A Study on Financial Performance of Reliance life Insurance Private ltd

Through Ratio Analysis, Chittoor.

PROJECT REPORT

Submitted in the Partial Fulfillment of the

Requirement for the Award of the degree of

MASTER OF BUSINESS ADMINISTRATION

SREENIVASA INSTITUTE OF TECHNOLOGY AND MANAGEMENT STUDIES

(AUTONOMOUS)

Submitted by
Ms. D. AJITHA
Reg.No:14751E0034

Under the Guidance of

Dr. G.MALYADRI, M.Com, M.B.A, Ph.D.

Associate Professor, Dept. of M.B.A.

SREENIVASA INSTITUTE OF TECHNOLOGY AND MANAGEMENT STUDIES

(AUTONOMOUS)
Dr .VISWESWARAIAH ROAD (BANGALORE-TIRUPATHI BYE-PASS)
MURUKAMBATTU POST, CHITTOOR – 517 127 (A.P.)
(2014-2016)
 SREENIVASA INSTITUTE OF TECHONOLOGY
AND MANAGEMENT STUDIES
(AUTONOMOUS)
Dr. Visweswaraiah Road
(Bangalore-Tirupathi Bye-pass road)
Murukambattu, Chittoor – 517 127
(Approved by AICTE, New Delhi & Affiliated to JNTUA,
Anathapuramu)

CERTIFICATE
This is to certify that the Project Report entitled “A Study on Financial

performance of Reliance Life Insurance Private Ltd through Ratio Analysis,

Chittoor” is a record of bonafied work done and submitted by Ms. D. Ajitha

(Regno:14751E0034) in partial fulfillment of requirement for the award of degree of

Master of Business Administration under Jawaharlal Nehru Technological

University Anantapur during the academic year 2015-16.

PROJECT GUIDE HEAD OF THE DEPARTMENT

Dr. G. MALYADRI, M.Com, M.B.A, Ph.D Dr.J.V.BALASUBRAMANIAN ,M.B.A, Ph.D.

Associate Professor, Professor,
Dept. of M.B.A. Dept. of M.B.A

External Examiner
 DECLARATION

I hereby declare that the project report entitled A Study on Financial

performance of Reliance Life Insurance Private Ltd through Ratio Analysis,
Chittoor, has done by me in partial fulfillment for the award of degree of Master of
Business Administration under Jawaharlal Nehru Technological University,
Anathapuramu. This work has been carried out by me and I have not submitted these
results in any form previously.

PLACE: D. Ajitha

DATE: (REG NO: 14751E0034)

 ACKNOWLEDGEMENT

I wish to express my sincere thanks to Dr. P. Ramesh kumar, M.E., Ph.D

Principal, SITAMS, for providing the opportunity to take up this project.

I express my sincere gratitude to Dr.J.V.Balasubramanian, M.B.A, Ph.D

SITAMS, for providing the opportunity to do this project.

I express my sincere gratitude to Dr. G.Malyadri, M.Com, M.B.A, Ph.D. for his
valuable guidance and encouragement bestowed upon me in the preparation of this
project.

I sincerely express my thanks to all my Family Members and Friends, who

helped me in completing this project successfully.

D.AJITHA

(Reg:14751E0034)
 CONTENTS
Chapter No TITLE Page No

CHAPTER 1 INTRODUCTION 1to 18

CHAPTER 2  INDUSTRY PROFILE 19 to 27

 COMPANY PROFILE 28 to 44

CHAPTER 3 RESEARCH METHODOLOGY

 Secondary Data 45

 Statement of the Problem 46

 Tools & Techniques 47

 Objectives of the study 48

 Scope of the study 49

 Need of the study 50

 Limitations. 51

CHAPTER 4 DATA ANALYSIS 52 to 71

&

INTERPRETATION

CHAPTER 5  FINDINGS 72

 SUGGESTIONS 73

 CONCLUSION 74

BIBLIOGRAPHY

APPENDIX
 LIST OF TABLES
Table No Table Name Page No

Table 4.1 Current Ratio of Reliance Life Insurance 52

Company During 2011-12 to 2014-15

Table 4.2 Debt-Equity Ratio of Reliance Life Insurance 54

Company During 2011-12 to 2014-15

Table 4.3 Net Profit Ratio of Reliance Life Insurance 56

Company During 2011-12 to 2014-15

Table 4.4 Working Capital Turnover Ratio of Reliance Life 58

Insurance Company During 2011-12 to 2014-15

Table 4.5 Return on Capital Employed Ratio of Reliance Life 60

Insurance Company During 2011-12 to 2014-15

Table 4.6 Proprietary Ratio of Reliance Life Insurance 62

Company During 2011-12 to 2014-15

Table 4.7 Return on Assets Ratio of Reliance Life Insurance 64

Company During 2011-12 to 2014-15

Table 4.8 Current Liabilities to Proprietor’s Funds Ratio of 66

Reliance Life Insurance Company During 2011-12
to 2014-15

Table 4.9 Current Assets Turnover Ratio of Reliance Life 68

Insurance Company During 2011-12 to 2014-15

Table 4.10 Capital Turnover Ratio of Reliance Life Insurance 70

Company During 2011-12 to 2014-15
RATIO ANALYSIS Reliance Life Insurance Company

INTRODUCTION

Finance is the life blood and nerve system of any business organization. Just
as circulation of blood, is necessary in the human body to maintain life. Finance is
necessary in the business organization for smooth running of business

Finance is concerned with the task of providing funds to enterprises on the

term that is most favorable towards the attainment of organizational goal’s objects.
The function of finance is not merely furnishing funds to the organization. Finance
has a broader meaning and it covers financial planning, forecasting of cash receipts
and disbursement, rising of funds, use and allocation of funds and financial control

In the modern money oriented economy, finance is one of the basic factor of
all kinds of economic activities. It is master key, which provides access to all the
sources for being employed in manufacturing and merchandising activities,
management should be particularly interested in knowing financial weakness of the
firm to take suitable corrective action. The future plans of the firm should be lead
down in view of the firm’s financial strength and weakness. Thus, financial analysis is
the strengthen points for making plans, before using any sophisticated forecasting and
planning procedures. Understanding the past is the prerequisite for anticipating the
future.

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Ratio Analysis

Ratio is one figure expressed in terms of another. It is an expression of

relationship between one figure and another figure which are mutually
interdependent. Ratio is the numerical (or) arithmetical relationship between two
figures. The ratio analysis is one of the most powerful tools of financial analysis. It is
the process of establishing and interpreting various ratios. It is with the help of ratios
that the financial statement can be analyses more clearly and decisions made from
such analysis.

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be difficult task but their use is not easy. The
information on which these are based, the constraints of financial statements,
objective for using them, the caliber of the analyst, etc. are important factors which
influence the use of ratios. Following guidelines or factors may be kept in mind while
interpreting various ratios

1. Accuracy of financial statement:

The ratios are calculated from the data available in financial statements. The
reliability of ratios is linked to the accuracy of information in these statements. Before
calculating ratios one should see whether proper concepts and conventions have been
used for preparing financial statements or not. These statements should also be
properly audited by competent auditors. The precautions will establish the reliability
of data given in financial statements.

2. Objective or purpose of analysis:

The type of ratios to be calculated will depend upon the purpose for which these are
required. If the purpose is to study current financial position then ratios relating to
current assets and current liabilities will be studied. The purpose of ' user 'is also
important for the analysis of ratios. A creditor, a banker, an investor, a shareholder, all
has different objects for studying ratios. The purpose or object for which ratios are
required to be studied should always be kept in mind for studying various ratios.
Different objects may require the study of different ratios.

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3. Selection of ratios:

Another precaution in ratio analysis is the proper selection of appropriate ratios. The
ratios should match the purpose for which these are required. Calculation of large
number of ratios without determining their need in the present context may confuse
the things instead of solving them. Only those ratios should be selected which can
throw proper light on the matter to be discussed

4. Use of standards:

The ratios will give an indication of financial position only when discussed with
reference to certain standards. Unless otherwise these ratios are compared with certain
standards one will not be able to reach at conclusions. The comparison of calculated
ratios with the standards will help the analyst in forming his opinion about financial
situation of the concern.

5. Caliber of the analyst:

The ratios are only the tools of analysis and their interpretation will depend upon the
caliber and competence of the analyst. He should be familiar with various financial
statements and the significance of change, etc. A wrong interpretation may create
havoc for the concern since wrong conclusion may lead to wrong decisions. The
utility of ratios is linked to the expertise of the analyst.

6. Ratios provide only a base:

The ratios are only guidelines for the analyst, he should not base his decisions entirely
on them. He should study any other relevant information, situation in the concern,
general economic environment, and etc. Before reaching final conclusions. The study
of ratios in isolation may not always prove useful. A businessman will not afford a
single wrong decision because it may have far-reaching consequences. The interpreter
should use the ratios as guide and may try to solicit any other relevant information
which helps in reaching a correct decision.

