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Ratio Analysis Of Life Insurance Companies
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 16-030
2. Nazim Reza 16-011
3. Tauhidul Islam 16-071
4. Md. Mashroor Ali 16-031
5. Rafsan Mahtab 16-087
6. Jakir Hossain 16-048
7. Rezaur Rahman 16-040
8. Avijit Kumar Saha 16-039
9. Sharmin Sorker 16-057
10. Md. Mokbul Islam 16-038
16th Batch
Department of Banking
University of Dhaka
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 Topic Pages
01 Executive Summary 01
02 Liquidity Measurement Ratios 02
03 Profitability Indicator Ratios 03
04 Debt Ratios
05
05 Operating Performance Ratio 07
06 Cash flow indicator Ratio 09
07 Investment Valuation Ratios
11
08 Conclusion 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 companies-
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.
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 below-
Name of Companies 2006 2007 2008 2009 2010
Delta Life Insurance Co. Ltd. 4.02 : 1 3.06 : 1 5.75 : 1 4.45 : 1 7.89 : 1
Fareast Islami Life Insurance Co.
Ltd.
3.79 : 1 2.88 : 1 4.92 : 1 6.69 : 1 7.95 : 1
Prime Life Insurance Co. Ltd. 2.56 : 1 4.12 : 1 3.57 : 1 5.49 : 1 6.68 : 1
Rupali Life Insurance Co. Ltd. 2.35 : 1 3.65 : 1 5.51 : 1 3.79 : 1 2.97 : 1
Pragati Life Insurance Co. Ltd. 2.46 : 1 4.29 : 1 5.46 : 1 3.76 : 1 5.97 : 1
Meghna Life Insurance Co. Ltd. 1.92 : 1 2.13 : 1 3.98 : 1 4.23 : 1 3.11 : 1
Progressive Life Insurance Co. Ltd. 3.84 : 1 5.18 : 1 4.63 : 1 6.06 : 1 5.37 : 1
Popular Life Insurance Co. Ltd. 2.95 : 1 4.01 : 1 5.23 : 1 5.62 : 1 5.21 : 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 are-
1. 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 are-
1. 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 2006 2007 2008 2009 2010
Delta Life Insurance Co. Ltd. 2.55 : 1 3.1 : 1 4.08 : 1 2.77 : 1 5.67 : 1
Fareast Islami Life Insurance Co.
Ltd.
2.48 : 1 2.56 : 1 4.58 : 1 5.91 : 1 7.22 : 1
Prime Life Insurance Co. Ltd. 2.09 : 1 3.74 : 1 3.05 : 1 4.37 : 1 4.32 : 1
Rupali Life Insurance Co. Ltd. 1.89 : 1 3.13 : 1 5.19 : 1 3.28 : 1 2.46 : 1
Pragati Life Insurance Co. Ltd. 1.95 : 1 3.81 : 1 4.94 : 1 3.31 : 1 5.40 : 1
Meghna Life Insurance Co. Ltd. 1.51 : 1 1.86 : 1 3.54 : 1 3.90 : 1 2.79 : 1
Progressive Life Insurance Co. Ltd. 3.49 : 1 4.03 : 1 3.60 : 1 4.68 : 1 5.01 : 1
Popular Life Insurance Co. Ltd. 2.21 : 1 3.63 : 1 4.57 : 1 5.09 : 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 are-
i. Progressive Life Insurance company – quick ratio 3.49 : 1
ii. Delta Life Insurance Company – quick ratio 2.55 : 1
iii. Fareast Islami Life Insurance Company – quick ratio 2.48 : 1
2007: The top three life insurance companies in respect of quick ratio in 2007 are-
i. Progressive Life Insurance Co. Ltd. – quick ratio 4.03 : 1
ii. Pragati Life Insurance Co. Ltd. – quick ratio 3.81 : 1
iii. Prime Life Insurance Co. Ltd. – quick ratio 3.74 : 1
2008: The top three life insurance companies in 2008 are –
i. Rupali Life Insurance Co. Ltd. – quick ratio 5.19 : 1
ii. Pragati Life Insurance Co. Ltd. – quick ratio 4.94 : 1
iii. Fareast Islami Life Insurance Co. Ltd. – quick ratio 4.58 : 1
2009: The three companies holding highest quick ratio in 2009 are –
i. Fareast Islami Life Insurance Co. Ltd. – quick ratio 5.91 : 1
ii. Popular Life Insurance Co. Ltd. – quick ratio 5.09 : 1
iii. Progressive Life Insurance Co. Ltd. – quick 4.68 : 1
2010: The best three companies in respect of quick ratio in 2010 are –
i. Fareast Islami Life Insurance Co. Ltd. – quick ratio 7.22 : 1
ii. Delta Life Insurance Co. Ltd. – quick ratio 5.67 : 1
iii. 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 2007 2008 2009 2010
Delta Life Insurance
Company
325.83 426.02 489.36 553.473 1356.79
Meghna Life Insurance 709.26 692.74 687.29 688.08 673.31
Pragati Life Insurance 387.89 379.11 381.43 364.00 333.65
Progressive Life Insurance 235.81 271.00 346.01 396.32 426.24
Fareast Islami Life 316.46 319.72 326.25 323.96 328.71
Popular Life Insurance 462.37 478.81 473.98 476.03 479.36
Prime Islami Life Insurance 381.44 406.76 413.63 406.31 411.92
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.
