Performance Analysis of Life Insurance Companies

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Performance Analysis of Life Insurance Companies in Bangladesh
(Insurance and Risk management: B-206)

Submitted to:

Mr. Md. Shahidul Islam Zahid 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. Jamal Hossain Shuvo 10. Md. Mokbul Islam

16-030 16-011 16-071 16-031 16-087 16-048 16-040 16-039 16-050 16-038

16th Batch Department of Banking University of Dhaka

Date of Submission: 26th October, 2011

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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 “Performance Analysis of Life insurance Companies in Bangladesh”. 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

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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.

Page |5 Table of Contents SL Topic Pages 01 Executive Summary 05 02 Liquidity Measurement Ratios 06 03 Profitability Indicator Ratios 10 04 Debt Ratios 14 05 Operating Performance Ratio 17 06 Cash flow indicator Ratio 18 07 Investment Valuation Ratios 22 .

. of eight pioneer and dominating life insurance companies in Bangladesh. The ratios can be used to evaluate the financial condition of a company. In this report different types of ratios are calculated and compared according to the standard norm. ratios are demonstrated here in matrix structures with their results. which is intended to provide a useful comparison. Ratios assist in measuring the efficiency and profitability of a company based on its financial reports. for five years. Here our report is about “Performance analysis of Life Insurance Companies”. for every ratio separately. including the company's strengths and weaknesses. For each company. Accounting ratios form the basis of fundamental analysis.Page |6 08 Conclusion 31 Executive summary Ratio is a way of expressing the relationship between one accounting result and another.

Life insurance companies bear the risk of peoples’ lives. accrued expenses and taxes. Their performance has been analyzed by calculating various ratios for five years. Formula: . These companies contribute a lot in the economy by diversifying risk among many people. There are two types of insurance companies. the higher the current ratio. the better. 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. current portion of term debt. receivables and inventory are readily available to pay off its short-term liabilities such as notes payable. The necessary information for this ratio analysis has been collected from their respective annual reports. In theory. Among these types insurance companies play a major role in our economy. payables. The concept behind this ratio is to ascertain whether a company's short-term assets such as cash.Page |7 Introduction: Various types of financial institutions exist in the economy of Bangladesh. marketable securities.general insurance companies and life insurance companies. The subject matter of this report is to analyze the performance of the life insurance companies of Bangladesh. cash equivalents. There are eight listed life insurance companies in Bangladesh. Liquidity Measurement Ratios: 1.

63 : 1 6. Ltd. the top three life insurance companies holding the best current ratio.92 : 1 6.79 : 1 2.12 : 1 3.11 : 1 Progressive Life Insurance Co.37 : 1 Popular Life Insurance Co. 2. in other words having the highest ability to pay off their short term liabilities are1.51 : 1 3.57 : 1 5. Ltd.97 : 1 Meghna Life Insurance Co. 3.49 : 1 6.46 : 1 3.06 : 1 5.79 : 1 2. Ltd.01 : 1 5. 1. Ltd.29 : 1 5.46 : 1 4.76 : 1 5. the year wise performance analysis of these companies.23 : 1 5.13 : 1 3.56 : 1 4. have been described below- 2006: In 2006.02 : 1 . 2.84 : 1 5.18 : 1 4. 2.98 : 1 4.95 : 1 Prime Life Insurance Co.68 : 1 Rupali Life Insurance Co. 3.97 : 1 Pragati Life Insurance Co.88 : 1 4.06 : 1 5.21 : 1 Performance analysis: Considering the above calculations. Ltd. 4.95 : 1 4.69 : 1 7.65 : 1 5.02 : 1 3.35 : 1 3.Page |8 The current ratios of the listed life insurance companies of Bangladesh are presented below- Name of Companies 2006 2007 2008 2009 2010 Delta Life Insurance Co. Delta Life Insurance company – current ratio 4.45 : 1 7.92 : 1 2.75 : 1 4.62 : 1 5. Ltd. Ltd.89 : 1 Fareast Islami Life Insurance Co. Ltd. on the basis of current ratios.23 : 1 3. 2.