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NATURE OF RATIO ANALYSIS

Ratio analysis is technique of analysis and interpretation of financial statements. It is

the process of establishing interpreting various ratios for helping in making certain
decisions. However, ratio analysis is not an end itself. It is only a means of better
understanding of financial strengths and weakness of a firm. Calculation of mere
ratios does not serve any purpose, unless several appropriate ratios are analyzed and
interpreted. There are a number of ratios which can be calculated from the
information given in the financial statements, but the analyst has to select the
appropriate data and calculated only a few appropriate ratios from the same keeping
in mind the objective of analysis. The ratios may be used as a symptom like blood
pressure, the pulse rate or the body temperature and their interpretation depends upon
the caliber and competence of the analyst.

The following are the four steps involved in the ratio analysis

 Selection of relevant data from the financial statements depending upon the
objective of the analysis
 Calculation of appropriate ratios from the above data.
 Comparison of the calculated ratios with the ratios of the same firm in the
past, or the ratios developed from projected financial statements or the ratios
of some other firms or the comparison with ratios of the industry to which the
firm belongs.
 interpretation of the ratios

USES / SIGNIFICANCE OF RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial analysis. It is
used as a device to analyze and interpret the financial health of enterprise. A financial
analyst analyses the financial statements with various tools of analysis before
commenting upon the financial health or weakness of an enterprise. 'A ratio is known
as a symptom like blood pressure, the pulse rate or the temperature of an individual'.
It is with help of ratios that the financial statements can be analyzed more clearly and
decisions made from such analysis.
The use of ratios is not confined to financial managers only. As discussed
earlier, there are different parties interested in the ratio analysis for knowing the

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financial position of a firm for different purposes. The supplier of goods on credit,
banks, financial institutions , investors, shareholders and management all make use of
ratio analysis as a tool in evaluating the financial position and performance of a firm
for granting credit, providing loans or making investments in the firm. With the use of
ratio analysis is one can measure the financial condition of a firm and can point out
whether the condition is strong, good, questionable or poor. The conclusions can also
be drawn as to whether the performance of the firm is improving or deteriorating.
Thus, ratios have wide applications and are of immense use today.
Managerial uses of ratio analysis

Helps in decision- making:

Financial statements are prepared primarily for decision making .But the
information provided in financial statements is not an end in itself and no meaningful
conclusion can be drawn from these statements alone. Ratio analysis helps in making
decisions from the information provided in these financial statements.
Helps in financial forecasting and planning:
Ratio Analysis is of much help in financial forecasting and planning. Planning
is looking ahead and the ratios calculated for a number of years work as a guide for
the future. Meaningful conclusions can be drawn for future from these ratios. Thus,
ratio analysis helps in forecasting and planning.
Helps in communicating:
The financial strength and weakness of a firm are communicated in a more
easy and understandable manner by the use of ratios. The information contained in the
financial statements conveyed in a meaningful to the one for whom it is meant. Thus,
ratios help in communication and enhance the value of the financial statements.
Helps in co-ordination:
Ratios even help in co-ordination which is of utmost importance in effective
business management. Better communication of efficiency and weakness of an
enterprise results in better co-ordination in the enterprise.

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Helps in control:
Ratio analysis even helps in making effective control of the business. Standard
ratios can be based upon proforma financial statements and variances or deviations, if
any, can be founded by comparing the actual with the standards so as to take a
corrective action at the right time. The weaknesses or otherwise, if any, come to the
knowledge of the management which helps in effective control of the business.
Other uses:
These are so many other uses of the ratio analysis. It is an essential part of the
budgetary control and standard costing. Ratios are of immense importance in the
analysis and interpretation of financial statements as they bring the strength or
weakness of a firm.
Uses to shareholders/ investors
An investor in the company will like to assess the financial position of the
concern where he is going to invest. His first interest will be the security of his
investments and then a return in the form of dividend or interest for the first purpose
he will try to assess the value of fixed assets and the loans raised against them. The
investor will feel satisfied only if the concern has sufficient amount of assets. Long-
term solvency ratios will help him in assessing financial position of the concern.
Profitability ratios, on the other hand , will be useful to the investor in making up his
mind whether present financial position of the concern warrants further investment or
not.
 Utility to creditors:
The creditors or suppliers extend short-term credit to the concern. They are
interested to know whether financial position of the concern warrants their payments
at a specified time or not. The concern pays short-term creditors out of its current
assets. If the current assets are quite sufficient to meet current liabilities then the
creditor will not hesitate in extending credit facilities. Current and acid -test ratios will
give an idea about the current financial position of the concern.
 Utility to employees:
The employees are also in the financial position of the concern especially
profitability. Their wage increases and amount of fringe benefits are related to the
volume of profits earned by the concern. The employees make use of information
available in financial statements. Various profitability ratios relating to gross profit,

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operating profit, net profit, etc. enable employees to put forward their viewpoint for
the increase of wages and other benefits.
 Utility to government:

Government is interested to know the overall strength of the industry. Various

financial statements published by industrial units are used to calculate ratios for
determining short-term, long -term and overall financial position of the concerns.
Profitability indexes can also be prepared with the help of ratios. Government may be
its future policies on the basis of industrial information available from various units.
The ratios may be used as indicator of overall financial strength of public as well as
private sector. In the absence of the reliable economic information, governmental
plans and policies may not prove successful.

 Tax Audit requirements:

Section 44 AB was inserted in the income tax act by the Finance act, 1984.
under this section every assesses engaged in any business and having turnover or
gross receipts exceeding RS 40 lakh is required to get the accounts audited by a
chartered accountant and submit the tax audit report before the due date for filing the
return of income under section 139(1) in case of a professional, a similar report is
required if the gross receipts exceed RS 10 lakh. Clause 32 of the Income Tax Act
requires that the following accounting ratios should be given

 Gross profit/ Turnover

 Net profit/Turnover
 Stock-in-trade/Turnover
 Material consumed/Finished goods produced.

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LIMITATIONS OF RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial management.
Though ratios are simple to calculate and easy to understand, they suffer from some
serious limitations.

 Limited use of a single ratio:

A single ratio, usually, does not convey much of a sense. To make a better
interpretation a number of ratios have to be calculated which is likely to confuse the
analyst than help him in making any meaningful conclusion.

 Lack of adequate standards:

There are no well accepted standards or rules of thumb for all ratios which
can be accepted as norms. It renders interpretation of the ratios difficult.

 Inherent limitations of accounting:

Like financial statements, ratio also suffers from the inherent weakness of
accounting records such as their historical nature. Ratios of the past are not
necessarily true indicators of the future.

 Change of accounting procedure:

Change in accounting procedure by a firm often makes ratio analysis
misleading e.g. a change in the valuation of methods of inventories, from FIFO to
LIFO increases the cost of sales and reduces considerably the value of closing stocks
which makes stock turnover ratio to be lucrative and an un favorable gross profit
ratio.
 Window Dressing:
Financial statements can easily be window dressed to present a better picture
of its financial profitability position to outsiders. Hence, one has to be very careful in
making a decision from ratios calculated from such financial statements. But it may
be very difficult for outsiders to know about the window dressing made by a firm.
 Personal Bias:
Ratios are only means of financial analysis and not an end in itself. Ratios
have to interpret and different people may interpret the same ratio in different ways.

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 Incomparable:

Not only industries differ in their nature but also the firms of the similar
business widely differ in their size and accounting procedures, etc. It makes
comparison of ratios difficult and misleading. Moreover, comparisons are made
difficult due to differences in definitions of various financial terms used in the ratio
analysis.

 Price level changes:

While making ratio analysis, no considerations is made to the changes in price

levels and this makes the interpretation of ratios invalid.

Classification of Ratios

The use of ratio analysis is not confined to financial manager only. There are
different parties interested in the ratio analysis for knowing the financial position of a
firm for different purposes. In view of various users of ratios, there are many types of
ratios which can be calculated from the information given in the financial statements.
The particular purpose of the user determines the particular ratios that might be used
for financial analysis. For example, a supplier of goods of a firm on credit or a banker
advancing a short-term loan to a firm is interested primarily in the short-term paying
capacity of the firm, or say in its liquidity. On the other hand a financial institution
advancing a long term credit to a firm will be primarily interested in the solvency or
long-term financial position of the concern. Similarly the interests of the owners and
the management also differ. The shareholders are generally interested in the
profitability or dividend position of a firm while management requires information on
almost all the financial aspects of the firm to enable it to protect the interests of all the
parties.

Ratios can be divided in to the following three types

 Balance Sheet Ratios (or) Position Statement Ratios

 Profit and Loss Account Ratios (or) Revenue/Income Statement Ratios
 Composite/Mixed (or) Inter-statement Ratio

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 Balance sheet Ratio (or) Position statement Ratio

Balance sheet ratios deal with the relationship between two balance sheet items. e.
g the ratio of current assets to current liabilities, or the ratio of proprietors funds to
fixed-assets both the items must, however, pertain to the same balance sheet. Balance
sheet ratios can be again classified in to the following types.

