd.

2006 2.55 : 1 2.48 : 1 2.09 : 1 1.89 : 1 1.95 : 1 1.51 : 1 3.49 : 1 2.21 : 1

2007 3.1 : 1 2.56 : 1 3.74 : 1 3.13 : 1 3.81 : 1 1.86 : 1 4.03 : 1 3.63 : 1

2008 4.08 : 1 4.58 : 1 3.05 : 1 5.19 : 1 4.94 : 1 3.54 : 1 3.60 : 1 4.57 : 1

2009 2.77 : 1 5.91 : 1 4.37 : 1 3.28 : 1 3.31 : 1 3.90 : 1 4.68 : 1 5.09 : 1

2010 5.67 : 1 7.22 : 1 4.32 : 1 2.46 : 1 5.40 : 1 2.79 : 1 5.01 : 1 4.76 : 1

Performance analysis:
Considering the above calculations, the year wise performance analysis of these companies, on the basis of quick ratios, have been described below-

2006: In 2006, the top three life insurance companies holding the best quick ratio arei. ii. iii. Progressive Life Insurance company quick ratio 3.49 : 1 Delta Life Insurance Company quick ratio 2.55 : 1 Fareast Islami Life Insurance Company quick ratio 2.48 : 1 Progressive Life Insurance Co. Ltd. quick ratio 4.03 : 1 Pragati Life Insurance Co. Ltd. quick ratio 3.81 : 1 Prime Life Insurance Co. Ltd. quick ratio 3.74 : 1 Rupali Life Insurance Co. Ltd. quick ratio 5.19 : 1 Pragati Life Insurance Co. Ltd. quick ratio 4.94 : 1 Fareast Islami Life Insurance Co. Ltd. quick ratio 4.58 : 1 Fareast Islami Life Insurance Co. Ltd. quick ratio 5.91 : 1 Popular Life Insurance Co. Ltd. quick ratio 5.09 : 1 Progressive Life Insurance Co. Ltd. quick 4.68 : 1

2007: The top three life insurance companies in respect of quick ratio in 2007 arei. ii. iii.

2008: The top three life insurance companies in 2008 are

i. ii. iii.

2009: The three companies holding highest quick ratio in 2009 are
i. ii. iii.

2010: The best three companies in respect of quick ratio in 2010 are
i. ii.
iii.

Fareast Islami Life Insurance Co. Ltd. quick ratio 7.22 : 1 Delta Life Insurance Co. Ltd. quick ratio 5.67 : 1 Pragati Life Insurance Co. Ltd. quick ratio 5.40: 1

3. Cash Ratio:
Cash ratio is the ratio of cash and cash equivalents of a company to its current liabilities. It is an extreme liquidity ratio since only cash and cash equivalents are compared with the current liabilities. It measures the ability of a business to repay its current liabilities by only using its cash and cash equivalents and nothing else. Its standard value is 1:1 or above but not very high.

Cash Ratio: =

Cash +Cash Equivalents Current Liabilities

Calculation (%):
2006 Delta Life Insurance Company Meghna Life Insurance Pragati Life Insurance Progressive Life Insurance Fareast Islami Life Popular Life Insurance Prime Islami Life Insurance 325.83 709.26 387.89 235.81 316.46 462.37 381.44 2007 426.02 692.74 379.11 271.00 319.72 478.81 406.76 2008 489.36 687.29 381.43 346.01 326.25 473.98 413.63 2009 553.473 688.08 364.00 396.32 323.96 476.03 406.31 2010 1356.79 673.31 333.65 426.24 328.71 479.36 411.92

Inference: As we can see here all of the companies have high cash ratio. In case of Meghna Life
Insurance Company it is most. They have cash ratio of around 7:1. This means to satisfy of one taka current liabilities they have seven taka of cash or cash equivalent. Popular Life insurance has also high cash ratio. But this kind of very high ration indicates that the firms have not invested in long term fields of earning and so they have lower return from their cash. But as an insurance company it also necessary to hold enough cash or cash equivalent so that they can meet the insurance claims quickly.

