TITLE OF THE PROJECT

Working Capital Management of HDFC

Life Insurance

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 CHAPTER-I
INTRODUCTION

2
1.1 INTRODUCTION TO THE TOPIC
Working Capital Management is a very important facet of financial

management due to:

 Investments in current assets represent a substantial portion of total

investment.

 Investment in current assets & the level of current liabilities have

to be geared quickly to change sales.

Decisions relating to working capital and short term financing are

referred to as working capital management. These involve managing the

relationship between a firm's short-term assets and its short-term

liabilities. The goal of working capital management is to ensure that the

firm is able to continue its operations and that it has sufficient cash flow

to satisfy both maturing short-term debt and upcoming operational

expenses.

Working Capital is the key difference between the long term financial

management and short term financial management in terms of the timing

of cash. The Goal of Capital Management is to manage the firm’s current

assets & liabilities, so that the satisfactory level of working capital is

maintained.

HDFC Life is one of the leading life insurance companies in India

offering a range of individual and group insurance solutions that meet
various customer needs such as Protection, Pension, Savings &
Investment and Health, along with Children’s & Women’s Plan.

3
1.2 OBJECTIVE OF THE STUDY
The main objectives of this project are the following:

1) To identify the financial strengths & weakness of the HDFC Life

Insurance.

2) To know the liquidity position of the HDFC Life Insurance with the

help of current ratio.

3) To find out the Net Working Capital and Gross Working Capital.

4) Evaluating HDFC Life Insurance performance relating to financial

statement analysis.

5) To find out the utility of financial ratio in credit analysis &

determining the financial capacity of the firm.

6) Through the net profit ratio & other profitability ratio, understand the

profitability of the HDFC Life Insurance.

1.3 SCOPE OF THE STUDY

 The scope of study is limited to working capital management of

HDFC Life Insurance.

 The data and information were gathered during training.

 The scope is delimited to the year from 2015 to 2019.

1.4 SIGNIFICANCE OF THE STUDY

 To analyze the working capital management of HDFC Life

Insurance.

 To study the last five years financial statement of HDFC Life

Insurance.

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1.5 RESEARCH METHODOLOGY

DATA COLLECTIONS:

PRIMARY DATA -
It is first hand data, which is collected by researcher itself. Primary data is

collected by various approaches so as to get a precise, accurate, realistic

and relevant data. The main tool in gathering primary data was

investigation and observation.

SECONDARY DATA -
It is the data which is already collected by someone else. Researcher has

to analyze the data and interprets the results. For ex: Magazines,

Newspapers, Internet etc.

Sample area: Patna

Sampling Techniques
Here the ‘non probability’ technique was selected. Mainly through

‘judgement sampling’ process, the 50 samples were selected.

Research Type: Descriptive.

Tools for analysis

 Bar chart

 Pie-chart

Technological Tools
Ms- Excel
Ms-Word
Above application software of Microsoft helped me a lot in making
project more interactive and productive.

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1.6 LIMITATION OF THE STUDY

 Shortage of time factors one of the major constraints.

 It is possible that the information supplied by the informants may be

incorrect. So, the study may lack accuracy.

 The project was limited to a period and is done purely for the

academic purpose.

 All the secondary data was not readily available.

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 CHAPTER-II
INTRODUCTION TO
ORGANIZATION

7
2.1 THE INDIAN INSURANCE INDUSTRY
The insurance industry of India consists of 53 insurance companies of

which 24 are in life insurance business and 29 are non-life insurers.

Among the life insurers, Life Insurance Corporation (LIC) is the sole

public sector company. Apart from that, among the non-life insurers there
are six public sector insurers. In addition to these, there is sole national

re-insurer, namely, General Insurance Corporation of India (GIC Re).

Other stakeholders in Indian Insurance market include agents (individual

and corporate), brokers, surveyors and third party administrators

servicing health insurance claims.

Market Size
Government's policy of insuring the uninsured has gradually

pushed insurance penetration in the country and proliferation

of insurance schemes are expected to catapult this key ratio beyond 4 per

cent mark by the end of this year, reveals the ASSOCHAM latest paper.

The number of lives covered under Health Insurance policies during

2018-19 was 36 crore which is approximately 30 per cent of India's total

population. The number has seen an increase every subsequent year as

28.80 crore people had the policy in the previous fiscal.

During April 2018 to March 2019 period, the life insurance industry

recorded a new premium income of Rs 1.38 trillion (US$ 20.54 billion),

indicating a growth rate of 22.5 per cent. The general insurance industry

recorded a 12 per cent growth in Gross Direct Premium underwritten in

April 2019 at Rs 105.25 billion (US$ 1.55 billion). The life insurance

industry reported 9 per cent increase in overall annual premium

8
equivalent in April-November 2018. In the period, overall annual

premium equivalent (APE)- a measure to normalise policy premium into

the equivalent of regular annual premium- including individual and group

business for private players was up 16 per cent to Rs 1,25,563 crore (US$

18.76 billion) and Life Insurance Corporation up 4 per cent to Rs

1,50,456 crore (US$ 22.48).

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 16-18 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$ 11.44 billion) premium per annum industry and is growing at a

healthy rate of 17 per cent.

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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Investments
The following are some of the major investments and developments in

the Indian insurance sector.

 New York Life Insurance Company, the largest life insurance

company in the US, has invested INR 121 crore (US$ 18.15

million) in Max Ventures and Industries Ltd for a 22.52 per cent

stake, which will be used by Max for investing in new focus areas

of education and real estate.

 New York Life Investments, the global asset management division

of New York Life, along with other investors like Jacob Ballas,

will own a significant minority ownership in Centrum Capital by

being one of the leading global investors in buying the available 30

per cent stake worth US$ 50 million of Centrum Capital.

 Max Life Insurance Co Ltd and HDFC Life Insurance Co Ltd have
signed a merger agreement, which is expected to create India's

largest private sector life insurance company once the transaction is

completed.

 Aviva Plc, the UK-based Insurance company, has acquired an

additional 23 per cent stake in Aviva Life Insurance Company

India from the joint venture (JV) partner Dabur Invest Corporation
for Rs 940 crore (US$ 141.3 million), thereby increasing their

stake to 49 per cent in the company.

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  Insurance firm AIA Group Ltd has decided to increase its stake in

Tata AIA Life Insurance Co Ltd, a joint venture owned by Tata

Sons Ltd and AIA Group from 26 per cent to 49 per cent.

 State Bank of India has announced that BNP Paribas Cardiff is

keen to increase its stake in SBI Life Insurance from 26 per cent to

36 per cent. Once the foreign joint venture partner increases its

stake to 36 per cent, SBI’s stake in SBI Life will get diluted to 64

per cent.

Government Initiatives
The Union Budget of 2017-18 has made the following provisions for the
Insurance Sector:

 The Budget has made provisions for paying huge subsidies in the

premiums of Pradhan Mantri Fasal Bima Yojana (PMFBY) and the

number of beneficiaries will increase to 50 per cent in the next two

years from the present level of 20 per cent. As part of PMFBY, Rs

9,000 crore (US$ 1.35 billion) has been allocated for crop

insurance in 2017-18.

 By providing tax relief to citizens earning up to Rs 5 lakh (US$

7500), the government will be able to increase the number of

taxpayers. Life insurers will be able to sell them insurance

products, to further reduce their tax burden in future. As many of

these people were understating their incomes, they were not able to

get adequate insurance cover.

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  Demand for insurance products may rise as people’s preference

shifts from formal investment products post demonetisation.

 The Budget has attempted to hasten the implementation of

the Digital India initiative. As people in rural areas become more

tech savvy, they will use digital channels of insurers to buy

policies.

The Government of India has taken a number of initiatives to boost the

insurance industry. Some of them are as follows:

 The Union Cabinet has approved the public listing of five

Government-owned general insurance companies and reducing the

Government’s stake to 75 per cent from 100 per cent, which is

expected to bring higher levels of transparency and accountability,

and enable the companies to raise resources from the capital market

to meet their fund requirements.

 The Insurance Regulatory and Development Authority of India

(IRDAI) plans to issue redesigned initial public offering (IPO)

guidelines for insurance companies in India, which are to looking

to divest equity through the IPO route.

 IRDAI has allowed insurers to invest up to 10 per cent in

additional tier 1 (AT1) bonds, that are issued by banks to augment

their tier 1 capital, in order to expand the pool of eligible investors

for the banks.

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 IRDAI has formed two committees to explore and suggest ways to

promote e-commerce in the sector in order to increase insurance

penetration and bring financial inclusion.

 IRDAI has formulated a draft regulation, IRDAI (Obligations of

Insures to Rural and Social Sectors) Regulations, 2015, in

pursuance of the amendments brought about under section 32 B of

the Insurance Laws (Amendment) Act, 2015. These regulations

impose obligations on insurers towards providing insurance cover

to the rural and economically weaker sections of the population.

 The Government of Assam has launched the Atal-Amrit Abhiyan

health insurance scheme, which would offer comprehensive

coverage for six disease groups to below-poverty line (BPL) and

above-poverty line (APL) families, with annual income below Rs

500,000 (US$ 7,500).

 The Uttar Pradesh government has launched a first of its kind

banking and insurance services helpline for farmers where

individuals can lodge their complaints on a toll free number.

 The select committee of the Rajya Sabha gave its approval to

increase stake of foreign investors to 49 per cent equity investment

in insurance companies.