– current ratio 5. – current ratio 5. Pragati Life Insurance Co. – current ratio 7. Delta Life Insurance Co. Pragati Life Insurance Co. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets. the quick ratio focuses on the more-liquid assets of a company. – current ratio 5. – current ratio 5. Progressive Life Insurance Co. Prime Life Insurance Co.51 : 1 3. Formula: . Rupali Life Insurance Co. Therefore. Ltd. Popular Life Insurance Company – current ratio 2. – current ratio 4.62 : 1 2010: The best three companies in respect of current ratio in 2010 are – 1. – current ratio 7. Delta Life Insurance Co. Popular Life Insurance Co. – current ratio 4. – current ratio 5. Fareast Islami Life Insurance Co. Ltd.46 : 1 2009: The three companies holding highest current ratio in 2009 are – 1. – current ratio 6.18 : 1 2. Ltd. it is a clear indication that the company's current assets are dependent on inventory.12 : 1 2008: The top three life insurance companies in 2008 are – 1. Quick Ratio: The quick ratio also known as the acid-test ratio . If the current ratio is significantly higher. Ltd. Ltd. a higher ratio means a more liquid current position. Ltd. Ltd.89: 1 3. Progressive Life Insurance Co.69 : 1 2. 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. – current ratio 6. 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. Fareast Islami Life Insurance Co. By excluding inventory.75 : 1 2.79 : 1 3. which are more difficult to turn into cash. Ltd.06 : 1 3. Ltd.95 : 1 2007: The top three life insurance companies in respect of current ratio in 2007 are1.29 : 1 3.95: 1 2. Ltd.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. Ltd. Pragati Life Insurance Co. Ltd. Fareast Islami Life Insurance Company – current ratio 3. – current ratio 5.97: 1 1. Another beneficial use is to compare the quick ratio with the current ratio.Page |9 2.

55 : 1 3.09 : 1 4.60 : 1 4. Ltd.P a g e | 10 The quick ratios of the listed life insurance companies of Bangladesh are presented below- Name of companies 2006 2007 2008 2009 2010 Delta Life Insurance Co. 2.63 : 1 4. 1.90 : 1 2. Ltd.56 : 1 4. Ltd. Ltd. 2.67 : 1 Fareast Islami Life Insurance Co. Ltd.95 : 1 3.49 : 1 4.1 : 1 4.40 : 1 Meghna Life Insurance Co.51 : 1 1. Ltd.37 : 1 4.05 : 1 4.22 : 1 Prime Life Insurance Co.54 : 1 3. Ltd.28 : 1 2.94 : 1 3. 1.08 : 1 2.46 : 1 Pragati Life Insurance Co.86 : 1 3.01 : 1 Popular Life Insurance Co.03 : 1 3.68 : 1 5. 3.81 : 1 4.31 : 1 5.74 : 1 3.89 : 1 3. 1.19 : 1 3. Ltd. 2.32 : 1 Rupali Life Insurance Co.57 : 1 5.13 : 1 5.76 : 1 Performance analysis: .79 : 1 Progressive Life Insurance Co.58 : 1 5.77 : 1 5.21 : 1 3. 2.09 : 1 3.48 : 1 2.91 : 1 7.

Progressive Life Insurance company – quick ratio 3. Cash Ratio: Cash ratio is the ratio of cash and cash equivalents of a company to its current liabilities. – quick ratio 5. the year wise performance analysis of these companies. Ltd. Rupali Life Insurance Co. – quick ratio 3.09 : 1 iii. – quick 4. – quick ratio 3.55 : 1 iii.40: 1 1. – quick ratio 5. – quick ratio 4.68 : 1 2010: The best three companies in respect of quick ratio in 2010 are – i.03 : 1 ii. on the basis of quick ratios. – quick ratio 7. Progressive Life Insurance Co. It measures the ability of a business to repay its current liabilities by only using its cash and cash equivalents and nothing else. – quick ratio 5. Fareast Islami Life Insurance Co. have been described below- 2006: In 2006.19 : 1 ii. Ltd. Popular Life Insurance Co. the top three life insurance companies holding the best quick ratio arei.94 : 1 iii. Its standard value is 1:1 or above but not very high. Ltd. Progressive Life Insurance Co. Pragati Life Insurance Co.58 : 1 2009: The three companies holding highest quick ratio in 2009 are – i. – quick ratio 4. Ltd.48 : 1 2007: The top three life insurance companies in respect of quick ratio in 2007 arei. Ltd. – quick ratio 5. Ltd. It is an extreme liquidity ratio since only cash and cash equivalents are compared with the current liabilities. Ltd. Ltd.67 : 1 iii. Ltd. Ltd. Fareast Islami Life Insurance Co.91 : 1 ii. Fareast Islami Life Insurance Co. Delta Life Insurance Company – quick ratio 2.P a g e | 11 Considering the above calculations. Fareast Islami Life Insurance Company – quick ratio 2. Prime Life Insurance Co.22 : 1 ii.74 : 1 2008: The top three life insurance companies in 2008 are – i. Delta Life Insurance Co. Pragati Life Insurance Co. – quick ratio 5.49 : 1 ii. Ltd. Ltd. – quick ratio 4. Cash Ratio: = Calculation (%): Cash+Cash EquivalentsCurrent Liabilities 2006 2007 2008 2009 2010 . Pragati Life Insurance Co.81 : 1 iii.