Profitability Indicator Ratio:

1. Return on Equity (ROE):
Return on equity or return on capital is the ratio of net income of a business during a year to its stockholders' equity during that year. It is a measure of profitability of stockholders' investments. It shows net income as percentage of shareholder equity. The higher the ratio is the better the firm is. Net Income Avg Shareholder s euity

ROE=

Calculation (%):
2006 Delta Life Company Insurance 38.78 34.02 21.48 29.38 37.46 38.12 Life 26.39 2007 34.14 39.36 32.00 32.26 40.37 37.25 29.78 2008 34.679 48.24 47.23 38.20 38.09 38.38 29.34 2009 39.23 47.21 42.37 38.86 41.67 39.95 31.89 2010 33.91 48.78 46.93 37.21 38.21 43.29 37.82

Meghna Life Insurance Pragati Life Insurance Progressive Life Insurance Fareast Islami Life Popular Life Insurance Prime Islami Insurance

Inference:
Here almost all of the firms have good ROE. Specially Meghna Life Insurance Company has the best one. Last three years they have maintain a good level of ROE. Progressive, Pragati and Prime Islami Life insurance have ROEs that fluctuate over years. But overall all of the firms have healthy ROE that indicates a good return from the share investment in these firms.

2. The Return on Capital Employed (ROCE):

The Return On Capital Employed (ROCE) ratio, expressed as a percentage, complements the return On Equity (ROE) ratio by adding a company's debt liabilities, or funded debt, to equity to reflect a company's total "capital employed". This measure narrows the focus to gain a better understanding of a company's ability to generate returns from its available capital base. By comparing net income to the sum of a company's debt and equity capital, investors can get a clear picture of how the use of leverage impacts a company's profitability. Financial analysts consider the ROCE measurement to be a more comprehensive profitability indicator because it gauges management's ability to generate earnings from a company's total pool of capital.

Calculation (%):
Companys name Delta Life Insurance Company Fareast Islami Life Insurance Meghna Life Insurance Popular Life Insurance Pragati Life Insurance Prime Islami Life Insurance Progressive Life Insurance Rupali Life Insurance 2006 % 19.8 17.11 20.23 21.3 17.29 16.26 19.25 18.25 2007 % 18.14 16.21 21.22 20.21 15.26 17.24 17.24 17.23 2008 % 17.2 19.8 18.25 19.2 18.24 15.55 16.55 17.65 2009 % 17.8 20.12 19.19 17.24 15.63 15.25 16.45 16.36 2010 % 21.4 18.25 20.8 21.24 16.8 19.24 18.56 18.45

In 2006: In 2006 Popular life Insurance has higher ROCE it indicate that in this year they are dominating Insurance sector for capital Employed activities. In 2007: In 2007 Meghna Life Insurance has higher ROCE it indicate that in this year they are dominating Insurance sector for capital Employed activities. In 2008: In 2008 Fareast Islami Life Insurance has higher ROCE it indicate that in this year they are dominating Insurance sector for capital Employed activities. In 2009: In 2009 Fareast Islami Life Insurance has higher ROCE it indicate that in this year they are dominating Insurance sector for capital Employed activities. In 2010: In 20010 Delta Life Insurance Company has higher ROCE it indicate that in this year they are dominating Insurance sector for capital Employed activities.

3. Return On Asset (ROA):

This ratio indicates how profitable a company is relative to its total assets. The Return On Asset (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage.

Calculation:
Companys Name Delta Life Insurance Company Fareast Islami Life Insurance Meghna Life Insurance Popular Life Insurance Pragati Life Insurance Prime Islami Life Insurance Progressive Life Insurance Rupali Life Insurance 2006 12.8 13.25 11.25 12.63 13.52 14.20 12.42 11.52 2007 12.98 14.50 12.56 13.54 14.52 13.20 12.39. 12.36 2008 13.25 13.85 15.85 13.49 15.22 14.45 13.63 14.52 2009 12.75 12.96 13.63 14.29 14.80 17.51 14.62 12.33 2010 14.23 16.32 14.56 15.32 15.88 16.21 16.46 17.81

In 2006: In 2006 Prime Islami Life Insurance has higher ROA it indicate that in this year they are the most successful life insurance company in their operating activities. In 2007: In 2007 Pragati Life Insurance has higher ROA it indicate that in this year they are the most successful life insurance company in their operating activities. In 2008: In 2008 Meghna Life Insurance has higher ROA it indicate that in this year they are the most successful life insurance company in their operating activities. In 2009: In 2009 Prime Islami Life Insurance has higher ROA it indicate that in this year they are the most successful life insurance company in their operating activities. In 2010: In 2010 Rupali Life Insurance has higher ROA it indicate that in this year they are the most successful life insurance company in their operating activities.