1. Current Ratio

2. Liquid Ratio (Acid Test Ratio)

3. Absolute Liquidity Ratio

4. Proprietary Ratio

5. Asset- Proprietorship Ratio

1. Current ratio:

Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio is also known as ' working capital ratio 'is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial
position or liquidity of a firm.

Current ratio = Current Assets/Current liabilities

2. Quick or Liquid ratio:

Quick ratio, also known as Acid Test or Liquid Ratio, is a more rigorous test of
liquidity than the current ratio. The term ' liquidity ' refers to the ability of a firm to
pay its short-term obligations as and when they become due. Quick ratio may be
defined as the relationship between quick/ liquid assets and current or liquid
liabilities.

Quick/ Liquid or Acid Test Ratio= Quick or Liquid Assets/Current liabilities

3. Absolute Liquid ratio:

Although receivables, debtors and bills receivables are generally more liquid than
inventories, yet there may be doubts regarding their realization in to cash immediately
or in time. Hence, some authorities are of the opinion that the absolute liquid ratio

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should also be calculated together with current ratio and acid test ratio so as to
exclude even receivables from the current assets and absolute liquid assets.

Absolute Liquid Ratio= Absolute Liquid Assets/Current liabilities

4. Proprietary Ratio (or) Equity Ratio:

This ratio establishes the relationship between shareholders funds to total assets
of the firm. The ratio of proprietors’ funds to total funds is an important ratio for
determining long-term solvency of a firm.

Proprietary ratio or equity ratio = shareholders funds/ total assets

5. Assets- Proprietorship ratio:

The ratio is calculated by dividing the total of current assets by the amount of
shareholder's funds.

Assets-proprietorship ratio = Current assets/ Shareholder's funds

 Profit and Loss Account Ratios

Generally, profitability ratios are calculated either in relation to sales or in
relation to investment. Profit and loss account ratios are also called as “Profitability"
ratios .profitability ratios can be divided in to the following types.
1. Gross profit ratio

2. Operating ratio

3. Operating profit ratio

4. Net profit ratio

5. Expenses ratio

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1. Gross profit ratio:

Gross profit ratio measures the relationship of gross profit to net sales and is
usually represented as a percentage. Thus, it is calculated by dividing the gross profit
by sales.

Gross profit ratio= Gross profit/ Net sales*100

(Or)

Gross profit ratio= sales-cost of goods sold/sales*100

2. Operating ratio:

Operating ratio establishes the relationship between cost of goods sold and other
operating expenses are one hand and the sales on the other. In other words, it
measures the cost of operations per rupee of sales. The ratio is calculated by dividing
operating costs with the net sales and it’s generally represented as percentage.

Operating ratio= Operating cost/Net sales*100

(Or)

Operating ratio= Cost of goods sold+ Operating expenses/Net sales*100

3. Operating profit ratio:

This ratio is calculated by dividing operating profit by sales.

Operating profit ratio = Operating profit/ sales*100

4. Net profit ratio:

Net profit ratio establishes a relationship between net profit and sales, and
indicates the efficiency of the management in manufacturing, selling, administrative
and other activities of the firm. This ratio is the overall measure of firm's profitability
and is calculated as

Net profit ratio = Net profit after tax/ Net sales*100

(Or)

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Net profit ratio = Net operating profit/ Net sales*100

5. Expenses ratio:

Expenses ratio indicate the relationship of various expenses to net sales. The
operating ratio reveals the average total variation in expenses.

Expense ratio= Particular expenses/ Net sales*100

(Or)

Cost of goods sold ratio =Cost of goods sold/sales*100

(Or)

Administrative & Office Expense ratio= Administrative &office expenses/ sales*

100

Selling & Distributive expenses ratio= Selling & Distributive expenses/sales*100

Non-operating expenses ratio= Non-operating expenses/ sales*100

 Composite/Mixed ratios

These ratios exhibit the relation between the profit and loss account or income
statement item and a balance sheet item. Stock turnover ratio or the ratio of total
assets to sales. Composite ratio can be divided in to the following types.

1. Stock Turnover ratio

2. Debtors Turnover ratio
3. Payable / Creditors Turnover ratio
4. Fixed Assets Turnover ratio
5. Return on Equity
6. Return on capital Employed
7. Capital Turnover ratio
8. Working Capital Turnover Ratio
9. Leverage Ratio

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1. Stock / Inventory Turnover ratio:

Inventory turnover ratio also known as stock velocity is normally calculated as

sales/average inventory or cost of goods sold / average inventory. It would indicate
whether inventory has been efficiently used or not. Inventory Turnover ratio indicates
the number of times the stock has been turned over during the period and evaluates
the efficiency with which a firm is able to manage its inventory.

Inventory Turnover Ratio = Cost of goods sold/Average Inventory (or) stock

2. Debtors Turnover Ratio:

Debtors turnover ratio indicates the velocity of debt collection of firm. Simple
words, it indicates the number of times average debtors (receivables) are turned over
during a year. Similarly, low debtors turnover implies inefficient management of
debtors/sales and less liquid debtors.

Debtors Turnover Ratio = Net Credit Sales/ Average Debtors

3. Creditors/Payable Turnover Ratio:

In the course of business operations, a firm has to make credit purchases and
incurred short- liabilities. A supplier of goods i.e., creditor, is naturally interested in
finding out how much time the firm is likely to take in repaying its trade creditors.

Creditors Turnover Ratio = Net credit purchases / Average Trade creditors

4. Fixed Assets Turnover ratio:

Fixed Assets turnover is the relationship between sales or cost of goods sold and
fixed/ capital assets employed in a business. Working capital turnover ratio indicates
the velocity of the utilization of net working capital.

Fixed Assets Turnover Ratio = Cost of goods sold (or) sales / Fixed assets

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5. Return on Equity Capital:

Preference shareholder gets a fixed rate of dividend irrespective of the quantum of

profits of the company. The rate of dividend varies with the availability of profits in
case of ordinary shares only. Return on equity capital, which is the relationship
between profits of a company and its equity capital.

Return on Equity Capital = Net profit after tax- Preference dividend/ Equity share
capital

6. Return on Capital Employed:

Return on capital employed establishes the relationship between profits and the
capital employed. It is the primary ratio and is most widely used to measure the
overall profitability and efficiency of a business.

Return on Capital Employed = Earnings before interest& tax/ capital employed

7. Capital Turnover Ratio:

Capital turnover ratio is the relationship between cost of goods sold and the
capital employed. This ratio is calculated to measure the efficiency or effectiveness
with which a firm utilizes its resources or the capital employed.

Capital Turnover Ratio = Cost of goods sold (or) sales/ capital employed

8. Working Capital Turnover Ratio:

Working Capital Turnover Ratio indicates the velocity of the utilization of net
working capital. This ratio indicates the number of times the working capital turned
over in the course of a year. This ratio measures the efficiency with which the
working capital is being used by a firm.

Working Capital Turnover Ratio = Sales/ Net working capital

Net Working capital = Current Assets-Current liabilities

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9. Leverage Ratios:

Leverage (or) capital structure ratios are calculated to test the long-term financial
position of a firm. Following ratios are generally calculated to analyses the capital
structure of a firm.

 Capital Gearing Ratio

 Debt Equity Ratio
 Total Investment to Long term Liabilities
 Ratio of Fixed Assets to Funded Debt
 Ratio of Current Liabilities to Proprietor's Funds
 Financial Leverage
 Operating Leverage
1. Capital Gearing ratio:

The term ' capital gearing' is used to relationship between equity share capital
including reserves and surpluses to preference share capital and other fixed interests -
bearing loans. If preference share capital and other fixed interest bearing loans exceed
the equity share capital including reserves, the firms said to be highly geared.

Capital Gearing ratio =Equity share capital + reserve & surplus/ preference
capital + long-term debt bearing fixed interest

(Or)

Capital Gearing ratio = Fixed income bearing funds/ Equity share holders
funds

2. Debt equity ratio:

Debt-Equity Ratios, also known as External- Internal Equity Ratio is calculated to

measure the relative claims of outsiders other owner. Against the firm’s assets. This
ratio indicates the relationship between the external equities or the outsider’s funds
and the internal equities or the shareholders funds.

Debt-Equity Ratio= Outsiders Funds/ Shareholders Funds

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3. Total Investment to Long-term Liabilities:

This ratio is calculated by dividing the total of long-term funds by the long-term
liabilities.

Total Investment to Long-term Liabilities = Shareholder's funds+ Long-term

liabilities / Long-term liabilities
4. Ratio of Fixed Asset to Funded Debt:

The ratio measures the relationship between the fixed assets and the funded debt
and is a very useful to the long term creditors. The ratio can be calculated as below.