 Government of India has launched an insurance pool to the tune of

Rs 1,500 crore (US$ 220.08 million) which is mandatory under the

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 Civil Liability for Nuclear Damage Act (CLND) in a bid to offset

financial burden of foreign nuclear suppliers.

 IRDAI has given initial approval to open branches in India to

Switzerland-based Swiss Re, French-based Scor SE, and two

Germany-based reinsurers namely, Hannover Re and Munich Re.

NAME OF THE TOP INSURANCE COMPANY IN INDIA

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2.2 COMPANY PROFILE

Industry Insurance Services

Founded 2000

Headquarters Mumbai, India

Area served India

Key people Ms. Vibha Padalkar

(MD & CEO)

Products Insurance

Website hdfclife.com

HDFC Life (HDFC Life Insurance Company Ltd.) is a long-term life

insurance provider with its headquarters in Mumbai, offering individual

and group insurance.

It is a joint venture between Housing Development Finance Corporation

Ltd (HDFC), one of India's leading housing finance institution

and Standard Life Aberdeen PLC, leading well known provider of financial

savings & investments services in the United Kingdom. On 14 August 2015

HDFC Ltd. entered into a share sale agreement with Standard Life to sell

a 9.00% stake in HDFC Life to the latter. The transaction is subject to

receipt of regulatory approvals. Post the completion of the above

transaction, HDFC will hold 61.65% stake in HDFC Life and Standard

Life's stake will increase to 35.00%, with rest to be held by others.

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Presence & Distribution
HDFC Life has about 414 branches and presence in 980+ cities and towns

in India. The company has also established a liaison office in Dubai.[2]

HDFC Life distributes its products through a multi channel network

consisting of Insurance agents, Bancassurance partners (HDFC Bank, Saraswat

Bank, RBL Bank), Direct channel, Insurance Brokers & Online Insurance

Platform.

Products & Services

HDFC Life's products include Protection, Pension, Savings, Investment,

Health along with Children and Women plans. The company also

provides an option of customizing the plans, by adding optional benefits

called riders, at an additional price. The company currently has 29 retail

and 8 group products, along with 7 optional rider benefits (as on 7 May

2018).

 Protection Plans - insurance plans that provide protection and

financial stability to the family in case of any unforeseen events.

 Click2Protect Plus is their online term plan.

 Launched CSC Suraksha to be sold exclusive through the Common

Services Centre network.

 Click2Invest is their online ULIP investment plan.

 Health Plan – offers financial security to meet health related

contingencies.

 Savings & Investment plans - These plans help in investment to

achieve financial goals.

 Retirement plans - financial security for life post retirement.

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  Women's plans - plans catering to different financial needs of

women.

 Children's plans – plans meant to secure children's future.

 Rural & social Plans – meant specifically for rural customers.

 Click2Retire completed their Click2 portfolio.

 ULIP Investment with more funds.

Key people
The MD & CEO of the company is Vibha Padalkar, Chief Actuary &

Appointed Actuary is Srinivasan Parthasarthy, Prasun Gajri is the CIO &

Rajendra Ghag heads the human resources as Chief HR Officer.

Corporate History
The Insurance Regulatory and Development Authority (IRDA) was constituted

in 1999 as an autonomous body to regulate and develop the insurance

industry. The IRDA opened up the market in August 2000 with the

invitation for application for registrations. HDFC Life was established in

2000 becoming the first private sector life insurance company in India.

By 2001, the company had its 100th customer, strengthened its employee

force to 100 and had settled its first claim. HDFC Life launched its first

TV advertising campaign 'Sar Utha Ke Jiyo' in 2005. In 2006, a study

conducted by the Brand Equity – Economic Times had put HDFC Life at
29th rank in the most trusted Indian Brands amongst the Top 50 Service

Brands of 2010.

The Insurance Regulatory and Development Authority (IRDA) gave

accreditation to HDFC Life for 149 training centres housed in its

branches to cater to the mandatory training required to be given as well as

17
for other sales training requirements in 2009.

In 2012, it the first private life insurance company to bring back pension

plans under the new regulatory regime, with the launch of two pension
plans - HDFC Life Pension Super Plus and HDFC Life Single Premium

Pension Super.

Milestones
 HDFC Life launched a new digital ad campaign on retirement
planning, with focus on the idea of a person's longest holiday.

 HDFC Life launched a unique online platform ‘Memories for Life’

that helps people create messages that will be delivered to their

loved ones at an exact date and time.

 HDFC Life and Manipal Global Felicitate Graduates of Smart

Achievers Program. HDFC Life and Manipal Global conducted a

grand convocation to felicitate for over 83 graduates from across

the country. The students were awarded the Post Graduate Diploma

in Insurance (PGDI) on successfully completing the program.

 HDFC Life and #fame today announced the launch of ‘HDFC Life

YoungStars’, a first-of-its-kind digital talent hunt for kids in

categories like dancing, singing, musical instruments and comedy.

 HDFC Life won the Best Customer Team of the Year : Financial at
the Customer Fest India Awards, 2016.

 HDFC Life won the Best Creative Advertising - Single Ad or

Campaign in the Jury Choice Sub Category for the Masterbrand

campaign Apno Ko Apne Dum Pe Jeena Sikhao at the

exchange4media's Prime Time Award 2015.

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  HDFC Life Cancer Care was awarded the prestigious Finnoviti

2016, an award that salutes the spirit of innovation. Finnoviti 2016

Conference and Awards recognize and reward innovations in BFSI

sector and honour the innovators.

 HDFC Life has won the highly prestigious award for Excellence in

Financial Reporting 2014-15 from The Institute of Chartered

Accountants of India. HDFC Life has been awarded the Silver

Shield for the second year in a row under the Insurance Sector

category.

 HDFC Life received the ABP News Award in BFSI sector for Best

Customer Service Organisation in the Insurance Sector

 HDFC Life's Digital Annual Report 14-15 was adjudged as the

recipient of ‘Certificate of Merit’ for the year 2014 in the category

‘Insurance Sector’.

 HDFC Life received the Gold Award at the 2014/15 LACP Vision

Awards. The 2014/15 Vision Awards Annual Report Competition

draws a huge number of submissions , representing a broad range

of industries and organizational sizes.

About HDFC Limited

HDFC Ltd. is India’s premier housing finance company and a well
established financial conglomerate. It has assisted more than 5.2 million

customers in acquiring their own home through cumulative housing loan

disbursements of over Rs. 2.6 trillion. With a wide network of 392

offices, it caters to several towns and cities across India. HDFC Ltd has

International offices in London, Dubai and Singapore with service

19
associates in Kuwait, Oman, Qatar, Sharjah, Abu Dhabi and Saudi Arabia

– Al Khobar, Jeddah and Riyadh to cater to non-resident Indians and

PIO’s.
Customer Service and satisfaction has been the mainstay of the

organization since its inception, with HDFC setting a benchmark for the

Indian housing finance industry. Recognition for the service to the sector

has come from several national and international entities including the
World Bank that has lauded HDFC as a model housing finance company

for the developing countries. HDFC has undertaken a lot of consultancies

abroad for setting up of housing finance companies - assisting different

countries including Sri Lanka, Indonesia, Bhutan, Nepal, Ghana,

Thailand, Philippines, Egypt, Maldives, Mauritius, Bangladesh, Jamaica

and Russia among other countries.

Standard Life plc.

Established in 1825, Standard Life plc. is a leading provider of long term

savings and investments to around six million customers worldwide.

Headquartered in Edinburgh, Standard Life plc. has around 8,500

employees internationally.

The Standard Life plc. group includes savings and investments

businesses, which operate across the UK, Canada, Europe, Asia and
Middle East; workplace pensions and benefits businesses in the UK and

Canada; Standard Life Investments, a global investment manager, which

manages over £253.2bn globally; and its Chinese and Indian Joint

Venture businesses. At the end of February 2016 the Group had total

assets under administration of £307bn.

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Standard Life plc is listed on the London Stock Exchange and has

approximately 1.2 million individual shareholders in over 50 countries

around the world. It is also listed in the Dow Jones Sustainability World
Index, ranking it among the top 10% of sustainable companies in the

world.

HDFC Standard Life Vision and Values

Vision of HDFCSL
The most successful and admired life insurance company, which mean

that we are the most trusted company, the easiest to deal with, offer the

best value for money, and set the standards in the industry. In short, “The

most obvious choice for all”

For retention in the market and highest market share, we need

trust of our customer. The customer should trust on our policies, services,

employs and they should be friendly with us. It wants to live in the eye

and heart of the customer. It wants to give them the easiest deal so that

they can be understood the terms and policies. As we know that profit is

the main aim of any business but it think not only about his profit but also

profit of the customer. It wants to be the choice of all people on the basis

of trust of customer, delivering high value to the customer, and deliver Of

best value of the money.Value that will be observed while we work with
HDFCSL

1. Integrity
HDFCSL believes in honest and trustfulness in every action.

Transparency in dealing with customers. It is stick to principles

irrespective of outcome. When we work in HDFCSL then we observed

21
that its rules and activity of every person in the organization is just and

fair to every one.

Integrity is the bedrock on which the company and the expectations

of the customers and employees are built. Integrity gives inner feeling to

both customer and the employees to work with it. It establishes the

credibility of the person, defines the character and empowers one to do

justice to the job. It enables confidence and trust, achieving transparency

and laying a strong foundation for a binding relationship. It guide

principle for all walks of life.