ROE= Net Income
Avg Shareholder s′euity
Calculation (%):
2006 2007 2008 2009 2010
Delta Life Insurance
Company
38.78 34.14 34.679 39.23 33.91
Meghna Life Insurance 34.02 39.36 48.24 47.21 48.78
Pragati Life Insurance 21.48 32.00 47.23 42.37 46.93
Progressive Life Insurance 29.38 32.26 38.20 38.86 37.21
Fareast Islami Life 37.46 40.37 38.09 41.67 38.21
Popular Life Insurance 38.12 37.25 38.38 39.95 43.29
Prime Islami Life
Insurance
26.39 29.78 29.34 31.89 37.82
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 (%):
Company’s name 2006 % 2007 % 2008 % 2009 % 2010 %
Delta Life Insurance
Company 19.8 18.14 17.2 17.8 21.4
Fareast Islami Life
Insurance 17.11 16.21 19.8 20.12 18.25
Meghna Life Insurance 20.23 21.22 18.25 19.19 20.8
Popular Life Insurance 21.3 20.21 19.2 17.24 21.24
Pragati Life Insurance 17.29 15.26 18.24 15.63 16.8
Prime Islami Life Insurance 16.26 17.24 15.55 15.25 19.24
Progressive Life Insurance 19.25 17.24 16.55 16.45 18.56
Rupali Life Insurance 18.25 17.23 17.65 16.36 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:
Company’s Name 2006 2007 2008 2009 2010
Delta Life Insurance
Company
12.8 12.98 13.25 12.75 14.23
Fareast Islami Life Insurance 13.25 14.50 13.85 12.96 16.32
Meghna Life Insurance 11.25 12.56 15.85 13.63 14.56
Popular Life Insurance 12.63 13.54 13.49 14.29 15.32
Pragati Life Insurance 13.52 14.52 15.22 14.80 15.88
Prime Islami Life Insurance 14.20 13.20 14.45 17.51 16.21
Progressive Life Insurance 12.42 12.39. 13.63 14.62 16.46
Rupali Life Insurance 11.52 12.36 14.52 12.33 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
2006 2007 2008 2009 2010
Delta Life Insurance Company
11506.43 14197.90 15478.74 17514.78 18289.78
Fareast Islami Life Insurance
Company
1702.67 2753.80 2951.45 3145.74 3374.27
Meghna Life Insurance Company
1773.57 2640.42 4604.61 6067.10 7451.47
Popular Life Insurance Company
834.30 2255.65 3452.12 4289.94 6124.61
Pragati Life Insurance Company
730 1173 3214 5142 6410
Prime Islami Life Insurance Company
1482.20 2688.45 3142.11 4120.45 5210.78
Progressive Life Insurance Company
316 567.28 1200 1445.12 2247.12
Rupali Life Insurance Company 413.14 532.42 652.74 631.32 720.11
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.