Ratio of Fixed Assets to Funded Debt = Fixed Assets/ Funded Debt

5. Ratio of Current Liabilities to Proprietor's Funds:

The ratio of current liabilities to proprietor's funds establishes the relationship

between current liabilities and the proprietor's funds and indicates the amount of long-
term funds raised by the proprietors as against short-term borrowings.

Ratio of Current Liabilities to Proprietor's funds = Current Liabilities/ Share

holder's Funds

6. Financial Leverage:

The use of long-term fixed interest bearing debt and preference share capital
along the equity share capital is called financial leverage or trading on equity. It is
owner’s equity. Which is basis to raise loans and that is way it is called trading on
equity. The long- term fixed interest bearing debt is employed by a firm to earn more
from the use of these sources than their cost so as to increase the return on owner’s
equity.

Financial Leverage = EBIT/ EBT

EBIT = Earnings before Interest & Tax

EBT = Earnings before Tax

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7. Operating Leverage:

It is obtained by dividing contribution, i.e., sales minus variable cost, by the

EBIT, i.e., earnings before interest and tax.

Operating Leverage = Contribution/ Earnings before Interest & Tax

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INDUSTRY PROFILE

The insurance sector in India governed by insurance Act, 1938, the Life
insurance corporation act, 1956 and General insurance business (Nationalization) Act,
1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other
related Acts. With such a large population and the untapped market area of this
population insurance happens to be a very big opportunity in India. Today its stands
as a business growing at the rate of 15-20 percent annually. Together with banking
services, its ads about 7 percent to the country's GDP. In spite of all this growth the
statistics of the penetration of the insurance in the country is very poor. Nearly 80% of
Indian populations are without Life insurance cover and the Health insurance. This is
an indicator that growth potential for the insurance sector is immense in India. It was
due to this immense growth that the regulations were introduced in the insurance
sector and in continuation "Malhotra Committee" was constituted by the government
in 1993 to examine the various aspects of the industry. The key element of the reform
process was participation of overseas insurance companies with 26% capital. Creating
a more efficient and competitive financial suitable for the economy was the main idea
behind this reform.

The business of life insurance in India in its existing form started in India in
the year 1818 with establishment of the Oriental Life Insurance Company in Calcutta.
Some of the important milestones in the life insurance business in India are given in
the table 1.

Indian Insurance Market

Insurance has a long history in India. Life Insurance in its current form was
introduced in 1818 when Oriental Life insurance Company began its operations in
India. General Insurance was however a comparatively late entrant in 1850 when
Triton Insurance company set up its base in Kolkata. History of insurance in India can
be broadly bifurcated into three eras : a) Pre Nationalization b) Nationalization c) Post
Nationalization. Life insurance was the first to be nationalized in 1956. Life Insurance
Corporation of India was formed by consolidating the operations of various insurance
companies. General Insurance Corporation of India was set up as the controlling body
with New India, United India, National and Oriental as its subsidiaries. The process of

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opening up the insurance sector was initiated against the back ground of economic
reform process which commenced from 1991.

For this purpose “Malhotra Committee” was formed during this year who
submitted their report in 1994 and Insurance Regulatory Development Act (IRDA)
was passed in 1999. Resultantly Indian Insurance was opened for private companies
and private Insurance Company effectively started operations from 2001.

India insurance industry contribution to GDP

Experts are of the opinion that around the world the insurance industry
contributes around 4.5% to national GDPs. They have questioned the logicality of
opinions that in India the contribution can be higher saying that there are other
important sectors like education, defense, and health that cannot be undermined in this
context. They have ruled out possibilities that the sector can contribute 10% to India's
GDP. The Chairman of IRDA, “Hari Narayan” has ruled out any such possibility
asking if India's GDP growth will be that much in the next few years ahead.
The IRDA states that in India land and gold are more preferred as forms of
investment. Narayan feels that if the insurance sector is to do well in terms of
contribution to GDP then more people should be convinced about its capability to
provide good ROI (return on investment).

Some Areas of Future Growth

Life Insurance

The traditional life insurance business for the LIC has been a little more than
a savings policy. Term life (where the insurance company pays predetermined
amount if the policy holder dies within a given time but it pays nothing if the policy
holder does not die) has accounted for less than 2% of the insurance premium of the
LIC ( Mirta and Nayak, 2001). For the new life insurance companies, term life
policies would be the main line of business.

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Health Insurance

Health insurance expenditure in India is roughly 6% of GDP, much higher

than most other countries with the same level of economic development. Of that,
4.7% is private and the rest is public. What is even more striking is that 4.5% are out
of pocket expenditure ( Berman, 1996). There has been an almost total failure of the
public health care system in India. This creates an opportunity for the new insurance
companies. Thus, private insurance companies will be able to sell health insurance to
a vast number of families who would like to have health care cover but do not have it

Pension

The pension system in India is in its infancy. There are generally three forms
of plans: provident funds, gratuities and pension funds. Most of the pension schemes
are confined to government employees (and some large companies). The vast majority
of workers are in the informal sector. As a result, most workers do not have any
retirement benefits to fall back on after retirement. Total assets of all the pension
plans in India amount to less than USD 40 billion.

Therefore, there is a huge scope for the development of pension funds in India.
The finance minister of India has repeatedly asserted that a Latin American Style
reform of the privatized pension system in India would be welcome (Roy, 1997).
Given all the pros and cons, it is not clear whether such a wholesale privatization
would really benefit India or not.

Market Share of Indian Insurance Industry

The introduction of private players in the industry has added value to the
industry. The initiatives taken by the private players are very competitive and have
given immense competition to the on time monopoly of the market LIC. Though LIC
still holds the 75% of the insurance sector but the upcoming natures of these private
players are enough to give more competition to LIC in the near future. Indian Life
insurance segment collected new business premiums worth Rs 11,742.7 core (US $
1.84billion) for April, may 2013. Life insurance density expanded from US $ 13.4 to
US $ 42.7 percent.

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Foreign Direct Investment (FDI) Policy in Insurance Sector

As per the current (March 2006) FDI norms, foreign participation in an Indian
insurance company is restricted to 26.0% of its equity / ordinary share capital. The
Insurance Regulator has stipulated that foreign investment in Indian Insurance
companies be limited to 26% of total equity issued (FDI limit) with the balance being
funded by Indian promoter entities. The limit to foreign investment includes both
direct and indirect investment and has been a cause of significant lobbying by foreign
insurance companies for a change in regulations to increase the FDI limit to 49% of
equity issued. Recently, In the Fiscal Budget of Modi Government of 2014-15 it has
introduced 49.0% FDI which will bring in more investments in Insurance Sector.

The Indian government has supported an increase in the FDI limit, which
requires a change in the Insurance Act. The Union Budget for fiscal 2005 had
recommended that the ceiling on foreign holding be increased to 49.0%.

A change in the Insurance Act requires a passage of the bill in both houses of
Parliament. The Indian government has tabled the bill in the Upper House of
Parliament in August 2010.

Milestone's in the Life insurance Business in India

Year Milestones in the life insurance business in India

1912 The Indian Life Assurance Companies Act enacted as the first statue
to regulate the life insurance business
1928 The Indian Insurance Companies Act enacted to enable the
government to collect statistical information about both life and non-
life insurance business
1938 Earlier legislation consolidated and amended to by the Insurance Act
with objective of protecting the interests of the insuring public.

1956 245 Indian and foreign insurers and provident societies taken over by
the central government and nationalized. LIC formed by an Act .

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Life insurance

Life Insurance is the fastest growing sector in India since 2000 as Government
allowed Private players and FDI up to 26% and recently Cabinet approved a proposal
to increase it to 49%. Life Insurance in India was nationalized by incorporating Life
Insurance Corporation (LIC) in 1956. All private life insurance companies at that time
were taken over by LIC.
In 1993, the Government of India appointed RN Malhotra Committee to lay
down a road map for privatization of the life insurance sector.
While the committee submitted its report in 1994, it took another six years
before the enabling legislation was passed in the year 2000, legislation amending the
Insurance Act of 1938 and legislating the Insurance Regulatory and Development
Authority Act of 2000. The same year the newly appointed insurance regulator -
Insurance Regulatory and Development Authority IRDA—started issuing licenses to
private life insurers.
Types of Life Insurance in India

Life insurance products come in a variety of offerings catering to the

investment needs and objectives of different kinds of investors. Following is the list of
broad categories of life insurance products:

Term Insurance Policies

The basic premise of a term insurance policy is to secure the immediate needs
of nominees or beneficiaries in the event of sudden or unfortunate demise of the
policy holder. The policy holder does not get any monetary benefit at the end of the
policy term except for the tax benefits he or she can choose to avail of throughout the
tenure of the policy. In the event of death of the policy holder, the sum assured is paid
to his or her beneficiaries. Term insurance policies are also relatively cheaper to
acquire as compared to other insurance products.