98 476. 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. 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.00 346.26 692.81 271.P a g e | 12 Delta Life Insurance Company 325.79 Meghna Life Insurance 709. The higher the ratio is the better the firm is.36 553.08 673.36 Prime Islami Life Insurance 381.43 364. But as an insurance company it also necessary to hold enough cash or cash equivalent so that they can meet the insurance claims quickly.83 426.65 Progressive Life Insurance 235. In case of Meghna Life Insurance Company it is most.37 478.02 489.29 688.74 687.00 333. ROE= Net Income Avg Shareholders'euity . It shows net income as percentage of shareholder equity.44 406.03 479.46 319. This means to satisfy of one taka current liabilities they have seven taka of cash or cash equivalent.31 Pragati Life Insurance 387.72 326.01 396.24 Fareast Islami Life 316.11 381. Profitability Indicator Ratio: 1.81 473.71 Popular Life Insurance 462.25 323.473 1356.89 379.63 406.92 Inference: As we can see here all of the companies have high cash ratio.31 411.32 426. Popular Life insurance has also high cash ratio. They have cash ratio of around 7:1.96 328. It is a measure of profitability of stockholders' investments.76 413.

Progressive.46 Fareast Islami Life 38.21 40.36 48. The Return on Capital Employed (ROCE): The Return On Capital Employed (ROCE) ratio.09 41.21 37.00 47.89 37.14 2008 34. to equity to reflect a . Specially Meghna Life Insurance Company has the best one. complements the return On Equity (ROE) ratio by adding a company's debt liabilities.67 38.12 Popular Life Insurance 26.20 38.26 38.P a g e | 13 Calculation (%): 2006 38. or funded debt.23 2010 33.37 46. 2.23 42.78 29. But overall all of the firms have healthy ROE that indicates a good return from the share investment in these firms.02 Meghna Life Insurance 21.29 29.24 47.38 Progressive Life Insurance 37.34 31.25 38.78 Delta Life Insurance Company 34.48 Pragati Life Insurance 29.21 48.95 43. Last three years they have maintain a good level of ROE. Pragati and Prime Islami Life insurance have ROEs that fluctuate over years.39 Prime Islami Life Insurance 2007 34.82 Inference: Here almost all of the firms have good ROE.679 2009 39.37 38.78 32.93 32.91 39. expressed as a percentage.86 37.38 39.

24 17.24 15. 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.2 18.14 16.45 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.23 21.P a g e | 14 company's total "capital employed". investors can get a clear picture of how the use of leverage impacts a company's profitability.4 18.25 16. 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. Calculation (%): Company’s 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 % 19.25 19.8 20.8 19.2 19.24 15.55 17.55 16.26 17. 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.36 2010 % 21.24 17.22 20.12 19.29 16.45 16.25 20. This measure narrows the focus to gain a better understanding of a company's ability to generate returns from its available capital base.19 17. By comparing net income to the sum of a company's debt and equity capital.25 2007 % 18. In 2010: .65 2009 % 17.3 17.8 21.24 18.63 15.8 17.11 20.25 18.24 16.21 15.26 19.56 18.21 21.8 18.23 2008 % 17. 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.

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.22 14.20 12.49 15.98 14.56 13. In 2009: . 12.52 13. The ROA ratio is calculated by comparing net income to average total assets. 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.88 16.56 15.80 17.50 12.23 16.52 2007 12.42 11.32 14.45 13. the more efficient management is in utilizing its asset base.20 12.25 11. Calculation: Company’s 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. Return on Asset (ROA): This ratio indicates how profitable a company is relative to its total assets.36 2008 13.25 13.51 14.32 15.54 14.P a g e | 15 In 20010 Delta Life Insurance Company has higher ROCE it indicate that in this year they are dominating Insurance sector for capital Employed activities.85 13.25 12.75 12.29 14.63 14. 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.33 2010 14.21 16.8 13. and is expressed as a percentage.85 15.96 13. The higher the return.63 14.39. 3.52 14.62 12. The Return On Asset (ROA) ratio illustrates how well management is employing the company's total assets to make a profit.63 13.46 17.52 2009 12.