2. Innovation
It is the process of building a store house of treasures through

experiences. Lots of product is going to be launched by the competitors.

So it is very important to look every product and process through fresh

eyes everyday. It is the significant part of the business that attracts

customer.

Innovation is essential to exceed customer expectation and

maximize customer retention because it is the sector of investment so you

need to fulfill the customer expectation which help you to retain

customer. Innovation helps to achieve competitive advantage. It promotes

growth and upgrade standards in the industry. It fosters creativity

amongst employees and partners. It opens a world of new possibilities

because it brings new concept which helps to entice the customer.

3. Customer centric
Customer becomes the main properties of any organization. Whatever

work done by the organization runs around the expectations of the

22
customer. Customer becomes centre point of the organization and the

main focus of the organization becomes to understand his expectations by

keeping him as the centre point. It gives more focus on customer activity
and saying. It tries to understand customer needs and deliver solutions.

As we know that the market is changed. Lots of competitors is here who

search chance to increase their market share and entice your customer so

customer interest become always supreme.

4. People Care
Genuinely try to understand those people who are working with

HDFCSL. It guides their development through training and support. It

helps them to develop their requisite their skills so that they can reach

their true potential. It tries to know them on a personal front because it

works as a performance appraisal. It try to create an environment of trust

and openness so that all people who are working here behave friendly and

helps to each other because team work is most important for getting

success and give respect for the time of others.

People are the most valuable assets of the company so it tries to

motivate individual to give his/her best. It wants to establish a valuable

relationship with them to create a joyful working environment. The most

important thing is that it tries to provide job satisfaction for their people.

5. Team work “One for all and all for one”

Here whole team takes the ownership of the deliverables. It consults all

involved in the work and try to understand their opinion and then arrive

ant a common objective. There is a cooperation and support across

departmental boundaries. It identifies strengths and weaknesses

23
accordingly allocate responsibility to achieve common objectives.

Team work helps everyone to achieve more. it adds joy at work place

which add interest in the work and new stamina in the work. It generates
synergy and provides a focused approach. When an idea or activity

performed in a group, it has greater acceptability. “Team work proves one

for all and all for one”.

MISSION OF HDFSLIC
We aim to be the top new life insurance company in the market.This does

not just mean being the largest or the most productive company in the

market, rather it is a combination of several things like-Customer service

of the highest order Value for money for customers Professionalism in

carrying out business Innovative products to cater to different needs of

different customers Use of technology to improve service standards

Increasing market share

HDFC GROUP COMPANIES

HDFC Limited

HDFC Bank

HDFC Asset Management Co. Limited

HDFC Securities Limited

HDFC Life Insurance Company

Intel net Global

CIBIL – Credit Information Bureau Investigation Ltd

HDFC Chubb General Insurance

24
Board Of Directors

Mr. Keki M. Mistry

Ms. Renu Sud Karnad

Mr. Norman K. Skeoch

Mr. Ravi Narain

Dr. S. A. Dave

Mr. Prasad Chandran

25
Mr. Vish Viswanathan

Mr. Sumit Bose

Mr. Ranjan Mathai

Mr. Amitabh Chaudhry

Ms. Vibha Padalkar

Mr. Luke Savage

26
2.3 PRODUCT OF HDFCSL

Term Plans
Term Plans help you shield your family from uncertainties in life due to
financial losses in terms of loss of income that may dawn upon them in

case of your untimely demise or critical illness. Securing the future of

one's family is one of the most important goals of life. Term Plans go a

long way in ensuring your family's financial independence in the event of

your unfortunate demise or critical illness. For instance, consider the

example of Amit who is a healthy 25 year old guy with a income of Rs.

1,00,000/- per annum. Let's assume his income increases at a rate of 10%

per annum, while the inflation rate is around 4%; this is how his income

chart will look like, until he retires at the age of 60 years. At 50 years of

age, Amit's real income would have been around Rs. 10,00,000/- per

annum. However, in case of Amit's unfortunate demise at an early age of

42 years, the loss of income to his family would be nearly Rs. 5,00,000/-

per annum.

27
However, with a Protection Plan, a mere sum of Rs. 2,280/- annually

(exclusive of service tax & educational cess) can help Amit provide a

financial cushion of up to Rs. 10,00,000/- for his family over a period of

25 years.

Types of Term Plans

HDFC Life Click 2 Protect

Looking for an easier way to insure yourself and secure your loved ones
happiness? You know that the solution is a term insurance plan and you

seek a plan that is convenient to buy and is affordable. Your search ends

here. HDFC Life is happy to present the perfect plan for your protection

needs HDFC Life Click 2 Protect! HDFC Life Click 2 Protect is a term

insurance plan. This plan provides for a payment of a lump sum in the

event of your unfortunate death during the policy term.

Features

Advantages
 Buy this plan at click of button , anytime & anywhere

 High cover at a very nominal cost.

 Flexibility to choose the Sum Assured and policy term

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HDFC Term Assurance Plan
Term Assurance plan is designed to help secure your family's financial

needs in case of uncertainties. The plan does this by providing a lump

sum to the family of the life assured in case of death or critical illness (if

option is chosen) of the life assured during the term of the contract. One

can choose the lump sum that would replace the income lost to one's

family in the unfortunate event of one's death. This helps your family to
maintain their financial independence, even when you are not around.

Features

Advantages
 High cover at a very nominal cost.

 Flexibility to choose the Sum Assured.

 Additional benefit options can be availed at marginal costs.

 Premium amount remains the same over the term of the policy in

case of regular premium

 Option of paying single premium or regular premium.

 Tax benefits under sections 80C, 80D and 10(10D) of Income Tax

Act, 1961.

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HDFC Premium Guarantee Plan
HDFC Premium Guarantee Plan is an insurance plan that comes with

twin advantage of protection and return of premiums* on maturity. So,

you can enjoy life knowing that your family’s financial independence is

secure even in your absence. And your premiums are yours on your

survival at maturity.

Features

Advantages
 High cover at a very nominal cost.

 Flexibility to choose the Sum Assured.

 Return of all your premiums paid on maturity*

 Tax benefits under sections 80C and 10(10D) of Income Tax Act,

1961.

30
Children Plans
Children's Plans helps you save so that you can fulfill your child's

dreams and aspirations. These plans go a long way in securing your

child's future by financing the key milestones in their lives even if you are

no longer around to oversee them. As a parent, you wish to provide your

child with the very best that life offers, the best possible education,

marriage and life style.

Most of these goals have a price tag attached and unless you plan your

finances carefully, you may not be able to provide the required economic

support to your child when you need it the most. For example, with the

high and rising costs of education, if you are not financially prepared,

your child may miss an opportunity of a lifetime.

Today, a 2-year MBA course at a premiere management institute would

cost you nearly Rs. 3,00,000/- At a assumed 6% rate of inflation per

annum, 20 years later, you would need almost Rs. 9,07,680/- to finance

your child's MBA degree.

An illustration of how education expenses could rise with passing time

due to inflation

So, how can you cope with these costs? Children's Plans help you save

steadily over the long term so that you can secure your child's future
needs, be it higher education, marriage or anything else. A small sum

invested by you regularly can help you build a decent corpus over a

period of time and go a long way in providing your child a secured

financial future alongwith

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HDFC Children's Plan
As a parent, your priority is your child's future and being able to meet

your child's dreams and aspirations. With our HDFC Children's Plan,
you can start building your savings today and ensure a bright future for

your child. This 'With Profits' plan is designed to secure your child's

future by giving your child (Beneficiary) a guaranteed lump sum on

maturity or in case of your unfortunate demise, early into the policy term.
Features

Advantages
 Lets you customise an ideal plan for your child and provide
invaluable financial support

 The Double Benefit Plan Option helps you secure your child's

immediate and future needs. In case of your unfortunate demise, we will

pay the Sum Assured to your child (Beneficiary). Your family need not

pay any further premiums and the policy continues. And on maturity of

the plan, we will pay you the Sum Assured plus Bonuses Declared

 You can choose to pay your premium as either Annually, Half-

Yearly or Quarterly depending on your convenience. You also have a

range of convenient auto premium payment options

32
Woman Insurance Plans
As an independent woman, you live life on your own terms. You

contribute to your family and have created your niche - at home, at work
place and in society. Your roles and responsibilities create unique

challenges for you. We understand your financial needs and hence we

have created exclusive woman plans for you.

Maintaining your financial independence is crucial and life insurance

plans helps you to do so. Besides providing insurance coverage, they also

enable you to create wealth- for your family and for yourself. Most of

woman contributes to their family's income - by working fulltime or

being an entrepreneur and hence wants to secure their loved one's future.

For those who are stay at home, life insurance is an easy way to

channelize the savings into wealth by investing.

Types of Women's Plans

HDFC Life Smart Woman Plan

HDFC Life Smart Woman Plan, a unique insurance cum investment plan

designed specifically for women. This plan ensures that your savings

continue, while you adjust to the new stages of your life, and you remain

confident to live life your way.

This ULIP plan comes with comprehensive coverage options where we

will cover you against pregnancy complications and congenital conditions

or for malignant female-specific cancers. During these critical moments,

we assure you the peace of mind by waiving and funding your premiums

so that as you overcome and adjust to your life your investments continue

to grow.