4. Earnings per Share EPS

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. Calculated as:

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. Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. For example, assume that a company has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million, then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M). An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number.

Earnings per Share EPS (Ratio)

Company Name Delta Life Insurance Company Fareast Islami Company Life 2006 11506.43 2007 14197.90 2753.80 2008 15478.74 2951.45 2009 17514.78 3145.74 2010 18289.78 3374.27

Insurance 1702.67

Meghna Life Insurance Company Popular Life Insurance Company Pragati Life Insurance Company

1773.57 834.30 730

2640.42 2255.65 1173 2688.45 567.28 532.42

4604.61 3452.12 3214 3142.11 1200 652.74

6067.10 4289.94 5142 4120.45 1445.12 631.32

7451.47 6124.61 6410 5210.78 2247.12 720.11

Prime Islami Life Insurance Company 1482.20 Progressive Life Insurance Company Rupali Life Insurance Company 316 413.14

As calculated Earning Per Share we can say that the Delta Life Insurance Company has the highest EPS of all of the company this Ratio indicate that their financial strength is more stronger than other companies.

Debt Ratios
1. debt-equity ratio
The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.

Formula:

Variations: A conservative variation of this ratio, which is seldom seen, involves reducing a company's equity position by its intangible assets to arrive at a tangible equity, or tangible net worth, figure. Companies with a large amount of purchased goodwill form heavy acquisition activity can end up with a negative equity position.

Commentary: The debt-equity ratio appears frequently in investment literature. However, like the debt ratio, this ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities. Nevertheless, this easy-to-calculate ratio provides a general indication of a company's equity-liability relationship and is helpful to investors looking for a quick take on a company's leverage. Generally, large, well-established companies can push the liability component of their balance sheet structure to higher percentages without getting into trouble. The debt-equity ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage. For example, IBM's debt ratio of 69% seems less onerous than its debt-equity ratio of 220%, which means that creditors have more than twice as much money in the company than equity holders (both ratios are for FY 2005).

Debt-Equity Ratio
Company Name Delta Life Insurance Company Fareast Islami Life Company Meghna Life Insurance Company Popular Life Insurance Company Pragati Life Insurance Company Prime Islami Company Progressive Company Life 2006 1050.11 145.40 141.47 55.96 286.53 2007 1313.96 227.62 218.73 140.60 99.87 641.25 2008 1627.13 312.41 345.14 279.59 251.12 312.45 2009 1821.12 472.12 412.81 312.45 421.12 712.78 2010 1912.41 825.14 512.01 421.78 478.81 825.14

Insurance 90.35

Life

Insurance 42.95

5.33

31.45

124.12

210.71

Rupali Life Insurance Company

85.12

105.81

251.12

312.10

213.11

After calculating Debt Equity Ratio of Eight company we reach a decision that among the company Progressive life Insurance Company has less Debt-equity ratio that indicate they used less leverage and has a stronger equity position.