the EPS would be $1. then a weighted average is taken to find the number of shares outstanding (0.90 2753. For example. An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. It is also a major component used to calculate the price-to-earnings valuation ratio. it is more accurate to use a weighted average number of shares outstanding over the reporting term.45 2009 17514. 4.5). assume that a company has a net income of $25 million. Earnings per Share – EPS The portion of a company's profit allocated to each outstanding share of common stock.that company would be more efficient at using its capital to generate income and. data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period. However.5 x 15M = 12.43 1702.74 2010 18289. Earnings per share serve as an indicator of a company's profitability.80 2008 15478. 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. because the number of shares outstanding can change over time.5 x 10M+ 0.67 2007 14197. Two companies could generate the same EPS number.78 3374.92 (24/12. all other things being equal. Earnings per share is generally considered to be the single most important variable in determining a share's price. Earnings per Share – EPS (Ratio) Company Name Delta Life Insurance Company Fareast Islami Life Insurance Company 2006 11506.27 . the $1 million is deducted from the net income to get $24 million.78 3145. 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. would be a "better" company.5M).74 2951. but one could do so with less equity (investment) .P a g e | 16 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. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. Calculated as: When calculating. First.

Debt Ratios 1.20 316 413.45 1445. lenders. . comparing total liabilities to shareholders' equity. figure. This is a measurement of how much suppliers. in this case. Similar to the debt ratio. To a large degree. creditors and obligors have committed to the company versus what the shareholders have committed.61 3452.32 7451.12 631. Companies with a large amount of purchased goodwill form heavy acquisition activity can end up with a negative equity position.30 730 1482.10 4289.11 1200 652.12 720.57 834. as opposed to total assets in the debt ratio.74 6067.78 2247.12 3214 3142. involves reducing a company's equity position by its intangible assets to arrive at a tangible equity. the debt-equity ratio provides another vantage point on a company's leverage position. which is seldom seen. a lower the percentage means that a company is using less leverage and has a stronger equity position.P a g e | 17 Meghna Life Insurance Company Popular Life Insurance Company Pragati Life Insurance Company Prime Islami Life Insurance Company Progressive Life Insurance Company Rupali Life Insurance Company 1773. Formula: Variations: A conservative variation of this ratio.61 6410 5210.47 6124.14 2640.42 2255.45 567.11 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.94 5142 4120. or tangible net worth.28 532.42 4604. Debt-equity ratio The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity.65 1173 2688.

It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets. The debt-equity ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.40 141.73 140.41 825.14 279.41 345.P a g e | 18 Commentary: The debt-equity ratio appears frequently in investment literature.25 5.12 312. Nevertheless.59 251.81 312.12 712.53 90.78 478.12 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.71 213.96 286.95 Rupali Life Insurance Company 85. Generally. For example.12 412.10 2010 1912.33 105.14 512. However.62 218.78 124. 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 Life Insurance Company 2006 1050.96 227.13 312.81 2008 1627.87 641.47 55. this ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.12 472. 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.45 421.01 421.12 312. and other assets such as 'goodwill') . fixed assets. IBM's debt ratio of 69% seems less onerous than its debt-equity ratio of 220%.14 210. like the debt ratio.11 145. large.45 31.81 825.12 2009 1821. which means that creditors have more than twice as much money in the company than equity holders (both ratios are for FY 2005). well-established companies can push the liability component of their balance sheet structure to higher percentages without getting into trouble.35 2007 1313.11 Progressive Life Insurance Company 42. A low percentage means that . 2.45 251.60 99. Debt ratio: Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt.

5% 2009 9% 9% 8.5% 11% 9% 8.5% 3.5% 8% 10% 9. are used to determine a company’s stability by comparing its long-term debt with its current equity and assets.5% 8% 7% 7% 6. the less leverage a company is using and the stronger its equity position. i..5% 8% 7.5% 8% 7% 9% 8% 2010 8. An increasing Cash Flow to Total Debt ratio is usually a positive sign. In general. 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. also known as financial leverage ratios. A capitalization ratio provides investors and analysts with information about the extent to which a company is using its equity to finance .P a g e | 19 the company is less dependent on leverage. money borrowed from and/or owed to others.e. Capitalization Ratio: Capitalization ratios. showing the company is in a less risky financial position and better able to pay its debt load. the higher the ratio. The lower the percentage. 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. Cash flow to debt ratio of six life insurance companies 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.