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Money-back Policies

Money back policies are basically an extension of endowment plans wherein

the policy holder receives a fixed amount at specific intervals throughout the duration
of the policy. In the event of the unfortunate death of the policy holder, the full sum
assured is paid to the beneficiaries. The terms again might slightly vary from one
insurance company to another.

Whole life policy

A whole life insurance plan covers the insured over his life. The primary
feature of this product is that the validity of the policy is not defined so the
policyholder enjoys the life cover throughout his life.

Unit-linked Investment Policies (ULIP)

Unit linked insurance policies again belong to the insurance-cum-investment

category where one gets to enjoy the benefits of both insurance and investment. While
a part of the monthly premium pay-out goes towards the insurance cover, the
remaining money is invested in various types of funds that invest in debt and equity
instruments. ULIP plans are more or less similar in comparison to mutual funds
except for the difference that ULIPs offer the additional benefit of insurance.

Pension Policies

Pension policies let individuals determine a fixed stream of income post

retirement. This basically is a retirement planning investment scheme where the sum
assured or the monthly pay-out after retirement entirely depends on the capital
invested, the investment timeframe, and the age at which one wishes to retire. There
are again several types of pension plans that cater to different investment needs. Now
it is recognized as insurance product and being regulated by IRDA.

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Initial Public Offer (IPO) rules for Indian Life Insurance Companies

A key piece of legislation impacting on the Life Insurance industries capital

raising abilities is the lock-in period of 10 years for investment to be limited to
promoter group equity investments. Under the Insurance Guidelines, Indian Life
Insurance companies can opt for a public issue of equity through an Initial Public
Offer (IPO) after 10 years of operations.

In October 2010, the securities market regulator, Securities and Exchange Board of
India (SEBI), issued disclosure norms for Indian Life Insurance Companies seeking to
make an initial public offer for sale of equity shares to the public.

Indian life insurance industry overview

All life insurance companies in India have to comply with the strict
regulations laid out by Insurance Regulatory and Development Authority of India
(IRDAI).
Life Insurance Corporation of India (LIC), the state owned behemoth, remains
by far the largest player in the market. The private companies have come out with
products called ULIPs (Unit Linked Investment Plans) which offer both life cover as
well as scope for savings or investment options as the customer desires. These types
of plans are subject to a minimum lock-in period of three years to prevent misuse of
the significant tax benefits offered to such plans under the Income Tax Act.
Comparison of such products with mutual funds would be erroneous.

General life insurance

The General insurance business in India, on the other hand, can trace its roots
to the Triton Insurance company Ltd, the first general insurance company established
in the year 1850 in Calcutta by British. Some of the important milestones in the
general insurance business in India are given in the table

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Milestones in the General Insurance Business in India

Year Milestones in the general insurance business in India

1907 The Indian Mercantile Insurance Ltd. set up, the first company to transact
all classes of general insurance business

1957 General Insurance Council, a wing of the Insurance Association of India,

frames a code of conduct for ensuring fair conduct and sound business
practices

1968 The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.

1972 The General Insurance Business (Nationalization) Act, 1972 nationalized

the general insurance business in India with effect from 1st January1973.

107 insurers amalgamated and grouped into four company's viz. the
National Insurance Company Ltd., the New India Assurance company Ltd.,
the Oriental Insurance Company Ltd. and the United India Insurance
Company Ltd. GIC incorporated as a company.

Market Size of Insurance Industry.

India's life insurance sector is the biggest in the world with about 360 million
policies which are expected to increase at a Compound Annual Growth Rate (CAGR)
of 12-15 per cent over the next five years. The insurance industry plans to hike
penetration levels to five per cent by 2020.

The country’s insurance market is expected to quadruple in size over the next
10 years from its current size of US$ 60 billion. During this period, the life insurance
market is slated to cross US$ 160 billion.

The general insurance business in India is currently at Rs 78,000 crore (US$

11.7 billion) premium per annum industry and is growing at a healthy rate of 17 per
cent.

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The Indian insurance market is a huge business opportunity waiting to be

harnessed. India currently accounts for less than 1.5 per cent of the world’s total
insurance premiums and about 2 per cent of the world’s life insurance premiums
despite being the second most populous nation. The country is the fifteenth largest
insurance market in the world in terms of premium volume, and has the potential to
grow exponentially in the coming years.

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COMPANY PROFILE

Reliance Life Insurance Company at a Glance

Name : Reliance Life Insurance Company

Type : Private limited company

Industry : Life Insurance

Founded : 2006

Head quarters : Navi Mumbai (New Mumbai) , India

Products : Individual & Group Insurance plans

Key people : Anup Rau, CEO

No.of. Agents : 124000

Total Assets : 150 billion (US$ 2.2 billion)

Website : http: //www. reliancelife.com

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Reliance Life Insurance Company Limited Board Members*

Name Board Relationships Primary company

Anup Rau 12 Relationships Reliance Capital Limited
Saumen Ghosh 6 Relationships Reliance Life Insurance Company Ltd
Rajendra Prabhakar Chitale 70 Relationships Ambuja Cements Limited
Amit Bapna 10 Relationship Reliance Capital Limited
Kazuhide Toda 6 Relationships Reliance Life Insurance Company Ltd

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Reliance Life Insurance Company Private Limited

Reliance Life Insurance Private Company is amongst the top 5 private sector life
insurance companies in India terms of individual WRP (weighted received premium)
and new business WRP. The company is by far the largest non-bank supported private
life insurer with over 10 million policy holders, a strong distribution network of over
800 branches and over 1,00,000 advisors as on March 31, 2015. Our Claim Settlement
Ratio stands at 94.53% as of March 31, 2015.

Rated amongst the Top 2 Most Trusted Private Life Insurance Service Brands
by Brand Equity-Nielsen Most Trusted Brands Survey 2014, the company’s vision is
“To be a company people are proud of, trust in and grow with; providing financial
independence to every life we touch.” With this in mind, Reliance Life caters to five
distinct segments, namely Protection, Child, Retirement, Saving & Investment and
Health; for individuals as well as Groups/Corporate entities.

Reliance Life Insurance Company is a part of Reliance Capital of the Reliance

Group. Reliance Capital is one of India's leading private sector financial services
companies, and ranks among the top private sector financial services and non-banking
companies, in terms of net worth. Reliance Capital has interests in asset management
and mutual funds, stock broking, life & general insurance, proprietary investments,
private equity and other activities in financial services.

Reliance Life Insurance is an integral part of Reliance Capital. Reliance

capital is one of the leading financial service providers in India. It has a diversified
business in terms of asset management, mutual funds, and insurances of all kinds,
commercial finance and other such related financial activities. With a net worth of
Rs.13547 core and assets worth Rs.47440 core, Reliance capital has proved to be the
largest financial service provider in India. With over 10 million policy holders, more
than 800 branches and over 100000 advisors, the company has proved its worth as the
largest non-bank supported private life insurer.

Reliance Life’s vision is "To be a company people are proud of, trust in and
grow with; providing financial independence to every life we touch." As a result of
this endeavor, the company has been rated amongst the Top 2 Most Trusted Private

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Life Insurance Service Brands by Brand Equity-Nielsen Most Trusted Brands Survey
2014.

Types of Reliance Life Insurance Plans

Reliance Life has a wide variety of insurance plans which cater to the
insurance requirements of individuals as well as groups. Individuals can fulfill their
insurance requirements at a single source with the range of different types of plans
offered by the company. The plans are:

 Protection plans
 Retirement plans
 Health plans
 Savings and investment plans
 Child plans
 Unit Linked Plans
 Solutions for groups

Let us take a look at the various types of plans.

Protection plans

These plans are also called term insurance plans and they provide high Sum
Assured cover at minimal rates of premiums. Reliance Life offers three types of plans
under this category, namely:

 Reliance Term plan:

This plan is an affordable term insurance plan that provides coverage in case
of an unfortunate and untimely death of the plan buyer. The plan also offers riders
in order to enhance protection. The plan can be availed as per the needs of the
plan buyer.

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 Reliance Online Term:

A term plan which can be bought online by the buyer. This plan offers life
coverage amounting up to Rs.1 crore at an affordable premium. This plan offers
adequate coverage at low rates through a simple and hassle free online application
process. The medical tests to be undertaken in order to avail this plan can also be
done at home. It also offers rewards for healthy lifestyle by ways of reduced
premium. It also offers certain tax benefits as per the applicable tax laws.

 Reliance Online Income Protect:

A comprehensive insurance plan which not only provides a fixed sum assured
in case of untimely death of the plan buyer but also assures a fixed monthly
income, thus enabling them to meet their daily needs. This plan offers adequate
coverage at low rates through a simple and hassle free online application process.
It also offers rewards for healthy lifestyle by ways of reduced premium. It also
offers certain tax benefits as per the applicable tax laws.