33
HDFC Life Pension Super Plus Plan
You think about retirement as a time when you would travel, play with

grand kids; pursue your long forgotten interests, a time when you enjoy
life more and on your own terms. All this is possible only if you are

financially prepared. The fact that because women tend to live longer

than men and tend to have lesser savings, you have to manage the

challenge of making your funds last longer- after retirement. Simply, you
need to save as much as possible for your retirement.

HDFC Life Pension Super Plus is a unit linked pension plan for women.

This pension plan is designed to build a corpus during the policy term so

that you can enjoy post retirement income for life.

Features

Advantages
 Assured Benefit on Maturity (vesting) - At the end of the policy

term, you will receive higher of the following

o Fund Value or

o Assured benefit of 101% of all premiums including top-up

premiums paid till date

34
to reach your targeted savings at the age of 50 Years, if you consider

inflation.

HDFC Life Sampoorn Samridhi Insurance Plan

Sukh aur Samridhi. Joy, happiness and prosperity are your ultimate

desire, not only for yourself but also for your loved ones. Life insurance

plans not only let you secure financial future of your loved ones, they also

assist you in attaining prosperity.

With HDFC Life Sampoorn Samridhi Insurance Plan, you can be

financially prepared for the future and can fulfil your dreams &

aspirations. This plan offers financial protection to your loved ones when

they need it the most, enabling you and your family live life with peace of

mind and sar utha ke !

Features

HDFC Endowment Assurance Plan

As a judicious family man, your priority is to secure the well-being of

those who depend on you. Not just for today, but also for the long term.

With our HDFC Endowment Assurance Plan, you can start building your
35
savings today and ensure that your family remains financially

independent, even when you are not around. This 'With Profits' plan is

designed to secure your family's future by giving your family a

guaranteed lump sum on maturity or in case of your unfortunate demise,

early into the policy term.

Features

Advantages
 Ideal way to secure your long-term financial goals and your

family's financial independence by giving a lump sum payment (basic

Sum Assured plus any Bonus Additions) on survival up to Maturity date

 Provides invaluable protection to your family by way of lump sum

payment in case of unfortunate demise within policy term

 Gives you the flexibility to customise your policy according to

your needs by adding any one of the 3benefit options available

HDFC Life ProGrowth Plus

You work hard to attain your dreams. Your money should work harder so

that you can attain your dreams and aspirations. Investing in a unit linked

insurance plan is a nice way to build wealth and also enjoy life insurance

36
cover. We understand that you would like to actively manage your own

investment, and prefer to create your own investment strategy.

We present HDFC Life ProGrowth Plus, a simple savings-cum-insurance

plan that will enable you to enjoy life cover and benefit from comfort of

creating your own investment strategies.This ULIP plan aims to help you

achieve long term savings while providing insurance coverage as per

option selected by you. i.e. Life and Extra Life.

Features

Advantages
 This plan provides valuable protection to your family in case you

are not around. In case of your unfortunate demise during the policy term,

we will pay the greater of the Sum Assured or your total fund value to

your nominee

Health Plans
Health plans give you the financial security to meet health related

contingencies. Due to changing lifestyles, health issues have acquired

completely new dimension overtime, becoming more complex in nature.

It becomes imperative then to have a health plan in place, which will

37
ensure that no matter how critical your illness is, it does not impact your

financial independence.

In the race to excel in our professional lives and provide the best for our
loved ones, we sometimes neglect the most important asset that we have -

our health. With increasing levels of stress, negligible physical activity

and a deteriorating environment due to rapid urbanization, our

vulnerability to diseases has increased at an alarming rate.

As can be seen in the above chart, lifestyle diseases are set to spread at

disturbing rates. The result - increased expenditure. In many cases, people

need to borrow money or sell assets to cover their medical expenses. All
it takes is a suitable plan to help you overcome the financial woes related

to your health by paying marginal amounts as premiums.

HDFC Life Pro Growth Plus

HDFC Life ProGrowth Plus, a simple savings-cum-insurance plan that

will enable you to enjoy life cover and benefit from comfort of creating

your own investment strategies. This ULIP plan will help you to make the

most of equities by channelizing your savings effectively.

38
Features

 Flexibility to choose from a range of funds:

1. Income Fund

2. Balanced Fund

3. Blue Chip Fund

4. Opportunities fund

 Flexibility to choose sum assured

Advantages

 Flexibility to choose from the following plan options:

1. Life Option = Death Benefit

2. Extra Life Option = Death Benefit + Accidental Death Benefit

 Flexibility of planning your investment strategy based on your risk

and return requirement

 Flexibility to make partial withdrawals to meet unplanned expenses

 Tax benefits under sections 80Cand 10(10D) of the Income Tax

Act 1961 subject to provisions contained therein

 Paying premiums is convenient with access to multiple modes –

credit card, internet banking, cheque, auto debit facility

HDFC Life Super Savings Plan

Regular savings over a long period ensures that a corpus is built to meet

financial goals at various life stages. Presenting HDFC Life Super

Savings Plan, a 'with profits' plan to safeguard the financial interests of

your loved ones in your absence.

39
Features

 Regular premium endowment plan with flexibility to choose a

policy term from 15 to 30 years

 Get an additional sum assured in case of accidental death

 The plan participates in the profit of the participating fund by way

of bonuses

 The flexibility to choose the premium payment frequency i.e.

monthly/quarterly/half-yearly/annual

 This plan can be taken only on a single life basis

Advantages

 Insurance coverage throughout the policy term

 Financial protection against untimely demise throughout the policy

term

 Boost your maturity benefit with reversionary bonuses and

terminal bonus (if any)

 You can opt for hassle-free issuance on the basis of a Short

Medical Questionnaire eliminating tedious medical tests

HDFC Life Sanchay -Guaranteed Savings Insurance Plan

Life is full of responsibilities and as a responsible individual you aspire to

build a financially secured life for your loved ones. Guaranteed Returns

helps you to fulfill your responsibility with ease. Presenting HDFC Life

Sanchay, a non-participating insurance plan, that offers guaranteed

40
benefits along with flexibility to choose your investment horizon.

Features

 Non Participating Traditional Plan with Guaranteed Benefits

 Limited premium paying term of 5, 8 or 10 years

 Flexibility to choose the policy term of 15 to 25 years

 Guaranteed Additions of 8% or 9% of Sum Assured to your

maturity benefit, accrued at simple rate for each completed policy

year

 The total Guaranteed Maturity Benefit will be between 220% to

325% of Sum Assured provided all due premiums have been paid

 The flexibility to choose premium payment frequency i.e.

monthly/quarterly/half-yearly/annually

Advantages

 Limited premium paying term of 5,8 or 10 years with flexibility to

choose policy term between 15 to 25 years

 Financial Protection against untimely demise, throughout the

policy term

Guaranteed Benefits of 220% to 325% of the Sum Assured depending

upon the policy term

41
 CHAPTER-III
CONCEPTUAL FRAMEWORK

42
3.1 WHAT IS INSURANCE?
The business of insurance is related to the protection of the economic

values of assets. Every asset has a value. The asset would have been
created through the efforts of the owner. The asset is valuable to the

owner, because he expects to get some benefit may be an income or in

some other form. It is a benefit because it meets some of his needs. The

benefit may be an income or in some other form. In the case of a factory

or a cow, the product generated by it is sold and income is generated. In

the case of a motor car, it provides comfort and convenience in

transportation. There is no direct income. Both are assets and provide

benefits.

IRDA (Insurance Regulatory and Development Authority)

The Government of India has enacted the Right to Information Act, 2005

which has come into effect from October 13, 2005. The Right to

Information under this Act is meant to give to the citizens of India access

to information under control of public authorities to promote transparency

and accountability in these organizations. The Act, under Sections 8 and

9, provides for certain categories of information to be exempt from

disclosure. The Insurance Regulatory and Development Authority

(IRDA) is a public authority as defined in the Right to Information Act,

2005. As such, the Insurance Regulatory and Development Authority is

obliged to provide information to members of public in accordance with

the provisions of the said Act.

43
3.2 WORKING CAPITAL
Working capital in simple terms means the amount of funds that a
company requires for financing its day-to-day operations. Finance
manager should develop sound techniques of managing current assets.
WHAT IS WORKING CAPITAL?
Working capital refers to the investment by the company in short terms
assets such as cash, marketable securities. Net current assets or net
working capital refers to the current assets less current liabilities.
Symbolically, it means,
Net Current Assets = Current Assets - Current Liabilities.
DEFINITIONS OF WORKING CAPITAL
The following are the most important definitions of Working capital:
1) “Working capital is the difference between the inflow and outflow of
funds. In other words it is the net cash inflow”.
2) Working capital represents the total of all current assets. In other
words it is the Gross working capital, it is also known as Circulating
capital or Current capital for current assets are rotating in their nature.
3) Working capital is defined as the excess of current assets over current
liabilities and provisions. In other words it is the “Net Current Assets or
Net Working Capital”.
IMPORTANCE OF WORKING CAPITAL
Working capital may be regarded as the lifeblood of the business.
Without insufficient working capital, any business organization cannot
run smoothly or successfully.
In the business the Working capital is comparable to the blood of
the human body. Therefore the study of working capital is of major
importance to the internal and external analysis because of its close
relationship with the current day to day operations of a business. The

44
inadequacy or mismanagement of working capital is the leading cause of
business failures.
To meet the current requirements of a business enterprise such as
the purchases of services, raw materials etc. working capital is essential.
It is also pointed out that working capital is nothing but one segment of
the capital structure of a business.
In short, the cash and credit in the business, is comparable to the
blood in the human body like finance s life and strength i.e. profit of
solvency to the business enterprise. Financial management is called upon
to maintain always the right cash balance so that flow of fund is
maintained at a desirable speed not allowing slow down. Thus enterprise
can have a balance between liquidity and profitability. Therefore the
management of working capital is essential in each and every activity.
WORKING CAPITAL MANAGEMENT
INTRODUCTION
Working Capital is the key difference between the long term financial
management and short term financial management in terms of the timing
of cash.
Long term finance involves the cash flow over the extended period of
time i.e 5 to 15 years, while short term financial decisions involve cash
flow within a year or within operating cycle.
Working capital management is a short term financial management.
Working capital management is concerned with the problems that
arise in attempting to manage the current assets, the current liabilities &
the inter relationship that exists between them. The current assets refer to
those assets which can be easily converted into cash in ordinary course of
business, without disrupting the operations of the firm.