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
2006 2007 2008 2009 2010
Delta Life Insurance Company
1050.11 1313.96 1627.13 1821.12 1912.41
Fareast Islami Life Company
145.40 227.62 312.41 472.12 825.14
Meghna Life Insurance Company
141.47 218.73 345.14 412.81 512.01
Popular Life Insurance Company
55.96 140.60 279.59 312.45 421.78
Pragati Life Insurance Company
286.53 99.87 251.12 421.12 478.81
Prime Islami Life Insurance
Company
90.35 641.25 312.45 712.78 825.14
Progressive Life Insurance
Company
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 2006 2007 2008 2009 2010
Popular 14% 13% 11.5% 9% 8.5%
Meghna 17% 14% 11% 9% 8%
Pragati 18% 10% 9% 8.5% 7%
Prime Islamic 12% 10% 8.5% 8% 7%
Progressive 13% 9% 8% 7% 6.5%
Delta 16% 14% 10% 9% 8%
Fareast
Islamic
11% 10% 9.5% 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 2006 2007 2008 2009 2010
Popular 65% 72% 70% 52% 75%
Meghna 62% 55% 43% 7o% 54%
Progoti 45% 60% 48% 72% 56%
Prime Islamic 58% 47% 63% 71% 61%
Progressive 47% 62% 55% 69% 67%
Fareast Islamic 53% 49% 65% 49% 70%
4. Capitilization Ratio:
Capitalization ratios, also known as financial leverage ratios, are used to determine a company’s
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 company’s solvency and viability over the long term
and allow more accurate risk assessments for prospective investors.
Typically, 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, as follows:
Calculation:
Company 2006 2007 2008 2009 2010
Popular 90.16% 85.41% 89.65% 91.26% 95.90%
Meghna 96.26% 94.03% 52.47% 97.36% 97.26%
Pragati 85.47% 79.47% 87.72% 92.77% 94.82%
Prime Islamic 74.72% 83.26% 87.30% 87.61% 93.59%
Progressive 96.07% 67.99% 78.50% 92.04% 94.47%
Delta 99.85% 99.83% 99.97% 99.99% 99.99%
Fareast Islamic 95.75% 62.44% 68.07% 94.81% 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 2006 2007 2008 2009 2010
Popular 10.92 14.17 17.78 15.59 17.26
Meghna 0.18 1.13 18.91 19.36 19.47
Pragati 16.93 17.50 20.89 11.20 13.25
Prime Islamic 3.80 6.83 12.25 15.29 19.21
Progressive 8.94 28.24 19.36 18.90 24.52
Delta 7.05 7.77 9.11 10.74 12.68
Fareast Islamic 7.64 9.57 8.04 8.23 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(%) 2007(%) 2008(%) 2009(%) 2010(%)
Delta Life Insurance
Company
10.91 11.64 11.02 11.12 10.03
Meghna Life Insurance 18.63 14.25 16.23 20.41 17.24
Pragati Life Insurance 8.36 9.25 11.27 12.94 9.88
Progressive Life Insurance 11.58 12.96 9.27 11.29 10.64
Fareast Islami Life 21.87 23.17 18.69 25.46 28.72
Popular Life Insurance 27.21 31.24 27.54 29.01 29.30
Prime Islami Life Insurance 17.26 22.79 20.67 23.14 21.78
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 Payout Ratio = Dividend Per Common Share
Earning Per Share
Calculation (%):
2006 2007 2008 2009 2010
Delta Life Insurance Company 36.12 24.31 30.14 35.12 30.58
Meghna Life Insurance 41.21 47.2 41.3 38.9 40.38
Pragati Life Insurance 26.1 21.35 26.14 29.87 25.12
Progressive Life Insurance 39.8 36.10 28.94 31.8 36.14
Fareast Islami Life 45.20 40.9 40.41 30.14 32.54
Popular Life Insurance 24.8 20.1 29.1 34.85 39.23
Prime Islami Life Insurance 25.36 27.1 36.24 20.14 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.
Name of insurance company
Year (Short term debt coverage)
2010 2009 2008 2007 2006
Delta life insurance 1.4 1.2 1.2 1 .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 2 1.7 1.6 1.3
Pragati life insurance 1.5 1.8 1.2 -1 1.1
Prime islami life insurance 1 1.6 2.2 1.6 1.5
Progressive life insurance 1 .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 firm’s 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.