Retirement Plans

Also called pension or annuity plans, these plans help the individual to plan for
retirement funding. The different types of retirement plans offered by Reliance Life
are as follows:

 Reliance Immediate Annuity Plan:

It is a single premium plan, whereby, the buyer has to make a onetime

premium payment as a lump sum amount in order to receive a regular income as
per his selected payout option for the rest of his life post retirement. This plan
basically secures the plan buyer and his family after his retirement. The plan
offers three different payout options to choose from. The various annuity options
are Life Annuity, Life Annuity with Return of purchase price and life annuity
guaranteed for 5, 10 or 15 years and lifetime payable post that. The buyer need not
undergo any kind of medical tests in order to avail this plan. It also offers certain
tax benefits as per the applicable tax laws.

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 Reliance Smart Pension Plan:

A non-participating unit linked insurance plan which ensures guaranteed

regular income post retirement. With a policy term ranging from 10 to 30 years
this plan ensures guaranteed monthly income along with loyalty additions and the
flexibility to increase the retirement funds by ways of top ups as and when
available. This plan allows the buyer to choose his vesting age starting from 45
years to 75 years and also gives the option to make tax free partial withdrawals
amounting up to 1/3rd of the retirement fund. It also offers certain tax benefits as
per the applicable tax laws.

Health Plans

In the modern day and age, with a growing need of several health related benefits,
financial planning seems incomplete without a proper health insurance and a medi-
claim policy. Reliance Life offers a wide range of health insurance plans that meets
all the health related needs and requirements of the consumers. The different types of
health insurance policies are as follows:

 Reliance Easy Care Fixed Benefit Plan:

This plan provides complete cover against any kind of expenses to be incurred
towards medical illness, sudden hospitalizations or immediate surgeries. It is a
complete health package consisting of major diseases. This plan can be renewed
up to 99 years of age of the buyer. It also offers certain tax benefits under section
80(D) of the Income Tax Act, 1961.

 Reliance Care for You Advantage Plan:

A comprehensive insurance plan which provides health cover for the buyer
along with his family members. The family members include his children,
dependent parents and parents in law. This plan not only provides funds for 150
specific day procedures but also issues regular payouts in cases of major surgeries
and illnesses. This plan can be renewed every three years up to 99 years of age of
the buyer. The plan also offers an increase in the sum assured by 30% in cases of

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no claim years as bonus and gives a renewal discount amounting to 15%. It also
offers certain tax benefits under section 80(D) of the Income Tax Act, 1961.

 Reliance Health total:

A complete health insurance plan which reimburses the entire cost of

hospitalization. This plan comes with two sum insured options to choose from like
Higher Medical reimbursement Benefit or Higher Sum Insured option. The
reimbursement process is trouble-free and also offers cashless claim service at
over 4000 networked hospitals. This plan can be renewed up to 99 years of age of
the buyer. It also offers certain tax benefits under section 80(D) of the Income Tax
Act, 1961.

Savings and investment plans

These plans are developed with the dual purpose of providing a saving avenue
to customers and also to provide life insurance coverage at the same time. These plans
build a strong corpus slowly over time for the future requirement of the policyholder.
Reliance has a large number of saving and investment plans which are:

 Reliance Super Money Back Plan:

A guaranteed money back plan which provides regular income at periodic

intervals along with a lump sum payment every 5 year of the policy till the end of
the maturity of the plan. This plan offers loyalty addition points as well as maturity
addition points along with a flexible premium payment period

 Reliance’s Guaranteed Money Back Plan:

A plan issued for a term of 15 or 20 years at limited pay or regular pay which
assures guaranteed money back at the last five years of the policy along with
loyalty additions amounting up to 40% of the sum assured and maturity additions
amounting up to 20% of the sum assured to be paid at the maturity of the policy.
The plan offers waiver of premium and an additional life cover in case of sudden
and untimely death of the plan buyer. It also offers certain tax benefits as per the
applicable tax laws.

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 Reliance Fixed Savings:

A term plan which ensures maturity benefits along with maturity additions and
death benefits consisting of the sum assured and 105% of all the paid premiums in
case of untimely death of the plan buyer. It secures the plan buyer and his family
against any kind of unforeseen incidents.

 Reliance Blue chip Savings Insurance Plan:

A term plan which ensures maturity benefits along with maturity additions
amounting up to 7%per annum of the basic sum insured and death benefits
consisting of the sum assured + bonuses if any and 105% of all the paid premiums
in case of untimely death of the plan buyer.

 Reliance Increasing Income Insurance Plan:

A plan which ensures an increase in the monthly income of the buyer. This
plan offers two options to choose from; Income with Maturity benefit and Only
Income option. The benefits to be received by the plan buyer varies depending
upon the option opted for by him.

 Reliance Fixed Money Back Plan:

A plan issued for a term of 15 or 20 years with a flexible premium payment

period which assures fixed money back at the last five years of the policy along
with loyalty additions amounting up to 3% of the sum assured certain maturity
benefits. The plan offers two options to choose from. The benefits to be received
by the plan buyer varies depending upon the option opted for by him. It also offers
certain tax benefits as per the applicable tax laws.

o Reliance Lifelong Savings:

A plan which offers two cover options to choose from. One being standard
option which provides a lump sum amount on maturity of the plan along with a life
cover. The second one being an extended cover which provides an extended life cover
for the entire life even after completion of the policy term. It also offers loan facility

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in case of any unforeseen incident along with tax benefits as per the applicable Tax
Laws.

o Reliance Future Income:

A plan which offers an annual income every year along with a lump sum
benefit at the end of the maturity period. The plan offers life cover along with
certain riders in order to enhance the protection limit. It also offers loan facility in
case of any unforeseen incident along with tax benefits as per the applicable Tax
Laws.

o Reliance Smart Cash Plus Plan:

A plan which offers guaranteed money back benefits every 3 years along with
increased payouts and vested bonuses, if any. The plan offers flexible premium
payment period along with tax benefits as per the applicable Tax Laws.

o Reliance's Money Multiplier Plan:

A plan which offers guaranteed benefits at the end of the maturity of the plan
in the form of sum assured along with guaranteed loyalty additions and maturity
additions. The plan also offers additional benefits to the plan buyer’s family.
Issued as a 10, 15 or 20 years term plan, it also offers tax benefits as per the
applicable Tax Laws.

o Reliance Endowment Plan:

A plan issued for a period of 10 to 25 years which offers lump sum amount
along with bonuses at the time of maturity. This plan also offers benefits to the
plan buyer’s family in case of untimely death of the buyer. . It also offers loan
facility in case of any unforeseen incident along with tax benefits as per the
applicable Tax Laws.

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o Reliance's Super Endowment Plan:

A plan issued for a period of 14 or 20 years which offers lump sum amount at
the time of maturity. This plan also offers benefits to the plan buyer’s family in
case of untimely death of the buyer. It also certain tax benefits as per the applicable
Tax Laws.

Child Insurance Plans

These plans provide for the child’s future in the form of financial help in case of the
policyholder’s death. The ranges of plans under this category are as follows:

 Reliance Education Plan:

An insurance plan which secures the buyer’s child’s education. It offers

various payout options to choose from. The plan offers guaranteed maturity
benefits along with benefits in case of untimely death of the plan buyer. The plan
offers flexible premium payment period. . It also offers loan facility in case of any
unforeseen incident along with tax benefits as per the applicable Tax Laws.

 Reliance Child Plan:

This plan offers guaranteed sum assured along with life cover for the entire
term policy. It also certain tax benefits as per the applicable Tax Laws.

Unit linked Insurance plans

These plans are linked to market returns which provide life cover along with
guaranteed returns. The various kinds of ULIP offered are:

Reliance Classic Plan II:

A long term plan which not only allows the buyer to invest in multiple funds
but also offers him the flexibility to switch between various funds depending upon
the market conditions. Also provides life cover and additional protection against
accidental deaths.

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Reliance Pay Five Plan:

A term plan which offers an investment opportunity in multiple funds along

with life cover and additional benefits against accidental deaths. The plan also
allows the buyer t make partial withdrawals in case of emergencies and It also
certain tax benefits as per the applicable Tax Laws

Terms and Conditions

User Agreement:

All users of the www.reliancelife.com internet website must accept and

comply with the Terms and Conditions set forth in the agreement. Hereinafter,
Reliance Life Insurance Company Limited shall be referred to as 'RLIC'

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However due to the nature of internet environment, email facility is at the
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RATIO ANALYSIS Reliance Life Insurance Company

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Reliance Life Insurance Major Achievements

Following are some of the major accomplishments of Reliance Life Insurance:

 Till March 31, 2012 it is the biggest privately held life insurer for amount of
policies sold for two straight years
 It has won the Best Non-Urban Coverage Award in the Indian Insurance
Awards 2011
 It has a large network comprising 150,000 counselors and 1230 branches

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 Its Boundaries for Books Campaign has won the Silver prize at the Indian
Digital Media Awards 2012 (IDMA) in the Best Use of Social Network -
Social Cause and Best Integrated Campaign - Social Cause categories
 It has sold more than 9 million policies
 According to the Most Trusted Services Brands 2011 survey of Brand Equity
it is one of 3 most trusted brands of the insurance sector
 It is among the top life insurance providers that have received the ISO
9008:2001 certification

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RESEARCH METHODOLOGY

Secondary data

Secondary data refers to data that was collected by someone other than the user.
Common sources of secondary data for social science include census, information
collected by government departments, organizational records and data that was
originally collected for other research purposes.