45
Composition of working capital
Major Current Assets
1) Cash
2) Accounts Receivables
3) Inventory
4) Marketable Securities
Major Current Liabilities
1) Bank Overdraft
2) Outstanding Expenses
3) Accounts Payable
4) Bills Payable
The Goal of Capital Management is to manage the firm s current assets &
liabilities, so that the satisfactory level of working capital is maintained.
If the firm can’t maintain the satisfactory level of working capital, it is
likely to become insolvent & may be forced into bankruptcy. To maintain
the margin of safety current asset should be large enough to cover its
current assets.
Main theme of the theory of working capital management is
interaction between the current assets & current liabilities.
CONCEPT OF WORKING CAPITAL
There are 2 concepts:
 Gross Working Capital
 Net Working Capital
Gross working capital: - It is referred as total current assets.
Focuses on,
 Optimum investment in current assets:
Excessive investments impair firm’s profitability, as idle investment
earns nothing. Inadequate working capital can threaten solvency of the

46
firm because of its inability to meet its current obligations. Therefore
there should be adequate investment in current assets.
 Financing of current assets:
Whenever the need for working capital funds arises, agreement should be
made quickly. If surplus funds are available they should be invested in
short term securities.
Net working capital (NWC) defined by 2 ways,
 Difference between current assets and current liabilities
 Net working capital is that portion of current assets which is
financed with long term funds.
NET WORKING CAPITAL = CURRENT ASSETS - CURRENT
LIABILITIES
If the working capital is efficiently managed then liquidity and
profitability both will improve. They are not components of working
capital but outcome of working capital. Working capital is basically
related with the question of profitability versus liquidity & related aspects
of risk.
Implications of Net Working Capital:
Net working capital is necessary because the cash outflows and inflows
do not coincide. In general the cash outflows resulting from payments of
current liability are relatively predictable. The cash inflows are however
difficult to predict. More predictable the cash inflows are, the less NWC
will be required. But where the cash inflows are uncertain, it will be
necessary to maintain current assets at level adequate to cover current
liabilities that are there must be NWC.
The term profitability is measured by profits after expenses. The
term risk is defined as the profitability that a firm will become technically
insolvent so that it will not be able to meet its obligations when they
become due for payment.
47
 If the firm wants to increase profitability, the risk will definitely
increase. If firm wants to reduce the risk, the profitability will decrease.
PLANNING OF WORKING CAPITAL:
Working capital is required to run day to day business operations. Firms
differ in their requirement of working capital (WC). Firm’s aim is to
maximize the wealth of share holders and to earn sufficient return from
its operations.
WCM is a significant facet of financial management. Its importance
stems from two reasons:
 Investment in current asset represents a substantial portion of total
investment.
 Investment in current assets and level of current liability has to be
geared quickly to change in sales.
WORKING CAPITAL CYCLE:

A firm requires many years to recover initial investment in fixed assets.

On contrary the investment in current asset is turned over many times a
year. Investment in such current assets is realized during the operating
cycle of the firm.

48
Operating cycle:
The working capital cycle refers to the length of time between the firms
paying the cash for materials, etc., entering into production process/stock
& the inflow of cash from debtors (sales), suppose a company has certain
amount of cash it will need raw materials. Some raw materials will be
available on credit but, cash will be paid out for the other part
immediately. Then it has to pay labour costs & incurs factory overheads.
These three combined together will constitute work in progress. After the
production cycle is complete, work in progress will get converted into
sundry debtors. Sundry debtors will be realized in cash after the expiry of
the credit period. This cash can be again used for financing raw material,
work in progress etc. thus there is complete cycle from cash to cash
wherein cash gets converted into raw material, work in progress, finished
goods and finally into cash again. Short term funds are required to meet
the requirements of funds during this time period. This time period is
dependent upon the length of time within which the original cash gets
converted into cash again. The cycle is also known as operating cycle or
cash cycle.
Thus the working capital cycle helps in the forecast, control &
management of working capital. It indicates the total time lag & the
relative significance of its constituent parts. The duration may vary
depending upon the business policies. In light of the facts discusses above
we can broadly classify the operating cycle of a firm into three phases
viz.
1 Acquisition of resources.
2 Manufacture of the product and
3 Sales of the product (cash / credit).

49
First and second phase of the operating cycle result in cash outflows, and
be predicted with reliability once the production targets and cost of inputs
are known.
However, the third phase results in cash inflows which are not
certain because sales and collection which give rise to cash inflows are
difficult to forecast accurately.
Operating cycle consists of the following:
 Conversion of cash into raw-materials;
 Conversion of raw-material into work-in-progress;
 Conversion of work-in-progress into finished stock;
In the form of an equation, the operating cycle process can be expressed
as follows:
Operating cycle = R + W + F + D - C
R = Raw material storage period
W = Work in progress holding period
F = Finished goods storage period
D = Debtors collection period
C = Credit period availed
Operating cycle for manufacturing firm:
The firm is therefore, required to invest in current assets for smooth and
uninterrupted functioning.
RMCP - Raw Material Conversion Period
WIPCP - Work in Progress Conversion Period
FGCP - Finished Goods Conversion Period
ICP - Inventory Conversion Period
RCP - Receivables Conversion Period
Payables (PDP) - Payables Deferral Period
NOC - Net Operating Cycle
GOC - Gross Operating Cycle

50
WORKING CAPITAL MANAGEMENT
INTRODUCTION
Working Capital is the key difference between the long term financial
management and short term financial management in terms of the timing
of cash.
Long term finance involves the cash flow over the extended period of
time i.e 5 to 15 years, while short term financial decisions involve cash
flow within a year or within operating cycle.
Types of working capital:
1) PERMANENT AND
2) VARIABLE WORKING CAPITAL
REQUIREMENTS OF FUNDS

Every company requires funds for investing in two types of capital i.e.
fixed capital, which requires long-term funds, and working capital, which
requires short-term funds.

51
3.3 SOURCES OF WORKING CAPITAL

Sources of additional working capital include the following:

 Existing cash reserves
 Profits (when you secure it as cash!)
 Payables (credit from suppliers)
 New equity or loans from shareholders
 Bank overdrafts or lines of credit
LONG TERM SOURCES
ISSUE OF SHARES
Ordinary shares are also known as equity shares and they are the most
common form of share in the UK. An ordinary share gives the right to its
owner to share in the profits of the company (dividends) and to vote at
general meetings of the company.
Since the profits of companies can vary wildly from year to year,
so can the dividends paid to ordinary shareholders. In bad years,
dividends may be nothing whereas in good years they may be substantial.
The nominal value of a share is the issue value of the share - it is
the value written on the share certificate that all shareholders will be
given by the company in which they own shares.
The market value of a share is the amount at which a share is being
sold on the stock exchange and may be radically different from the

52
nominal value. When they are issued, shares are usually sold for cash, at
par and/or at a premium. Shares sold at par are sold for their nominal
value only - so if Rs.10 share is sold at par, the company selling the share
will receive Rs. 10 for every share it issues.
If a share is sold at a premium, as many shares are these days, then the
issue price will be the par value plus an additional premium.
LOANS FROM OTHER FINANCIAL INSTITUTIONS
The term debenture is a strictly legal term but there are other forms of
loan or loan stock. A loan is for a fixed amount with a fixed repayment
schedule and may appear on a balance sheet with a specific name telling
the reader exactly what the loan is and its main details.
CASH MANAGEMENT
Cash management is one of the key areas of WCM. Apart from the fact
that it is the most liquid asset, cash is the common denominator to which
all current assets, that is, receivables & inventory get eventually
converted into cash.
Cash is oil of lubricate the ever-turning wheels of business: without
it the process grinds to a shop.
OBJECTIVES OF CASH MANAGEMENT:
I. To meet the cash disbursement needs -
In the normal course of business firms have to make payment of
cash on a continuous and regular basis to the supplier of goods,
employees and so son. Also the collection is done from the debtor. Basic
objective is to meet payment schedule that is to have sufficient cash to
meet the cash disbursement needs of the firm.
II. To minimize the funds committed to cash balances -
First of all if we keep high cash balance, it will ensure prompt
payment together with all the advantages. But it also implied that the
large funds will remain idle, as cash is the non-earning asset and firm will

53
have to forego profits. On the other hand, low cash balance mean failure
to meet payment schedule. Therefore we should have optimum level of
cash balance.
FACTORS DETERMININING CASH NEEDS:
1) Synchronization of cash - need for the cash balances arises from the
non-synchronization of the inflows & outflows of cash. First need in
determining cash needs is, the extent of non-synchronization of cash
receipts & disbursements. For this purpose cash budget is to be prepared.
Cash budget point out when the firm will have excess or shortage of cash.
2) Short cash - Cash period reveals the period of cash shortages. Every
shortage of cash whether expected or unexpected involves a cost
depending upon the security, duration & frequency of shortfall & how the
shortage is covered. Expenses incurred as a shortfall are called short
costs.
DEBTORS MANAGEMENT
Assessing the credit worthiness of customers
Before extending credit to a customer, a supplier should analyze the five
Cs of credit worthiness, which will provoke a series of questions. These
are:
Capacity: will the customer be able to pay the amount agreed within the
allowable credit period? What is their past payment record? How large is
the customer's business capital. what is the financial health of the
customer? Is it a liquid and profitable concern, able to make payments on
time?
Character: do the customers management appear to be committed to
prompt payment? Are they of high integrity? What are their personalities
like?
Collateral: what is the scope for including appropriate security in return
for extending credit to the customer?