2. Debt ratio:
Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt. It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as 'goodwill') . A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on Debt ratio of six life insurance company for the year 2006 to 2010 : Company Popular Meghna Pragati Prime Islamic Progressive Delta Fareast Islamic 2006 14% 17% 18% 12% 13% 16% 11% 2007 13% 14% 10% 10% 9% 14% 10% 2008 11.5% 11% 9% 8.5% 8% 10% 9.5% 2009 9% 9% 8.5% 8% 7% 9% 8% 2010 8.5% 8% 7% 7% 6.5% 8% 7.5%

3. Cash flow to debt ratio:

This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. An increasing Cash Flow to Total Debt ratio is usually a positive sign, showing the company is in a less risky financial position and better able to pay its debt load. Cash flow to debt ratio of six life insurance company for the year 2006 to 2010 Company Popular Meghna Progoti Prime Islamic Progressive Fareast Islamic 2006 65% 62% 45% 58% 47% 53% 2007 72% 55% 60% 47% 62% 49% 2008 70% 43% 48% 63% 55% 65% 2009 52% 7o% 72% 71% 69% 49% 2010 75% 54% 56% 61% 67% 70%

4. Capitilization Ratio:
Capitalization ratios, also known as financial leverage ratios, are used to determine a companys stability by comparing its long-term debt with its current equity and assets. A capitalization ratio provides investors and analysts with information about the extent to which a company is using its equity to finance its operational costs, and to what extent it is incurring new debt to do so. Capitalization ratios provide an indication of the companys solvency and viability over the long term and allow more accurate risk assessments for prospective investors. Typically, a companys capitalization ratio is calculated by dividing the companys long-term debt by the sum of the long-term debt and the shareholders equity, as follows:

Calculation:
Company Popular Meghna Pragati Prime Islamic Progressive Delta Fareast Islamic 2006 90.16% 96.26% 85.47% 74.72% 96.07% 99.85% 95.75% 2007 85.41% 94.03% 79.47% 83.26% 67.99% 99.83% 62.44% 2008 89.65% 52.47% 87.72% 87.30% 78.50% 99.97% 68.07% 2009 91.26% 97.36% 92.77% 87.61% 92.04% 99.99% 94.81% 2010 95.90% 97.26% 94.82% 93.59% 94.47% 99.99% 95.47%

Operating Performance Ratio:

1. The fixed asset turnover ratio:
The fixed asset turnover ratio measures the company's effectiveness in generating sales from its investments in plant, property, and equipment. This ratio is often used as a measure in manufacturing industries, where major purchases are made for PP&E to help increase output. When companies make these large purchases, prudent investors watch this ratio in following years to see how effective the investment in the fixed assets was. Here is how the fixed asset turnover ratio is calculated:

There is no exact number that determines whether a company is doing a good job of generating revenue from its investment in fixed assets. This makes it important to compare the most recent ratio to both the historical levels of the company along with peer company and/or industry averages. Before putting too much weight into this ratio, it's important to determine the type of company that you are using the ratio on because a company's investment in fixed assets is very much linked to the requirements of the industry in which it conducts its business. Fixed assets vary greatly among companies. For example, an internet company, like Google, has less of a fixed-asset base than a heavy manufacturer like Caterpillar. Obviously, the fixed-asset ratio for Google will have less relevance than that for Caterpillar.

Calculation:
Company Popular Meghna Pragati Prime Islamic Progressive Delta Fareast Islamic 2006 10.92 0.18 16.93 3.80 8.94 7.05 7.64 2007 14.17 1.13 17.50 6.83 28.24 7.77 9.57 2008 17.78 18.91 20.89 12.25 19.36 9.11 8.04 2009 15.59 19.36 11.20 15.29 18.90 10.74 8.23 2010 17.26 19.47 13.25 19.21 24.52 12.68 7.84

Cash flow indicator Ratio:

1. Operating Cash Flow/Sales Ratio:
OFC/Sales ratio is the ratio of operating cash flow of a company to its sales revenue. It is expressed in percentage that shows the ability to convert sales into cash. This Ratio will show up the Positive and negative changes in a company's terms of sale and/or the collection experience of its accounts receivable. It gives investors an idea of the company's ability to turn sales into cash. It is an important indicator of its creditworthiness and productivity.