26% 67.72% 87.85% 95.65% 52. a company’s capitalization ratio is calculated by dividing the company’s long-term debt by the sum of the long-term debt and the shareholders’ equity.26% 97. as follows: Calculation: Company Popular Meghna Pragati Prime Islamic Progressive Delta Fareast Islamic 2006 90. This ratio is often used as a measure in manufacturing industries. where major purchases are made for PP&E to help increase output. and equipment. Here is how the fixed asset turnover ratio is calculated: .72% 96.47% 74.16% 96. Typically. Capitalization ratios provide an indication of the company’s solvency and viability over the long term and allow more accurate risk assessments for prospective investors.44% 2008 89. and to what extent it is incurring new debt to do so.99% 94.P a g e | 20 its operational costs.36% 92.81% 2010 95.99% 99.75% 2007 85.50% 99.03% 79.30% 78.47% 87.47% Operating Performance Ratio: 1.07% 99. prudent investors watch this ratio in following years to see how effective the investment in the fixed assets was. When companies make these large purchases.26% 85.59% 94.83% 62.90% 97.47% 99.41% 94.97% 68.61% 92.77% 87. The fixed asset turnover ratio: The fixed asset turnover ratio measures the company's effectiveness in generating sales from its investments in plant.47% 83. property.99% 95.07% 2009 91.04% 99.82% 93.26% 94.

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.91 20.74 8.80 8. 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.78 18.94 7.26 19.P a g e | 21 There is no exact number that determines whether a company is doing a good job of generating revenue from its investment in fixed assets.17 1. 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. Before putting too much weight into this ratio.77 9. For example. Operating Cash Flow/Sales Ratio: OFC/Sales ratio is the ratio of operating cash flow of a company to its sales revenue.64 2007 14.25 19. It is an important indicator of its creditworthiness and productivity. like Google.25 19.92 0.29 18.24 7.52 12.90 10. has less of a fixed-asset base than a heavy manufacturer like Caterpillar. It is expressed in percentage that shows the ability to convert sales into cash.23 2010 17.04 2009 15.93 3.59 19.05 7. Obviously.57 2008 17. Calculation: Company Popular Meghna Pragati Prime Islamic Progressive Delta Fareast Islamic 2006 10.89 12. It gives investors an idea of the company's ability to turn sales into cash.68 7.13 17.47 13.36 9. . Fixed assets vary greatly among companies.11 8.83 28.20 15.84 Cash flow indicator Ratio: 1.50 6. the fixed-asset ratio for Google will have less relevance than that for Caterpillar.36 11.21 24.18 16. an internet company.

21 17.30 21.54 20. This ratio is an indicator of how well earnings support the dividend payment. This indicates its creditworthiness and productivity.26 2007(%) 11.29 25.14 2010(%) 10.88 10.67 2009(%) 11.63 8.25 9.94 11.91 Meghna Life Insurance Pragati Life Insurance Progressive Life Insurance Fareast Islami Life Popular Life Insurance Prime Islami Life Insurance 18.01 23.96 23.64 14. A normal range for companies that do pay dividends is 25% to 50% of earnings.79 2008(%) 11.23 11.27 9. In case of Popular Life Insurance Company it is most. Dividend Payout Ratio = Dividend Per Common ShareEarning Per Share .58 21. Lower this percentage. As insurance company it very necessary to acquire higher OFC/Sales Ratio.27 18.02 16.P a g e | 22 OFC/Sales Ratio: = Operating Cash FlowNet Sales/Revenue Calculation (%): 2006(%) Delta Life Insurance Company 10.36 11.46 29. 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.12 20.69 27.78 Inference: As we can see here all of the companies have high OFC ratio.03 17.87 27.24 22.72 29. Dividend Payout Ratio: This ratio identifies the percentage of earnings (net income) per common share allocated to paying cash dividends to shareholders. 2.24 9.64 28.25 12.41 12. more secure the dividend payment. Farest Life insurance has also high cash ratio.17 31.

35 36.14 28.14 41.8 45. Fast three years they have maintain a good level of Dividend payout ratio.9 29.12 36. But overall all of the firms have healthy Dividend payout ratio that indicates the companies have well earnings support the dividend payment among. which are used to keep the business funded.9 20.41 29.36 2007 24.23 21.P a g e | 23 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 36.85 20.1 27. 3.1 2008 30.21 26. The larger the operating cash flow coverage for these items. The operating cash flow is simply the amount of cash generated by the company from its main operations.1 39.14 2010 30.20 24.94 40.87 31.1 36.14 32.58 40.12 38. the greater the company's ability to meet its obligations.14 34. along with giving the company more cash flow to expand its business. .8 25. Short term debt coverage ratio: This ratio measures the ability of the company's operating cash flow to meet its obligations – short term debt. Specially Meghna Life Insurance Company has the best one. Delta and Fareast Islami Life insurance have a good Dividend payout ratio that fluctuates over years.38 25. and not be burdened by debt servicing and the restrictions typically included in credit agreements.10 40.12 41. Progressive.31 47.24 2009 35.3 26. withstand hard times.2 21. It is one of the operating cash flow coverage ratios.8 30.4 Inference: Here almost all of the firms have good Dividend Payout ratio.54 39.

the better is for the firm. The more the ratio.P a g e | 24 Formula: The short term debt ratio shows how adept the firm is to meet the short term obligations. 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. . 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.