Secondary data is the data that have been already collected by and readily
available from other sources. Such data are cheaper and more quickly obtainable than
the primary data and also may be available when primary data cannot be obtained at
all.

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Statement of the problem

Every insurance company wants to know the financial position and profitability. This
is not only useful for shareholders but also for stakeholders. So the present study is
undertaken to measure the profitability and turnover of the Reliance Life Insurance
Company during the period 2011-12 to 2014-15.

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Tools &Techniques of the study

The following ratios are used to measure the performance of the Reliance Life
Insurance Company.

1. Current ratio

2. Debt Equity ratio

3. Net Profit ratio

4. Working Capital Turnover ratio

5. Return on capital employed ratio

6. Proprietary ratio

7. Return on Assets ratio

8. Ratio of Current Liabilities to Proprietor’s funds

9. Current Assets Turnover ratio

10. Capital Turnover ratio

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Objectives of the Study

 To study profitability position of the Reliance life insurance company during

the period from 2011-12 to2014-15.
 To study liquidity position of the Reliance life insurance company during the
period from 2011-12 to2014-15.
 To know the overall financial performance of a Reliance life insurance
company.

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Scope of the present study

The present study exclusively made to understand, analyse and measure the
profitability and liquidity position of the Reliance life insurance company. It
gives the benefit to investors, creditors and shareholders about performance at
present period.

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Need of the study

The main need of the study is to know the overall financial position of the
Reliance life insurance company.

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Limitations of the study

The following are the limitations of the present study

 The present study is confined to only Reliance life insurance Company.

 The present study duration is limited.i.e.2011-12 to 2014-15
 The result of the study is depending upon the information furnished by the
secondary source.

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DATA ANALYSIS & INTERPRETATION

1. Current ratio:

Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio is also known as ' working capital ratio 'is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial
position or liquidity of a firm.

Current ratio = Current Assets/Current liabilities

Table 4.1
Calculation of Current Ratio
(Rs’000)
YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO
2011-12 4941020 6601872 0.748427113
2012-13 6329210 17135102 0.369371014
2013-14 8649776 25258975 0.342443666
2014-15 10792755 14398555 0.749572092

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Current Ratio of Reliance Life Insurance Company

During 2011-12 to 2014-15

30000000
Amount

20000000

10000000

0
2011-12 2012-13 2013-14 2014-15
Years

CURRENT ASSETS CURRENT LIABILITIES

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INTERPRETATION

 The above table reveals that Current Ratio of Reliance Life Insurance
Company has been fluctuating from 2011-12 to 2014-15.
 The Current ratio is continuously decreasing from the year 2011-12 to 2013-
14.
 But in the year 2014-15 the current ratio is increasing when compared to
2012-13 and 2013-14 years.
 The Reliance Life insurance company is showing the result of current ratio is
less than the standard norm(2:1)
 So the financial position of Reliance Life insurance company is weak/
unhealthy.

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2. Debt equity ratio:

Debt-Equity Ratios, also known as External- Internal Equity Ratio is calculated to

measure the relative claims of outsiders another owner, against the firm’s asset. This
ratio indicates the relationship between the external equities or the outsider’s funds
and the internal equities or the shareholders funds.

Debt-Equity Ratio= Outsiders Funds/ Shareholders Funds

Table 4.2
Calculation of Debt Equity Ratio
(Rs ‘000)
YEAR DEBT EQUITY DEBT-EQUITY RATIO
2011-12 175140299 33920823 5.163209012
2012-13 158038166 33932175 4.657472325
2013-14 152079886 34047589 4.466685908
2014-15 150892724 34442800 4.380965659

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Debt-Equity Ratio of RelianceLife Insurance Company

During 2011-12 to 2014-15

200000000
Amount

100000000

0
2011-12 2012-13 2013-14 2014-15
Years

Debt Equity

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INTERPRETATION

 The above table reveals that Debt-Equity Ratio of Reliance Life Insurance
Company has been fluctuating from 2011-12 to 2014-15.
 The Debt-Equity Ratio is high in the 2011-12year (5.16) when compared to
remaining years.
 The Reliance Life Insurance Company will satisfy the standard norm of
financial ratios (2:1).

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3. Net profit ratio:

Net profit ratio establishes a relationship between net profit and sales, and
indicates the efficiency of the management in manufacturing, selling, administrative
and other activities of the firm. This ratio is the overall measure of firm's profitability
and is calculated as

Net profit ratio = Net profit after tax/ Net sales*100

Table 4.3
Calculation of Net profit ratio

(Rs’000)
YEAR Net Profit Net Sales Net Profit Ratio
2011-12 3725713 4144009 89.90600648
2012-13 3804172 6935173 54.8533108
2013-14 3588837 4855584 73.91154185
2014-15 1351791 2989296 45.2210487

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Net Profit Ratio of RelianceLife Insurance Company

During 2011-12 to 2014-15

8000000
6000000
Amount

4000000
2000000
0
2011-12 2012-13 2013-14 2014-15
Years

Net Profit Net Sales

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INTERPRETATION

 The above table reveals that Net Profit Ratio of Reliance Life Insurance
Company has been fluctuating from 2011-12 to 2014-15.
 The Net Profit percentage of Reliance Life Insurance Company has been
annually decreased from 2011-12 onwards.
 In the year 2014-15 the profit percentage is decreased to (45%).
 So the profitability position of Reliance Life Insurance Company is weak.

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4. Working Capital Turnover Ratio:

Working Capital Turnover Ratio indicates the velocity of the utilization of net
working capital. This ratio indicates the number of times the working capital turned
over in the course of a year. This ratio measures the efficiency with which the
working capital is being used by a firm.

Working Capital Turnover Ratio = Sales/ Net working capital

Net Working capital = Current Assets-Current liabilities

Table 4.4
Calculation of Working Capital Turnover Ratio
(Rs ‘000)
Working Capital
Sales Working Capital
YEAR Turnover Ratio
2011-12 4144009 -1660852 -2.495110341
2012-13 6935173 -10805892 -0.641795513
2013-14 4855584 -16609203 -0.292342986
2014-15 2989296 -16610236 -0.1799671

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Working Capital Turnover Ratio of RelianceLife Insurance

Company During 2011-12 to 2014-15

10000000
5000000
0
Amount

2011-12 2012-13 2013-14 2014-15

-5000000
-10000000
-15000000
-20000000
Years

Sales Working Capital

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INTERPRETATION

 The above table reveals that Working Capital Turnover Ratio of Reliance Life
Insurance Company has been showing negative balances from 2011-12 to
2014-15.
 By seeing the above table the ratio will get negative balances during the entire
study period
 So that the efficiency of Reliance Life Insurance Company is not good.

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5. Return on Capital Employed:

Return on capital employed establishes the relationship between profits and the
capital employed. It is the primary ratio and is most widely used to measure the
overall profitability and efficiency of a business.

Return on Capital Employed = Earnings before interest& tax/ capital employed

Table 4.5
Calculation of Return on Capital Employed Ratio
(Rs’000)
Total Capital Return on Capital
YEAR Net Profit Employed Employed Ratio
2011-12 3725713 209061122 0.017821166
2012-13 3804172 191970341 0.019816457
2013-14 3588837 186127475 0.019281608
2014-15 1351791 185335524 0.00729375

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Return on Capital Employed Ratio of Reliance Life

Insurance Company During 2011-12 to 2014-15

250000000

200000000
Amount

150000000

100000000

50000000

0
2011-12 2012-13 2013-14 2014-15
Years

Net Profit Total Capital Employed

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INTERPRETATION

 The above table reveals that Return on Capital Employed ratio of Reliance
Life Insurance Company has been fluctuating from 2011-12 to 2014-15.
 When we observing the above table high percentage should held in the year

2013-14(0.019)

 In the year 2014-15 the profitability and efficiency percentage should be

decreased to(0.007)
 So the profitability position of Reliance Life Insurance Company is weak.

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6. Proprietary Ratio (or) Equity Ratio:

This ratio establishes the relationship between shareholders funds to total assets
of the firm. The ratio of proprietors’ funds to total funds is an important ratio for
determining long-term solvency of a firm.