OFC/Sales Ratio: =

Operating Cash Flow Net Sales /Revenue

Calculation (%):
2006(%) Delta Life Company Insurance 10.91 18.63 8.36 11.58 21.87 27.21 17.26 2007(%) 11.64 14.25 9.25 12.96 23.17 31.24 22.79 2008(%) 11.02 16.23 11.27 9.27 18.69 27.54 20.67 2009(%) 11.12 20.41 12.94 11.29 25.46 29.01 23.14 2010(%) 10.03 17.24 9.88 10.64 28.72 29.30 21.78

Meghna Life Insurance Pragati Life Insurance Progressive Life Insurance Fareast Islami Life Popular Life Insurance Prime Islami Life Insurance

Inference: As we can see here all of the companies have high OFC ratio. In case of Popular Life Insurance Company it is most. This indicates its creditworthiness and productivity. Farest Life insurance has also high cash ratio. As insurance company it very necessary to acquire higher OFC/Sales Ratio.

2. Dividend Payout Ratio:

This ratio identifies the percentage of earnings (net income) per common share allocated to paying cash dividends to shareholders. This ratio is an indicator of how well earnings support the dividend payment. Lower this percentage, more secure the dividend payment. A normal range for companies that do pay dividends is 25% to 50% of earnings. But the percentage may vary if a company keeps the amount of its dividend consistent with past dividends regardless of a drop in its earnings.
Dividend Per Common Share Earning Per Share

Dividend Payout Ratio =

Calculation (%):
2006 Delta Life Insurance Company 36.12 Meghna Life Insurance Pragati Life Insurance Progressive Life Insurance Fareast Islami Life Popular Life Insurance Prime Islami Life Insurance 41.21 26.1 39.8 45.20 24.8 25.36 2007 24.31 47.2 21.35 36.10 40.9 20.1 27.1 2008 30.14 41.3 26.14 28.94 40.41 29.1 36.24 2009 35.12 38.9 29.87 31.8 30.14 34.85 20.14 2010 30.58 40.38 25.12 36.14 32.54 39.23 21.4

Inference: Here almost all of the firms have good Dividend Payout ratio. Specially Meghna Life Insurance Company has the best one. Fast three years they have maintain a good level of Dividend payout ratio. Progressive, Delta and Farest Islami Life insurance have a good Dividend payout ratio that fluctuates over years. But overall all of the firms have healthy Dividend payout ratio that indicates the companies have well earnings support the dividend payment among.

3. Short term debt coverage ratio:

This ratio measures the ability of the company's operating cash flow to meet its obligations short term debt. It is one of the operating cash flow coverage ratios. The operating cash flow is simply the amount of cash generated by the company from its main operations, which are used to keep the business funded. The larger the operating cash flow coverage for these items, the greater the company's ability to meet its obligations, along with giving the company more cash flow to expand its business, withstand hard times, and not be burdened by debt servicing and the restrictions typically included in credit agreements.

Formula:

The short term debt ratio shows how adept the firm is to meet the short term obligations. If it has a large shot term debt ratio it means it can easily pay the short term debt using the cash which is generated through its operating activities.

Short term debt coverage in Life Insurance Company:

The short term debt coverage of five years in eight reputable life insurance companies in Bangladesh is given in the next chart. The more the ratio, the better is for the firm.

Year (Short term debt coverage) Name of insurance company 2010 2009 2008 2007 2006

Delta life insurance

1.4

1.2

1.2

.9

Fareast islami life insurance

2.1

2.2

1.7

2.1

2.2

Meghna life insurance

2.3

2.3

2.7

1.7

1.8

Popular life insurance

1.7

1.6

1.3

Pragati life insurance

1.5

1.8

1.2

-1

1.1

Prime islami life insurance

1.6

2.2

1.6

1.5

Progressive life insurance

.9

1.5

1.5

2.5

Rupali life insurance

1.5

1.1

1.7

1.3

1.1

Investment Valuation Ratios

1. Price/Cash Flow Ratio
The price/cash flow ratio is used by investors to evaluate the investment attractiveness, from a value standpoint, of a company's stock. This ratio compares the stock's market price to the amount of cash flow the company generates on a per-share basis. It is similar to P/E ratio

Formula:

Operating cash flow per share:

A value calculated by dividing a firms operating cash flow (minus dividends) by the number of shares of the capital stock that are outstanding. .

Price to cash flow ratio in Life Insurance Company:

The price cash flow ratio of five years in eight reputable life insurance companies in Bangladesh is given in the next chart.