4 1.2 1.7 1.8 1.8 Popular life insurance 1 2 1.7 2.1 2.6 1.5 1.7 1.2 1 .5 Rupali life insurance 1.7 1.6 2.2 1.3 2.9 1.P a g e | 25 Year (Short term debt coverage) Name of insurance company 2010 2009 2008 2007 2006 Delta life insurance 1.5 1.3 2.5 1.2 1.1 2.2 Meghna life insurance 2.5 2.1 .9 Fareast islami life insurance 2.5 Progressive life insurance 1 .3 Pragati life insurance 1.2 -1 1.1 1.3 1.7 1.1 Prime islami life insurance 1 1.6 1.

of a company's stock. from a value standpoint. Price/Cash Flow Ratio The price/cash flow ratio is used by investors to evaluate the investment attractiveness. . 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. but sometimes they may have some adverse situation. This ratio compares the stock's market price to the amount of cash flow the company generates on a per-share basis. For life insurance Company the operating income is high because they have a larger premium money but sometimes the claim are not much high. It is similar to P/E ratio Formula: Operating cash flow per share: A value calculated by dividing a firm’s operating cash flow (minus dividends) by the number of shares of the capital stock that are outstanding. so the ratio may be very tiny. .P a g e | 26 Investment Valuation Ratios 1.

P a g e | 27 .

P a g e | 28 Year (Price cash flow ratio) Name of insurance company 2010 2009 2008 2007 2006 Delta life insurance .28 0.75 Pragati life insurance .19 2.06 .23 Meghna life insurance .8 .48 .05 .1 .27 .26 2.17 Rupali life insurance 1.36 -4.97 2.46 1.24 .22 .95 .45 1.36 .45 1.79 Progressive life insurance 1.17 .98 1.77 3.49 Prime islami life insurance 2.16 1.32 2.08 Fareast islami life insurance .04 .39 .03 Popular life insurance .27 .34 .04 .58 .2 1.13 2.91 .7 1.

036 Meghna 0.049 0.053 .quoted measure of the ratio of the market price of each share of common stock to the earnings per share.044 0. Formula: Price to Earnings Ratio (Times) Year Wise comparison Company 2010 2009 2008 2007 2006 Delta 0. P/E ratio is an off.039 0.12 0.071 0.034 0.023 0.068 0.058 0. The price-earnings (P/E) ratio reflects the investors’ assessments of a company’s future earnings.045 0.047 Fareast 0.P a g e | 29 2.052 0.094 0.093 Pragati 0. The P/E ratio has its imperfections.039 0.022 0.032 Popular 0.10 0. Price to earnings ratio: The price/earnings ratio (P/E) is the best known of the investment valuation indicators.087 0.047 0. The industry average of P/E ratio is about 26 times in abroad market place.038 0.053 0. but it is nevertheless the most widely reported and used valuation by investment professionals and the investing public. Here.062 0. From 2006 to 2010 we represented the total 5 years P/E ratio of 8 insurance firm. throughout this report it was our endeavor to assess the investors’ investing decision.

470 Rupali 0. Conversely. in fact the annual sales of policies. As we selected some insurance firm net premium is consider as the annual sales. Since earnings are subject. as a generalization.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. Rupali life insurance is also expecting a growth over the years and therefore.541 0. Hence. 3. The formula for the price to sakes ratio is given below.051 0. to accounting estimates and management manipulation.271 0.042 0. Price to sales ratio A stock's price/sales ratio (P/S ratio) is another stock valuation indicator similar to the P/E ratio. Like the P/E ratio. 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. The P/S ratio measures the price of a company's stock against its annual sales. So.059 0.624 0. stocks with this characteristic are considered to be growth stocks. the P/S reflects how many times investors are paying for every dollar of a company's sales.065 0. as investors are paying more for today's earnings in anticipation of future earnings growth. the investors are paying more of their earnings today for future earnings growth. Price to sales ratio tends to focus on the annual sales of a firm considering the each stock price.064 0. to one degree or another.470 0.068 0. instead of earnings.072 0. Formula: . we can asses Progressive life insurance is expecting higher earnings compared the overall market among 8 insurance firm.P a g e | 30 Prime 0.14 0.113 Progressive 0. 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.