54
Conditions: what are the prevailing economic conditions? How are these
likely to impact on the customers ability to pay promptly?
Whilst the materiality of the amount will dictate the degree of analysis
involved, the major sources of information available to companies in
assessing customers credit worthiness are:
Bank references. These may be provided by the customers bank to
indicate their financial standing. However, the law and practice of
banking secrecy determines the way in which banks respond to credit
enquiries, which can render such references uninformative, particularly
when the customer is encountering financial difficulties.
Trade references. Companies already trading with the customer may be
willing to provide a reference for the customer. This can be extremely
useful, providing that the companies approached are a representative
sample of all the clients suppliers. Such references can be misleading, as
they are usually based on direct credit experience and contain no
knowledge of the underlying financial strength of the customer.
Advantages
 provides faster and more predictable cash flows;
 finance provided is linked to sales, in contrast to overdraft limits,
which tend to be determined by historical balance sheets;
 growth can be financed through sales, rather than having to resort
to external funds;
Disadvantages
 the interest charge usually costs more than other forms of short-
term debt;
 the administration fee can be quite high depending on the number
of debtors, the volume of business and the complexity of the
accounts;

55
CREDITORS MANAGEMENT
MANAGING PAYABLES (CREDITORS)
Creditors are a vital part of effective cash management and should be
managed carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing
function can create liquidity problems. Consider the following:
 Who authorizes purchasing in your company - is it tightly managed
or spread among a number of (junior) people?
 Are purchase quantities geared to demand forecasts?
 Do you use order quantities, which take account of stock holding
and purchasing costs?
 Do you know the cost to the company of carrying stock?
 Do you have alternative sources of supply? If not, get quotes from
major suppliers and shop around for the best discounts, credit
terms, and reduce dependence on a single supplier.
 How many of your suppliers have a returns policy?
 Are you in a position to pass on cost increases quickly through
price increases to your customers?
 If a supplier of goods or services lets you down can you charge
back the cost of the delay?
 Can you arrange (with confidence!) to have delivery of supplies
staggered or on a just-in-time basis?
INVENTORY MANAGEMENT
Managing inventory is a juggling act. Excessive stocks can place a heavy
burden on the cash resources of a business. Insufficient stocks can result
in lost sales, delays for customers etc.

56
Agency Costs
There are three types of agency costs which can help explain the

relevance of capital structure.

 Asset substitution effect: As D/E increases, management has an

increased incentive to undertake risky (even negative NPV)

projects. This is because if the project is successful, share holders

get all the upside, whereas if it is unsuccessful, debt holders get all
the downside. If the projects are undertaken, there is a chance of

firm value decreasing and a wealth transfer from debt holders to

share holders.

 Underinvestment problem (or Debt overhang problem): If debt

is risky (e.g., in a growth company), the gain from the project will

accrue to debtholders rather than shareholders. Thus, management

have an incentive to reject positive NPV projects, even though they

have the potential to increase firm value.

 Free cash flow: unless free cash flow is given back to investors,

management has an incentive to destroy firm value through empire

building and perks etc. Increasing leverage imposes financial

discipline on management.

 Capital bearing risk includes debentures(risk is to pay interest) and

preference capital (risk to pay dividend at fixed rate).

 Capital not bearing risk includes equity share capital.

Therefore we can also say,

Capital gearing ratio= (Debentures+Preference share capital) : (Equity

shareholders' funds)

57
Arbitrage
A capital-structure arbitrageur seeks opportunities created by differential

pricing of various instruments issued by one corporation. Consider, for

example, traditional bonds and convertible bonds. The latter are bonds

that are, under contracted-for conditions, convertible into shares of

equity. The stock-option component of a convertible bond has a

calculable value in itself. The value of the whole instrument should be the
value of the traditional bonds plus the extra value of the option feature. If

the spread (the difference between the convertible and the non-

convertible bonds) grows excessively, then the capital-structure

arbitrageur will bet that it will converge.

Cost of Capital
The cost of capital is a term used in the field of financial investment to

refer to the cost of a company's funds (both debt and equity), or, from an

investor's point of view "the shareholder's required return on a portfolio

of all the company's existing securities". It is used to evaluate new

projects of a company as it is the minimum return that investors expect

for providing capital to the company, thus setting a benchmark that a new

project has to meet.

For an investment to be worthwhile, the expected return on capital must

be greater than the cost of capital. The cost of capital is the rate of return

that capital could be expected to earn in an alternative investment of

equivalent risk. If a project is of similar risk to a company's average

business activities it is reasonable to use the company's average cost of

capital as a basis for the evaluation. A company's securities typically

58
include both debt and equity, one must therefore calculate both the cost of

debt and the cost of equity to determine a company's cost of capital.

However, a rate of return larger than the cost of capital is usually

required.

The cost of debt is relatively simple to calculate, as it is composed

of the rate of interest paid. In practice, the interest-rate paid by the

company can be modelled as the risk-free rate plus a risk component (risk
premium), which itself incorporates a probable rate of default (and

amount of recovery given default). For companies with similar risk or

credit ratings, the interest rate is largely exogenous (not linked to the

company's activities).

The cost of equity is more challenging to calculate as equity does

not pay a set return to its investors. Similar to the cost of debt, the cost of

equity is broadly defined as the risk-weighted projected return required

by investors, where the return is largely unknown. The cost of equity is

therefore inferred by comparing the investment to other investments

(comparable) with similar risk profiles to determine the "market" cost of

equity.

Cost of debt
The cost of debt is computed by taking the rate on a risk free bond whose
duration matches the term structure of the corporate debt, then adding a

default premium. This default premium will rise as the amount of debt

increases (since, all other things being equal, the risk rises as the amount

of debt rises). Since in most cases debt expense is a deductible expense,

the cost of debt is computed as an after tax cost to make it comparable

59
with the cost of equity (earnings are after-tax as well). Thus, for

profitable firms, debt is discounted by the tax rate. The formula can be

written as (Rf + credit risk rate)(1-T), where T is the corporate tax rate
and Rf is the risk free rate.

Cost of equity
Cost of equity = Risk free rate of return + Premium expected for risk

Cost of equity = Risk free rate of return + Beta x (market rate of return-
risk free rate of return) where Beta= sensitivity to movements in the

relevant market

Where:

Es

The expected return for a security

Rf

The expected risk-free return in that market (government bond

yield)

βs

The sensitivity to market risk for the security

RM

The historical return of the stock market/ equity market

(RM-Rf)

The risk premium of market assets over risk free assets.

The risk free rate is taken from the lowest yielding bonds in the particular

market, such as government bonds.

60
3.4 RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis. A ratio is defined

as "the indicated quotient of two mathematical expression" and as" the

relationship between two or more things". In financial analysis, a ratio is

used as an index or yardstick for evaluating the financial position and

performance of a firm. The absolute accounting figures reported in the

financial statements do not provide a meaningful understanding of the

performance and financial position of a firm. An accounting figure

conveys meaning when it is related to some other relevant information.

The relationship between two accounting figures, expressed

mathematically, is known as a financial ratio (or simply as a ratio). Ratios

help to summaries the large quantities of financial data and to make

qualitative judgment about the firm's financial performance. The

investors who are interested in investing in the company’s shares will

also get benefited by going through the study and can easily take a

decision whether to invest or not to invest in the company’s shares.

Ratio analysis is a technique of analyzing the financial statement of

industrial concerns. Now a day this technique is sophisticated and is

commonly used in business concerns. Ratio analysis is not an end but it is

only means of better understanding of financial strength and and

weakness of a firm. Ratio analysis is one of the most powerful tools of

financial analysis which helps in analyzing and interpreting the health of

the firm. Ratio’s are proved as the basic instrument in the control process

and act as back bone in schemes of the business forecast. With the help of

61
ratio we can determine the ability of the firm to meet its current

obligation.

MEANING OF RATIO
A ratio is a mathematical Relationship between two items expressed in a

quantitative from. It may defined as the indicated quotient of two

mathematical expressions.

RATIO ANALYSIS
Ratio Analysis is the process of determining and presenting the

relationship of items and group of items in the statements.

According to Batty J. Management Accounting “Ratio can assist

management in its basic functions of forecasting, planning co-ordination,

control and communication”.

It is helpful to known about the liquidity, solvency, capital structure and

profitability of an organization. It is helpful tool to aid in applying

judgment, otherwise complex situations.