For life insurance Company the operating income is high because they have a larger premium money but sometimes the claim are not much high, so the ratio may be very tiny, but sometimes they may have some adverse situation.

Year (Price cash flow ratio) Name of insurance company

2010

2009

2008

2007

2006

Delta life insurance

.04

.04

.05

.06

.08

Fareast islami life insurance

.1

.17

.39

.22

.23

Meghna life insurance

.24

.27

.28

0.7

1.03

Popular life insurance

.27

.48

.58

.91

.75

Pragati life insurance

.34

.36

.36

-4.8

.49

Prime islami life insurance

2.32

2.13

2.19

2.26

2.79

Progressive life insurance

1.97

2.45

1.77

3.16

1.17

Rupali life insurance

1.2

1.98

1.46

1.45

1.95

2. Price to earnings ratio:

The price/earnings ratio (P/E) is the best known of the investment valuation indicators. The P/E ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by investment professionals and the investing public. P/E ratio is an off- quoted measure of the ratio of the market price of each share of common stock to the earnings per share. The price-earnings (P/E) ratio reflects the investors assessments of a companys future earnings. The industry average of P/E ratio is about 26 times in abroad market place. Here, throughout this report it was our endeavor to assess the investors investing decision. From 2006 to 2010 we represented the total 5 years P/E ratio of 8 insurance firm.

Formula:

Price to Earnings Ratio (Times)

Year Wise comparison Company Delta Fareast Meghna Popular Pragati Prime Progressive Rupali 2010 0.068 0.038 0.022 0.039 0.049 0.068 0.271 0.072 2009 0.045 0.052 0.023 0.087 0.071 0.14 0.470 0.065 2008 0.034 0.039 0.058 0.10 0.094 0.059 0.541 0.051 2007 0.047 0.044 0.053 0.12 0.062 0.064 0.624 0.042 2006 0.047 0.036 0.032 0.093 0.053 0.113 0.470 0.038

Inferences: A stock with a high P/E ratio suggests that investors are expecting higher earnings
growth in the future compared to the overall market, as investors are paying more for today's earnings in anticipation of future earnings growth. Hence, as a generalization, stocks with this characteristic are considered to be growth stocks. Conversely, a stock with a low P/E ratio suggests that investors have more modest expectations for its future growth compared to the market as a whole.

So, we can asses Progressive life insurance is expecting higher earnings compared the overall market among 8 insurance firm. Rupali life insurance is also expecting a growth over the years and therefore, the investors are paying more of their earnings today for future earnings growth.

3. Price to sales ratio

A stock's price/sales ratio (P/S ratio) is another stock valuation indicator similar to the P/E ratio. The P/S ratio measures the price of a company's stock against its annual sales, instead of earnings. Like the P/E ratio, the P/S reflects how many times investors are paying for every dollar of a company's sales. Since earnings are subject, to one degree or another, to accounting estimates and management manipulation, many investors consider a company's sales (revenue) figure a more reliable ratio component in calculating a stock's price multiple than the earnings figure. Price to sales ratio tends to focus on the annual sales of a firm considering the each stock price. As we selected some insurance firm net premium is consider as the annual sales, in fact the annual sales of policies. The formula for the price to sakes ratio is given below.

Formula:

Price to Sales Ratio (times) Year Wise comparison Company Delta Fareast Meghna Popular Pragati Prime Progressive Rupali 2010 1.444 5.206 4.531 3.333 6.62 5.335 15.82 7.897 2009 1.686 6.742 4.061 5.491 10.33 8.749 22.15 6.526 2008 2.01 3.966 7.022 4.827 5.623 6.671 18.762 5.983 2007 2.277 4.752 6.323 3.378 6.395 5.467 19.018 5.983 2006 2.521 5.807 5.485 5.999 4.821 6.692 12.85 9.184

Inferences: From the ratio table we can derive that the investors of the respective firms would
expect the stock price to be timed at their sales holding. Moreover we can say that Progressive life insurance would pay a higher amount of stock to hold their annual sales. But researchers conclude that "low price-to-sales ratios beat the market more than any other value ratio, and do so more consistently. So above analysis infer that Delta life insurance is in a good position in terms of sales to price (P/S) ratio. In addition Fareast and MSeghna life insurance also pay low portion for every Tk. to hold the annual sales.