022 6.444 1.01 2.277 2.018 12.15 18.184 .395 4.821 Prime 5.762 19.623 6.061 7.491 4.983 9.335 8.692 Progressive 15.827 3.521 Fareast 5.P a g e | 31 Price to Sales Ratio (times) Year Wise comparison Company 2010 2009 2008 2007 2006 Delta 1.671 5.333 5.62 10.999 Pragati 6.686 2.749 6.467 6.742 3.983 5.966 4.378 5.323 5.485 Popular 3.85 Rupali 7.206 6.82 22.526 5.531 4.752 5.807 Meghna 4.33 5.897 6.

2005 2006 2007 2008 2009 2010 . in some case. 4. to hold the annual sales. In addition Fareast and Meghna life insurance also pay low portion for every Tk. and lower percentage suggests slow growth or. Dividend Yield Ratio: A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains. Higher percentage suggests fast growth. But researchers conclude that "low priceto-sales ratios beat the market more than any other value ratio. the dividend yield is the return on investment for a stock.P a g e | 32 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. So above analysis infer that Delta life insurance is in a good position in terms of sales to price (P/S) ratio. 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. Moreover we can say that Progressive life insurance would pay a higher amount of stock to hold their annual sales. Dividend yield is calculated as follows: Dividend Yield=Annual Dividends Per SharePrice Per Share The Ratio enables an investor to choose high growth potential stocks by screening the ratio percentage. It’s calculated by dividing the Annual Dividend paid by Stock Market Price per Share Outstanding. and do so more consistently. greater retained earnings.

8516414 0. Annual Dividend paid by Companies as per their yearly Financial Statements .650625 1.3325108 0.250025 0.1314138 21 82 0.0030381 26 75 43 Prime Islami Life 0 0 0.0458214 0.3715926 39 0.110688 0.099324 0.0030 72 0.1269841 0.0774516 0.0039492 0.0510204 08 Pragati Life Insurance 0.0694976 21 98 0.049048 0.P a g e | 33 Delta Life Insurance Company 0.1256281 84 27 41 Fareast Islami Life 1.003113 0.066328 0.0519 71 0.0016 96 0.0595050 15 62 03 Calculations: Calculations are done by first finding the Annual Dividend per Share and then dividing them by the market price per share.003296 7 0 0.041455 55 0 0.042562 0.7222222 98 14 22 Meghna Insurance Life 0.6474926 85 25 1.0514 75 0.3688300 02 15 22 Insurance Progressive Insurance Life 0.1379 62 0.003536 65 0 0.091642 0.106338 0.5709 6 1.1269956 23 87 46 Popular Life Insurance 0.0701786 79 7 0.

132989 62 15.P a g e | 34 Annual Dividends Per Share 2005 2006 2007 2008 2009 2010 Delta Insurance Company Life 44.726666667 0.148148148 12.11764 71 149.6 48 50 Fareast Life Islami 157.76133 33 186.55555 556 Market Price per Share as per DSE Index .21653569 55.5446444 44 0 0.0138857 14 7.49033733 26.978666 67 12.5617977 5 7.14798 21 46.1711538 46 8.996069 6 13.5479333 33 0.12 46.421821 40.8888889 130 Meghna Insurance Life 7.92307 692 Popular Insurance Life 0.754077 79 47.69333 333 Progressive Life Insurance 3.610666 667 Prime Islami Life Insurance 0 0 49.19 0.9498 4.4384615 38 0 6.044444 44 51.096 161.50375 0.554982 24 12.16666 7 134.9230769 23 0 10 Pragati Insurance Life 0.

.P a g e | 35 Market Price Per Share 2005 2006 2007 2008 2009 2010 Delta Life Company Insurance 320 433 389 421 378 398 Fareast Islami Life 100 98 113 122 176 180 Meghna Life Insurance 155 137 187 198 200 212 Popular Life Insurance 112 133 156 167 185 196 Pragati Life Insurance 164 154 123 176 184 201 Prime Islami Insurance Life 96 123 133 163 142 151 Progressive Insurance Life 76 98 122 143 156 211 Figure: Graph Showing the Dividend Yield Ratios.

Fareast Life Insurance Company offers the highest Dividend as compared to others. but further analysis reveals that Prime Islami Life Insurance has more inconsistent Dividend payment. The explosive investors looking for higher cash dividends are suggested to invest in Fareast Life Insurance. On the other hand Pragati Life Insurance Company has the lowest of them all. .10 or 10%. as they project more retained earning thus a potential quick growth. giving out no dividend two years in a row. while more reserved and growth focused investors are suggested to invest in Pragati Life Insurance.P a g e | 36 Inference: As can be seen here most of the company has a Dividend Yield of more than 0.