EXPRESSION OF RATIO ANALTSIS

1. PERCENTAGE (%) :-
In this two figures is expressed in hundredth for Example.

If capital = Rs 1, 00,000, profit = Rs 20,000 then 20,000/1,00,000 x100 =

20%

2. PROPORTION (:) :-
It is expressed by the simple division of one number by another. For

example:-

If current asset = Rs 2,00,000, current liability = 1,00,000 then

2,00,000/1,00,000 = 2:1

62
3. Times (5 times) :-
In this type, It is calculated how many times a figure is in comparison to

another figure for example:-

If firm’s credit sales during the year/Debtor at the end of year =

2,00,000/40,000 = 5 Times.

CLASSIFICATION OF RATIO ANALYSIS

Classification of Ratios can be classified into different categories
depending upon the basis of classification .

TRADITIONAL CLASSIFICATION Traditional Classification has

been on the basis of financial statements, on which ratio may be classified

as follows. 1. Profit & Loss account ratios.

E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc

2. Balance sheet ratio. E.g. Current Ratio, Debt Equity Ratio, Working

Capital Ratio etc

3. Composite/ Mixed ratio. E.g. Stock Turnover Ratio, Debtors Turnover

Ratios, Fixed Assets Turnover Ratio

(A) Liquidity ratio: - It refers to the ability of the firm to meet its current

liabilities. The liquidity ratio, therefore, are also called ‘Short-term

solvency Ratio’. These ratio are used to assess the short-term financial

position of the concern. They indicate the firm’s ability to meet its current
obligation out of current resources.

i) LIQUIDITY RATIOS

ii) ACTIVITY RATIOS

iii) PROFITABILITY RATIOS

iv) LONG TERM SOLVENCY RATIOS

63
A. LIQUIDITY RATIOS :-
Liquidity means the ability of a concern to meet in current obligations.

a) Current Ratios = This ratio explains the relationship between current

assets and current liabilities of a business.

Current Assets: - ‘Current assets’ includes those assets which can be

converted into cash with in a year’s time.

Current Assets = Cash in Hand +Cash at Band

+ B/R+ Short Term Investment+ Debtors (Debtors- provision) + Stock

(Stock of Finished Goods + Stock OF Taw Material + Work in Progress)

+ Prepaid Expenses.

Current Liabilities:- ‘ Current liabilities’ include those liabilities which

are repayable in a year’s time.

Current Liabilities = Bank Overdraft + B / P + Creditors + Provision for

Taxsation + Proposed Dividend + Unclaimed Dividends + Outstanding

Expenses + Loans Payable with in ayear.

Significance :- According to accounting principles , a current ratio of

2:1 is supposed to be an ideal ratio.

It means that current assets of a business should, at least , be twice

of its current liabilities. The higher ratio indicates the better liquidity

position; the firm will be able to pay its current liabilities more easily. If
the ratio is less than 2:1, it indicate lack

Current Asset/Current Liability, standard 2:1. It means ratios is less

than 2:1 it indicate lack of liquidity and shortage of working capital.

a. Quick ratios = Quick Assets/Current Liability, Standard = 1:1. It is

more than it is considered to the better.

64
This ratio is a better test of short term financial position of the company.

b. Absolute Liquidity Ratio = Absolute Liquid Assets/Current Liabilities,

Absolute Liquid Assets = Cash + Bank + Short term securities, Standard

= 0.5:1. Even though super quick ratio is more vigorous in measuring the

liquidity position of the firm. It is not widely used in practice.

ACTIVITY RATIOS OR TURN OVER RATIOS :- These tatio are

calculated on the bases of ‘cost of sales’ or sales, therefore, tyhese ratio

are also called as ‘turnover ratio’ turnover indicates the speed or number

of times the capital employed has been rotated in the process of doing

business.

Higher turnover ratio indicates the better use of capital or resources and

in turn lead to higher profitability.

This ratios 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.

Stock turnover ratio: –

This ratio indicates the relationship between the cost of goods during the

year and average stock kept during that year.

Debtor’s turnover ratio – This ratio indicates the relationship between

credit sales and average debtor’s doing the year.

Debtor’s turnover ratio = Net credit sales/Average debtor’s + Average

B/R.

Average Collection period = 365/52/12/Debt turnover ratio.

65
While calculating this ratio, provision for bad and doubtful debts is not

debuctes from the debtors, so that it may not give a false impression that

debtors are collected quickly,

Fixed assets turnover ratio – This ratio reveals how efficiently the fix

assets are being utilized.

Fixed assets turnover ratio = Cost of good sales/Net fixed assets.

This ratio is particular importance in manufacturing concerns where the

investment in fixed asset is quit high compared with the previous year.

Working capital turnover ratio :- This ratio reveals how efficiently

working capital has been utilized in making sales.

Formula:-
Working capital turnover ratio = Cost of Goods sold / working capital

Heare, cost of Goods sold = opening stock + purchases + carriage +

wages + other Direct Expenses – closing stock

Working capital= current assets - current Liabilities

PROFITABILITY RATIOS :-
A business must be able to earn adequate profits in relation to the risk and

capital invested in it.

The efficiency and the success of a business can be measured with the

help of profitability ratio.

General Profitability Ratios

Gross Profitability ratio = This ratio shows the the relationship between

gross profit and sales.

Significance: - This ratio measures the margin of profit available on

sales, the higher the gross profit ratio, the better it is. No ideal standard is

66
fixed for this ratio, but gross profit ratio should be adequate enough not

only to cover the operating expenses but also to provide for deprecation

interest on loans, dividends and creation of reserves.

Gross profit x 100/Net Sales.

2. Net Profit ratio = this ratio shows the relationship between net profit

and sales. It may be calculated by two methods:

Formula: - Net profit ratio = Net profit / Net sales*100 operating Net
profit = oprating Net profit / Net sales*100

Classification of Ratios

Balance Sheet Ratio P&L Ratio Balance Sheet and

Profit & Loss Ratio

Financial Ratio Operating Ratio Composite Ratio

 Current Ratio  Gross Profit  Fixed Asset

 Quick Asset Ratio Turnover Ratio,

Ratio  Operating Ratio Return on Total

 Proprietary Ratio  Expense Ratio Resources

Debt Equity  Net profit Ratio Ratio

Ratio  Stock Turnover  Return on

Ratio Own Funds

Ratio, Earning

per Share

Ratio, Debtors’

Turnover Ratio

67
Structural Classification
This is a conventional mode of classifying ratios where the ratios are

classified on the basis of information given in the financial statements,

i.e. balance sheet and profit and loss account to which the determinants of

the ratios belong. On this basis, all ratios are grouped as follows:

1. Balance Sheet Ratio: The components for computation of these

ratios are draws from balance sheet. These ratios are called
financial ratios. Examples of such ratios are: current ratio, liquid

ratio, proprietary ratio, capital gear ratio, fixed assets ratio etc.

2. Profit and Loss Account Ratios: The figures used for the

calculation of these ratios are usually taken out from the profit and

loss account. These ratios are also called ‘income statement

ratios’. Examples of such ratios are: gross profit ratio, net profit

ratio, operating ratio, expenses ratio, stock turnover ratio etc.

3. Balance Sheet and Profit & Loss Ratio: The information

required for the computation of these ratios is normally drawn from

both the balance sheet and profit and loss account. Examples of

such ratios are: return on capital employed, return on owners’ fund,

return on total investment, debtor’s turnover ratio, creditors

turnover ratio, fixed assets turnover ratio, working capital turnover

ratio etc.

FUNCTIONAL CLASSIFICATION
Now-a-days, it is the most popular mode of classifying the ratios.

Accordingly, the ratios may be grouped on the basis of certain tests which

satisfy the needs of the parties having financial interest in the business

68
concern. For example, creditors or banks have interest in the liquidity of

the firm, debenture holders in the long-term solvency and shareholders in

the profitability of the firm. The ratios may be grouped as per different
interests or objectives as under:

1. Liquidity Ratios: These ratios are used to measure the ability of

the firm to meet its short-term obligations out of its short-term

resources. Such ratios highlight short-term solvency of the firm.

Examples of such ratios are:

I. Current Ratio

II. Liquid or Quick Ratio

III. Absolute Liquidity Ratio

2. Activity or Efficiency Ratio: These ratios enable the management

to measure the effectiveness or the usages at the command of the

firm. Following ratios are included in this category:

I. Stock Turnover Ratio

II. Total Assets Turnover Ratio

III. Fixed Assets Turnover Ratio

IV. Current Assets Turnover Ratio

V. Capital turnover Ratio

3. Profitability Ratio: These ratios are intended to measure the end

result of business operations i.e. profitability. Profitability is a

measure of the ability to make a profit expressed in relation to the

sales or investments, and as such the following ratios are

computed in this category

 Based on Sales
69
 I. Gross Profit Ratio

II. Operating Ratio

III. Expenses Ratio

IV. Operating Profit Ratio

V. Net Profit Ratio

 Based on Capital or Investments

I. Return on Capital Employed
II. Return on Net Worth or Shareholders’ Fund

III. Return on Equity shareholders’ fund

IV. Return on Total Assets

LIQUIDITY OR SHORT-TERM SOLVENCY RATIOS

These ratios play a key role in analyzing the short-term financial position

of a business Liquidity refers to a firm’s ability to meet its current

financial obligations as they arise. Commercial banks and other short-

term creditors i.e. suppliers of goods and services are generally interested

in such ratios.