4. Dividend Yield Ratio:

A financial ratio that shows how much a company pays out in dividends each year relative to its share price. Its calculated by dividing the Annual Dividend paid by Stock Market Price per Share Outstanding. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:

Annual Dividends Per Share Price Per Share

The Ratio enables an investor to choose high growth potential stocks by screening the ratio percentage. Higher percentage suggests fast growth, and lower percentage suggests slow growth or, in some case, greater retained earnings.

Ratio Analysis Matrix (in decimal):

Below presented is the Matrix for Dividend Yield Ratio Analysis for the 7 chosen companies for the last 5 years.

2005 Delta Life Insurance Company Fareast Islami Life Meghna Life Insurance Popular Life Insurance Pragati Life Insurance Prime Islami Life Insurance 1.57096 0.051475 0.001696 0.003072 0 0.137962

2006 0.10633821

2007 0.131413882

2008 0.11068884

2009 0.126984127

2010 0.125628141

1.65062585 0.09164221 0.0032967 0.00353665 0

1.647492625 0.069497698 0 0 0.371592639

1.09932498 0.06632823 0.04145555 0.00311326 0.25002502

0.851641414 0.077451687 0 0.003949275 0.332510815

0.722222222 0.126995646 0.051020408 0.003038143 0.368830022

Progressive Life Insurance

0.051971

0.04256279

0.07017867

0.04904815

0.045821462

0.059505003

Calculations:
Calculations are done by first finding the Annual Dividend per Share and then dividing them by the market price per share.

Annual Dividend paid by Companies as per their yearly Financial Statements

Annual Dividends Per Share
2005 2006 46.04444444 161.7613333 12.55498224 0.438461538 0.544644444 0 4.171153846 2007 51.12 186.166667 12.9960696 0 0 49.421821 8.56179775 2008 46.6 134.1176471 13.13298962 6.923076923 0.547933333 40.75407779 7.013885714 2009 48 149.8888889 15.49033733 0 0.726666667 47.21653569 7.148148148 2010 50 130 26.92307692 10 0.610666667 55.69333333 12.55555556

Delta Life Insurance Company Fareast Islami Life Meghna Life Insurance Popular Life Insurance Pragati Life Insurance Prime Islami Life Insurance Progressive Life Insurance

44.1479821 157.096 7.97866667 0.19 0.50375 0 3.9498

Market Price per Share as per DSE Index

Market Price Per Share 2005 Delta Life Insurance Company Fareast Islami Life Meghna Life Insurance Popular Life Insurance Pragati Life Insurance Prime Islami Life Insurance Progressive Life Insurance 320 100 155 112 164 96 76 2006 433 98 137 133 154 123 98 2007 389 113 187 156 123 133 122 2008 421 122 198 167 176 163 143 2009 378 176 200 185 184 142 156 2010 398 180 212 196 201 151 211

Figure: Graph Showing the Dividend Yield Ratios.

Inference: As can be seen here most of the company has a Dividend Yield of more than 0.10 or
10%. Fareast Life Insurance Company offers the highest Dividend as compared to others. On the other hand Pragati Life Insurance Company has the lowest of them all, but further analysis reveals that Prime Islami Life Insurance has more inconsistent Dividend payment, giving out no dividend two years in a row. The explosive investors looking for higher cash dividends are suggested to invest in Fareast Life Insurance, while more reserved and growth focused investors are suggested to invest in Pragati Life Insurance, as they project more retained earning thus a potential quick growth.

5. Price to Book Value Ratio:

A ratio used to compare a stock's market value to its book value. It compares a companys Market Value to its actual Book Value. It shows if the shares are under or overvalued. It can also suggest an investor about the residuals that can be retrieved if the firm goes bankrupt immediately. It can be calculated in two ways both giving out the same result. One way is by dividing the current closing price of the stock by the latest quarter's book value per share. Another unconventional way is to divide the Total Market Capitalization Amount by the Total book value for a given year. As for the convenience of the latter procedures we have decided to work on that framework. The formula for the calculation is as follows: Market Capitalization Total Book Value

Ratio Analysis Matrix (in decimals):

Below presented is the Price to Book Value Ratio Analysis Matrix of the 7 chosen companies for the last 5 years.