Proprietary ratio or equity ratio = shareholders funds/ total assets

Share holder’s funds = Share capital+ Reserves and surplus

Total assets = fixed assets + current assets

Table 4.6
Calculation of proprietary Ratio
(Rs’000)
Proprietary
Year Share Holders Funds Total Assets Ratio
2011-12 33920823 5010623 6.769782
2012-13 33932175 6425686 5.280709
2013-14 34047589 8801551 3.868362
2014-15 34442800 11100926 3.102696

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Proprietary Ratio ofReliance Life Insurance Company

During 2011-12 to 2014-15

35000000
30000000
25000000
20000000
Amount

15000000
10000000
5000000
0
2011-12 2012-13 2013-14 2014-15
Years
Share Holders Funds Total Assets

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INTERPRETATION

 The above table reveals that Proprietary Ratio of Reliance Life Insurance
Company has been fluctuating from 2011-12 to 2014-15.
 By observing the above table in the year 2011-12 has a high proprietary ratio
(6.769) when compared to remaining periods.
 In the year 2014-15 the company Proprietary ratio will decreased to (3.102)
 So the company has a long –term solvency position.

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7. Return on Assets

The return on assets ratio measures how effectively a company can earn a return on
its investment in assets. In other words, ROA shows how efficiently a company can
convert the money used to purchase assets into net income or profits. In short, this
ratio measures how profitable a company’s assets are.

Return on Assets Ratio = Net income/Average total assets

Table 4.7
Calculation of Return on Assets Ratio
(Rs‘000)
AVERAGE TOTAL
YEAR NET INCOME ASSETS RATIO
2011-12 3725713 2505312 1.487125
2012-13 3804172 3212843 1.184052
2013-14 3588837 4400776 0.815501
2014-15 1351791 5550463 0.243546

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Return on Assets Ratio of Reliance Life Insurance Company

During
2011-12 to 2014-15

6000000
Amount

4000000

2000000

0
2011-12 2012-13 2013-14 2014-15

Years

NET INCOME AVERAGE TOTAL ASSETS

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INTERPRETATION

 The above table reveals that Return on Assets Ratio of Reliance Life
Insurance Company has been fluctuating from 2011-12 to 2014-15.
 The Return on Assets Ratio of Reliance Life Insurance Company has been
continuously decreasing.
 In the year 2011-12 has a highest rate of Return on Assets (1.487) when
compared to remaining periods.
 So the efficiency of Reliance Life Insurance Company is weak.

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8. Ratio of Current Liabilities to Proprietor’s Funds

The ratio of current liabilities to proprietor's funds establishes the relationship

between current liabilities and the proprietor's funds and indicates the amount of long-
term funds raised by the proprietors as against short-term borrowings.

Ratio of Current Liabilities to Proprietor's funds = Current Liabilities/ Share

holder's Funds

Table 4.8
Calculation of Current Liabilities to Proprietor’s Funds Ratio
(Rs ‘000)
SHARE HOLDER'S
YEAR CURRENT IABILITIES FUNDS RATIO
2011-12 6601872 33920823 0.178068
2012-13 17135102 33932175 0.488255
2013-14 25258975 34047589 0.708844
2014-15 14398555 34442800 0.384325

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Current Liabilities to Proprietar's Funds Ratio of Reliance Life

Insurance Company During 2011-12 to 2014-15

40000000

30000000
Amount

20000000

10000000

0
2011-12 2012-13 2013-14 2014-15
Years

CURRENT IABILITIES SHARE HOLDER'S FUNDS

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INTERPRETATION

 The above table reveals that Current Liabilities to Proprietor’s fund ratio of
Reliance Life Insurance Company has been fluctuating from 2011-12 to
2014-15.
 In the year 2013-14 the Current Liabilities to Proprietor’s fund ratio is high when
compared to remaining periods.
 In the year 2014-15 has a least percentage (0.384) when compared to the
remaining years.

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9. Current Assets Turnover Ratio:

Current Assets Turnover Ratio indicates that the current assets are turned over in
the form of sales more number of times. A high current assets turnover ratio indicates
the capability of the organisation to achieve maximum sales with minimum
investment in current assets. Higher the current ratio better will be the situation.

Cash to Current Assets Ratio = Sales/ Total Current Assets

Table 4.9
Calculation of Current Assets Turnover Ratio
(Rs’000)
Current Assets
Sales
YEAR Total Current Assets Turnover Ratio
2011-12 4144009 4941020 0.838695047
2012-13 6935173 6329210 1.095740701
2013-14 4855584 8649776 0.561353728
2014-15 2989296 10792755 0.276972469

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Current Assets Turnover Ratio of Reliance Life Insurance

Company During 2011-12 to 2014-15

12000000
10000000
8000000
Amount

6000000
4000000
2000000
0
2011-12 2012-13 2013-14 2014-15
Years
Sales Total Current Assets

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INTERPRETATION

 The above table reveals that Current Assets Turnover of Reliance Life
Insurance Company has been fluctuating from 2011-12 to 2014-15.
 The Current Assets Turnover Ratio has been continuously decreasing from
2011-12 to 2014-15.
 In the year 2012-13 has a high Current Assets Ratio (1.095) when compared to
remaining years.
 By observing the above table Current Assets Turnover Ratio of Reliance Life
Insurance Company is weak.

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10. Capital Turnover Ratio:

Capital turnover ratio is the relationship between cost of goods sold and the
capital employed. This ratio is calculated to measure the efficiency or effectiveness
with which a firm utilizes its resources or the capital employed.

Capital Turnover Ratio = Sales/ capital employed

Table 4.10
Calculation of Capital Turnover Ratio
(Rs’000)
Capital Turnover
Sales
YEAR Capital Employed Ratio
2011-12 4144009 209061122 0.019821997
2012-13 6935173 191970341 0.036126273
2013-14 4855584 186127475 0.026087411
2014-15 2989296 185335524 0.016129104

Source: Annual reports of Reliance Life Insurance company during the year2011-12
to 2014-15.

Capital Turnover Ratio ofReliance Life Insurance Company

During 2011-12 to 2014-15

300000000
Amount

200000000

100000000

0
2011-12 2012-13 2013-14 2014-15

Years
Sales Capital Employed

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INTERPRETATION

 The above table reveals that Capital Turnover Ratio of Reliance Life
Insurance Company has been fluctuating from 2011-12 to 2014-15.
 In the year 2012-13has highest capital Turnover Ratio (0.036) when compared
to remaining periods.
 By observing the above table Capital Turnover Ratio has been continuously
decreasing from 2011-12 to 2014-15.

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FINDINGS
 The Current Ratio of Reliance Life Insurance Company has been showing less than
the standard norm (2:1) during the study period (2011-12to 2014-15).
 During the study period the debt proportion of Reliance Life Insurance Company is
more than its Equity proportion.
 Net Profit Ratio of Reliance Life Insurance Company is showing fluctuating trend.
 Working Capital Turnover Ratio of Reliance Life insurance Company has been
showing continuously negatives values. It means it shows inefficiency in availing
working capital.
 During the study period the Reliance Life Insurance Company has been showing
low returns/profits on capital which is invested in the company.
 The Proprietary Ratio of Reliance Life Insurance Company has been showing
decreasing trend. So that long-term solvency position of Reliance life insurance
Company is also decreasing.
 Return on Assets Ratio of Reliance Life Insurance Company has been showing
continuously decreasing trend in the entire study period.
 The Proprietary Ratio of Reliance Life Insurance Company has been showing high
shareholders funds when compared to current liabilities.
 Current Assets Turnover Ratio of Reliance Life Insurance Company has been
fluctuating from 2011-12 to 2014-15.
 The Capital Turnover Ratio of Reliance Life Insurance Company is in decreasing
trend. So that it means capital / investment of Reliance Life Insurance Company is
not using properly.

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SUGGESTIONS

 If the Reliance Life Insurance Company wants to achieve the standard norm of
Current Ratio, it has to increase its Current Assets.
 The Reliance Life Insurance Company should offer different type of benefit policies
to the customers then only the customers will show interest to take policies.
 When the Reliance Life Insurance Company is able to use Working Capital at
maximum level then only the Working Capital Turnover Ratio may get positive
values.
 Reliance Life Insurance Company should use its capital/ investment properly in
order to get good returns / profits.
 Reliance Life Insurance Company should increase their total assets for improve their
long-term solvency position of the company
 The Reliance Life Insurance Company will appoint the efficient agents to sell their
policies to more number of customers.

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Conclusion

I conclude that by observing all the analysis of Reliance Life Insurance Company
profitability and financial position is not good. So the company needs to improve its
profitability and financial position by following suggestions.

BIBLIOGRAPHY

 Financial Management, I.M. Pandey, 9th edition,Vikas Publishers,2011

 Financial Management Text & Problems, M.Y. Khan and P.K.Jain,
TataMCGraw-Hill, 2007.
 Financial Management, Prasanna Chandra, TataMCGraw-Hill, 2009.
 Financial Management and Policy, R.M.Srivastava, Himalaya publishing house
Private ltd, 2010.

Websites

 www. reliancelife.com
 www.wikipedia.com
 www.google.com

SITAMS Page 74