Name of
insurance
company
Year (Price cash flow ratio)
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 company’s 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 2010 2009 2008 2007 2006
Delta 0.068 0.045 0.034 0.047 0.047
Fareast 0.038 0.052 0.039 0.044 0.036
Meghna 0.022 0.023 0.058 0.053 0.032
Popular 0.039 0.087 0.10 0.12 0.093
Pragati 0.049 0.071 0.094 0.062 0.053
Prime 0.068 0.14 0.059 0.064 0.113
Progressive 0.271 0.470 0.541 0.624 0.470
Rupali 0.072 0.065 0.051 0.042 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 2010 2009 2008 2007 2006
Delta 1.444 1.686 2.01 2.277 2.521
Fareast 5.206 6.742 3.966 4.752 5.807
Meghna 4.531 4.061 7.022 6.323 5.485
Popular 3.333 5.491 4.827 3.378 5.999
Pragati 6.62 10.33 5.623 6.395 4.821
Prime 5.335 8.749 6.671 5.467 6.692
Progressive 15.82 22.15 18.762 19.018 12.85
Rupali 7.897 6.526 5.983 5.983 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. It’s 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:
𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝒀𝒊𝒆𝒍𝒅 =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 2006 2007 2008 2009 2010
Delta Life Insurance
Company
0.137962 0.10633821 0.131413882 0.11068884 0.126984127 0.125628141
Fareast Islami Life 1.57096 1.65062585 1.647492625 1.09932498 0.851641414 0.722222222
Meghna Life Insurance 0.051475 0.09164221 0.069497698 0.06632823 0.077451687 0.126995646
Popular Life Insurance 0.001696 0.0032967 0 0.04145555 0 0.051020408
Pragati Life Insurance 0.003072 0.00353665 0 0.00311326 0.003949275 0.003038143
Prime Islami Life Insurance 0 0 0.371592639 0.25002502 0.332510815 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 2007 2008 2009 2010
Delta Life Insurance
Company
44.1479821 46.04444444 51.12 46.6 48 50
Fareast Islami Life 157.096 161.7613333 186.166667 134.1176471 149.8888889 130
Meghna Life
Insurance
7.97866667 12.55498224 12.9960696 13.13298962 15.49033733 26.92307692
Popular Life
Insurance
0.19 0.438461538 0 6.923076923 0 10
Pragati Life
Insurance
0.50375 0.544644444 0 0.547933333 0.726666667 0.610666667
Prime Islami Life
Insurance
0 0 49.421821 40.75407779 47.21653569 55.69333333
Progressive Life
Insurance
3.9498 4.171153846 8.56179775 7.013885714 7.148148148 12.55555556
Market Price per Share as per DSE Index
Market Price Per Share
2005 2006 2007 2008 2009 2010
Delta Life Insurance Company
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 Life Insurance 96 123 133 163 142 151
Progressive Life Insurance 76 98 122 143 156 211
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 company’s 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:
𝑷𝒓𝒊𝒄𝒆 𝒕𝒐 𝑩𝒐𝒐𝒌 𝑽𝒂𝒍𝒖𝒆 =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 2006 2007 2008 2009 2010
Delta Life Insurance Company
0.626846 2.57194861 2.680071519 2.09786407 1.803560195 1.688347068
Fareast Islami Life 2.173892 3.7764883 3.971363434 3.77715257 3.733694542 2.813062948
Meghna Life Insurance 1.078675 0.70221934 0.520302408 1.10377693 0.676148188 0.851774783
Popular Life Insurance 1.227013 1.28069521 11.22615135 2.39711065 2.030823926 1.248485811
Pragati Life Insurance 0.883828 1.64032107 1.948828161 2.48161507 2.710268231 2.673749613
Prime Islami Life Insurance
0.874972 1.05004029 1.126203526 1.06453965 0.593870692 0.932943134
Progressive Life Insurance 1.071958 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 2006 2007 2008 2009 2010
Delta Life Insurance
Company
1347282560 8731384980 9342560030 10358047500 10347648300 11545420000
Fareast Islami Life 1268453200 2456366890 3587958000 4467489600 5678342688 6927869960
Meghna Life
Insurance
732856168 683924600 985732600 4368912670 3297562800 4793452000
Popular Life
Insurance
32865060 54897000 658956000 1568498700 1976652246 2505674865
Pragati Life Insurance 1107654320 2349865400 3007623870 4328743200 5321487000 6349854000
Prime Islami Life
Insurance
87362175 132764879 174322386 176349877 143876534 437217649
Progressive Life
Insurance
156348790 254684600 326890000 327892470 473429800 567311689
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
2149304560 3394852040 3485936835 4937425469 5737345683 6838297776
Fareast Islami Life 583494250 650436780 903457480 1182766520 1520837504 2462749710
Meghna Life Insurance 679403870 973947260 1894537840 3958148204 4876982380 5627604970
Popular Life Insurance 26784600 42865000 58698300 654328870 973325270 2006971038
Pragati Life Insurance 1253246200 1432564300 1543298650 1744325000 1963454000 2374887300
Prime Islami Life Insurance 99845625 126437890 154787640 165658346 242269127 468643407
Progressive Life Insurance 145853400 163873400 3021345689 342865420 458230000 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.