2005 Delta Life Insurance Company Fareast Islami Life Meghna Life Insurance Popular Life Insurance Pragati Life Insurance Prime Islami Life Insurance Progressive Life Insurance 0.626846 2.173892 1.078675 1.227013 0.883828 0.874972 1.071958

2006

2007

2008

2009

2010

2.57194861 2.680071519 2.09786407 1.803560195 1.688347068 3.7764883 3.971363434 3.77715257 3.733694542 2.813062948

0.70221934 0.520302408 1.10377693 0.676148188 0.851774783 1.28069521 11.22615135 2.39711065 2.030823926 1.248485811 1.64032107 1.948828161 2.48161507 2.710268231 2.673749613 1.05004029 1.126203526 1.06453965 0.593870692 0.932943134 1.55415461 0.108193512 0.95632995 1.033170678 0.867020116

Calculation (in decimal):

The calculation requires collecting the market Capitalization Amount and dividing them by the Total Book Value of the firm. Book Value Calculations: Total Assets Intangible Assets Total Liabilities Market Capitalization Rate as per respective companies websites
Market Capitalization 2005 Delta Life Insurance Company Fareast Islami Life Meghna Life Insurance Popular Life Insurance Pragati Life Insurance Prime Islami Life Insurance Progressive Life Insurance 2006 2007 2008 2009 10347648300 5678342688 3297562800 1976652246 5321487000 143876534 473429800 2010 11545420000 6927869960 4793452000 2505674865 6349854000 437217649 567311689

1347282560 8731384980 1268453200 2456366890 732856168 32865060 683924600 54897000

9342560030 10358047500 3587958000 985732600 658956000 3007623870 174322386 326890000 4467489600 4368912670 1568498700 4328743200 176349877 327892470

1107654320 2349865400 87362175 156348790 132764879 254684600

Total Book Value calculated by the formula: Total Book Value= Total Assets Intangible Assets Total Liabilities
Total Book Value 2005 Delta Life Insurance Company Fareast Islami Life Meghna Life Insurance Popular Life Insurance Pragati Life Insurance Prime Islami Life Insurance Progressive Life Insurance 2006 2007 2008 2009

2010

2149304560 3394852040 583494250 679403870 26784600 650436780 973947260 42865000

3485936835 4937425469 903457480 1182766520 1894537840 3958148204 58698300 654328870

5737345683 6838297776

1520837504 2462749710

4876982380 5627604970

973325270 2006971038

1253246200 1432564300 99845625 145853400 126437890 163873400

1543298650 1744325000 154787640 3021345689 165658346 342865420

1963454000 2374887300 242269127 458230000

468643407

654323560

Figure: Graph Showing Price to Book Value Ratios.

Inference: The above calculation suggests that all of the company has a fair Price/Book Value.
That means the firms have a good ground to justify the market price they hold. Fareast Life Insurance Co. stocks are perhaps overvalued in a minor extent. Meghna Life Insurance Ratio Analysis suggests their stocks are undervalued, management of the company can be suggested to look for internal instability that can be attributed to such an undervaluation. But overall all of the company has strong ground to assure their shareholder of the rationale of their market price.

Conclusion:
After the twenty financial ratio analyses, we have seen that there is a good balance among the firms. Most of the firms have good ratio figure. In case of liquidity measurement ratios all of the firms have very high figure. This means they retain much cash then need. This reduces the ability of the firm of earning. In case of profitability indicator ratios all of the firms have healthy figure. This means all of the firms have high net income. Firms have good debt indicator ratios. On the other hand in case of cash flow indicator ratios all of the firms have adequate good figure which refers that all of the firms generate enough cash for their activity. Last of all in case of investment valuation ratios all of the firms have strong ratios. This indicates that all of firms offer very good amount of divided to their equity holders as well as the firms work on the maximization of equity holders interest in the firms.