688347 068 Fareast Islami Life 2.481615 07 2. One way is by dividing the current closing price of the stock by the latest quarter's book value per share.676148 188 0.248485 811 Pragati Life Insurance 0.851774 783 Popular Insurance Life 1.030823 926 1.680071 519 2.673749 613 .2270 13 1.0786 75 0. Price to Book Value Ratio: A ratio used to compare a stock's market value to its book value.520302 408 1.22615 135 2.702219 34 0. Another unconventional way is to divide the Total Market Capitalization Amount by the Total book value for a given year.P a g e | 37 5.733694 542 2. It compares a company’s Market Value to its actual Book Value.776488 3 3. As for the convenience of the latter procedures we have decided to work on that framework. The formula for the calculation is as follows: Price to Book Value =Market CapitalizationTotal 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. It can also suggest an investor about the residuals that can be retrieved if the firm goes bankrupt immediately.103776 93 0. 2005 2006 2007 2008 2009 2010 Delta Life Insurance 0.777152 57 3. It shows if the shares are under or overvalued.640321 07 1.710268 231 2.280695 21 11.971363 434 3.813062 948 Meghna Insurance Life 1.803560 195 1.6268 Company 46 2.397110 65 2. It can be calculated in two ways both giving out the same result.1738 92 3.571948 61 2.8838 28 1.948828 161 2.097864 07 1.

593870 692 0.P a g e | 38 Prime Islami Insurance Life 0.033170 678 0.867020 116 Calculation (in decimal): The calculation requires collecting the market Capitalization Amount and dividing them by the Total Book Value of the firm.108193 512 0.126203 526 1.554154 61 0.064539 65 0.8749 72 1.932943 134 Progressive Insurance Life 1.050040 29 1.0719 58 1. Book Value Calculations: Total Assets – Intangible Assets – Total Liabilities Market Capitalization Rate as per respective companies websites Market Capitalization 2005 2006 2007 2008 2009 2010 Delta Insurance Company Life 1347282 560 8731384 980 9342560 030 10358047 500 10347648 300 11545420 000 .956329 95 1.

P a g e | 39 Fareast Life Islami 1268453 200 2456366 890 3587958 000 44674896 00 56783426 88 69278699 60 Meghna Insurance Life 7328561 68 6839246 00 9857326 00 43689126 70 32975628 00 47934520 00 Popular Insurance Life 3286506 0 5489700 0 6589560 00 15684987 00 19766522 46 25056748 65 Pragati Insurance Life 1107654 320 2349865 400 3007623 870 43287432 00 53214870 00 63498540 00 Prime Islami Life Insurance 8736217 5 1327648 79 1743223 86 17634987 7 14387653 4 43721764 9 Progressive Life Insurance 1563487 90 2546846 00 3268900 00 32789247 0 47342980 0 56731168 9 Total Book Value calculated by the formula: Total Book Value= Total Assets – Intangible Assets – Total Liabilities Total Book Value 2005 2006 2007 2008 2009 2010 Delta Life Insurance Company 2149304 560 3394852 040 3485936 835 4937425 469 5737345 683 6838297 776 Fareast Islami Life 5834942 50 6504367 80 9034574 80 1182766 520 1520837 504 2462749 710 .

P a g e | 40 Meghna Insurance Life 6794038 70 9739472 60 1894537 840 3958148 204 4876982 380 5627604 970 Popular Insurance Life 2678460 0 4286500 0 5869830 0 6543288 70 9733252 70 2006971 038 Pragati Insurance Life 1253246 200 1432564 300 1543298 650 1744325 000 1963454 000 2374887 300 Prime Islami Insurance Life 9984562 5 1264378 90 1547876 40 1656583 46 2422691 27 4686434 07 Progressive Insurance Life 1458534 00 1638734 00 3021345 689 3428654 20 4582300 00 6543235 60 Figure: Graph Showing Price to Book Value Ratios. .

This means all of the firms have high net income. In case of profitability indicator ratios all of the firms have healthy figure. But overall all of the company has strong ground to assure their shareholder of the rationale of their market price. 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. . Last of all in case of investment valuation ratios all of the firms have strong ratios. Firms have good debt indicator ratios. we have seen that there is a good balance among the firms. 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. This means they retain much cash than need. Meghna Life Insurance Ratio Analysis suggests their stocks are undervalued. stocks are perhaps overvalued in a minor extent. Most of the firms have good ratio figure. This reduces the ability of the firm of earning. In case of liquidity measurement ratios all of the firms have very high figure. Fareast Life Insurance Co.P a g e | 41 Inference: The above calculation suggests that all of the company has a fair Price/Book Value. management of the company can be suggested to look for internal instability that can be attributed to such an undervaluation. Conclusion: After the twenty financial ratio analyses. That means the firms have a good ground to justify the market price they hold.