Current ratio:
Current ratio is one of the important ratios used in testing liquidity of a

concern. This is a good measure of the ability of accompany to maintain

solvency over a short-run. This is computed by dividing the total current

assets by the total current liabilities and is expressed as:

Current Assets

Current ratio= ------------------------------

Current Liabilities

70
The current assets of a firm represent those assets, which can be in the

ordinary course of business, converted into cash within one accounting

year. The current liabilities are defines as obligation maturing within a

short period (usually one accounting year). Excess of current assets over

current liabilities is known as working capital and since these two

(Current assets and current Liabilities) are used in current ratio therefore,

this ratio is also know as working capital ratio.

Idle Current Ratio: 2:1

QUICK RATIO
The solvency of the company is better indicated by quick Ratio. The

fundamental object of calculating this Ratio is to enable the financial

management of a company to ascertain that would happen if current

creditors press for immediate payment and either not possible to push up

the sales of closing or it is sold; a heavy loss is likely to be suffered. This

problem arises because closing stock is two steps away from the cash and

their price is more or less uncertain according to market demand.

The term quick assets includes all current assets expect inventories and

prepaid expenses. It shows the relationship of quick assets and current

liabilities. The Ratio is calculated as following:

Quick Assets
Quick Ratio = -------------------------------

Current Liabilities

71
A financial statement (or financial report) is a formal record of the

financial activities of a business, person, or other entity. In British

English—including United Kingdom company law—a financial

statement is often referred to as an account, although the term financial

statement is also used, particularly by accountants.

For a business enterprise, all the relevant financial information, presented

in a structured manner and in a form easy to understand, are called the

financial statements. They typically include four basic financial

statements, accompanied by a management discussion and analysis:

1. Statement of financial position: also referred to as a balance

sheet, reports on a company's assets, liabilities, and ownership

equity at a given point in time.

2. Statement of comprehensive income: also referred to as a profit

and loss statement (or a "P&L"), reports on a company's income,

expenses, and profits over a period of time. A profit and loss

statement provides information on the operation of the enterprise.

3. Statement of changes in equity: explains the changes of the

company's equity throughout the reporting period

4. Statement of cash flows: reports on a company's cash flow

activities, particularly its operating, investing and financing

activities.

For large corporations, these statements are often complex and may

include an extensive set of notes to the financial statements and

management discussion and analysis. The notes typically describe each

72
item on the balance sheet, income statement and cash flow statement in

further detail. Notes to financial statements are considered an integral part

of the financial statements.

"The objective of financial statements is to provide information about the

financial position, performance and changes in financial position of an

enterprise that is useful to a wide range of users in making economic

decisions." Financial statements should be understandable, relevant,

reliable and comparable. Reported assets, liabilities, equity, income and

expenses are directly related to an organization's financial position.

Financial statements are intended to be understandable by readers who

have "a reasonable knowledge of business and economic activities and

accounting and who are willing to study the information

diligently." Financial statements may be used by users for different

purposes:

 Owners and managers require financial statements to make important

business decisions that affect its continued operations. Financial

institutions (banks and other lending companies) use them to decide

whether to grant a company with fresh working capital or extend

debt securities (such as a long-term bank loan or debentures) to

finance expansion and other significant expenditures.

73
METHODS OF FINANCIAL STATEMENT ANALYSIS

There are two key methods for analyzing financial statements. The first
method is the use of horizontal and vertical analysis. Horizontal analysis
is the comparison of financial information over a series of reporting
periods, while vertical analysis is the proportional analysis of a financial
statement, where each line item on a financial statement is listed as a
percentage of another item. Typically, this means that every line item on
an income statement is stated as a percentage of gross sales, while every
line item on a balance sheet is stated as a percentage of total assets. Thus,
horizontal analysis is the review of the results of multiple time periods,
whiile vertical analysis is the review of the proportion of accounts to each
other within a single period. The following links will direct you to more
information about horizontal and vertical analyis:

 Horizontal analysis
 Vertical analysis

The second method for analyzing financial statements is the use of many
kinds of ratios. You use ratios to calculate the relative size of one number
in relation to another. After you calculate a ratio, you can then compare it
to the same ratio calculated for a prior period, or that is based on an
industry average, to see if the company is performing in accordance with
expectations. In a typical financial statement analysis, most ratios will be
within expectations, while a small number will flag potential problems
that will attract the attention of the reviewer.

74
PROBLEMS WITH FINANCIAL STATEMENT ANALYSIS

While financial statement analysis is an excellent tool, there are several

issues to be aware of that can interfere with your interpretation of the

analysis results. These issues are:

 Comparability between periods. The company preparing the

financial statements may have changed the accounts in which it

stores financial information, so that results may differ from period

to period. For example, an expense may appear in the cost of goods

sold in one period, and in administrative expenses in another

period.

 Comparability between companies. An analyst frequently

compares the financial ratios of different companies in order to see

how they match up against each other. However, each company

may aggregate financial information differently, so that the results

of their ratios are not really comparable. This can lead an analyst to

draw incorrect conclusions about the results of a company in

comparison to its competitors.

75
Balance Sheet of HDFC Life ------------------- in Rs. Cr. -------------------
Mar 19 Mar 18 Mar 17 Mar 16 Mar 15

12 mths 12 mths 12 mths 12 mths 12 mths

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 3,240.00 3,236.00 3,232.00 3,229.00 3,271.00
Total Share Capital 3,240.00 3,236.00 3,232.00 3,229.00 3,271.00
Revaluation Reserves 0.00 0.00 0.00 1,055.00 3,127.00
Reserves and Surplus 236,936.00 212,923.00 193,842.00 175,711.00 159,698.00

Total Reserves and

236,936.00 212,923.00 193,842.00 176,766.00 162,825.00
Surplus
Total Shareholders
240,176.00 216,159.00 197,074.00 179,995.00 166,096.00
Funds
Equity Share
8.00 17.00 17.00 25.00 0.00
Application Money

NON-CURRENT LIABILITIES
Long Term
77,866.00 76,227.00 62,711.00 43,012.00 48,034.00
Borrowings
Deferred Tax
13,159.00 12,677.00 12,215.00 12,193.00 12,122.00
Liabilities [Net]
Long Term Provisions 1,489.00 1,404.00 0.00 0.00 0.00
Total Non-Current
92,514.00 90,308.00 74,926.00 55,205.00 60,156.00
Liabilities
CURRENT LIABILITIES
Short Term
14,490.00 12,914.00 22,770.00 11,511.00 10,593.00
Borrowings
Trade Payables 54,521.00 54,470.00 57,862.00 45,787.00 40,324.00
Other Current
54,841.00 19,063.00 10,767.00 21,640.00 13,713.00
Liabilities

76
Short Term Provisions 1,170.00 4,854.00 4,167.00 4,348.00 4,258.00
Total Current
125,022.00 91,301.00 95,566.00 83,286.00 68,888.00
Liabilities
Total Capital And
457,720.00 397,785.00 367,583.00 318,511.00 295,140.00
Liabilities
ASSETS
NON-CURRENT ASSETS
Tangible Assets 91,477.00 79,778.00 80,368.00 82,962.00 88,001.00
Intangible Assets 39,933.00 34,785.00 29,038.00 26,786.00 25,722.00
Capital Work-In-
97,296.00 65,178.00 32,673.00 13,525.00 3,695.00
Progress
Intangible Assets
9,583.00 10,575.00 9,043.00 5,591.00 4,059.00
Under Development

Fixed Assets 238,289.00 190,316.00 151,122.00 128,864.00 121,477.00

Non-Current
112,630.00 62,058.00 52,692.00 24,143.00 26,979.00
Investments
Long Term Loans
16,237.00 29,259.00 28,436.00 21,528.00 14,340.00
And Advances
Total Non-Current
367,156.00 281,633.00 232,250.00 174,535.00 162,796.00
Assets
CURRENT ASSETS
Current Investments 39,429.00 50,515.00 33,370.00 28,366.00 27,029.00
Inventories 28,034.00 36,551.00 42,932.00 42,729.00 35,955.00
Trade Receivables 3,495.00 4,661.00 10,664.00 11,880.00 18,424.00
Cash And Cash
6,892.00 11,571.00 36,624.00 49,547.00 39,598.00
Equivalents
Short Term Loans
11,938.00 12,307.00 11,277.00 10,974.00 11,089.00
And Advances
OtherCurrentAssets 776.00 547.00 466.00 480.00 249.00

Total Current Assets 90,564.00 116,152.00 135,333.00 143,976.00 132,344.00

77
Total Assets 457,720.00 397,785.00 367,583.00 318,511.00 295,140.00
OTHER ADDITIONAL
INFORMATION
CONTINGENT LIABILITIES,
COMMITMENTS
Contingent Liabilities 78,906.00 80,641.00 75,955.00 54,600.00 54,075.00
CIF VALUE OF IMPORTS
Raw Materials 146,516.00 241,456.00 302,630.00 281,719.00 254,248.00
Stores, Spares And
4,142.00 3,217.00 3,719.00 3,260.00 3,120.00
Loose Tools
Capital Goods 13,897.00 9,788.00 4,218.00 2,204.00 325.00

EXPENDITURE IN FOREIGN
EXCHANGE
Expenditure In
8,013.00 7,785.00 8,222.00 6,397.00 6,146.00
Foreign Currency

REMITTANCES IN FOREIGN
CURRENCIES FOR
DIVIDENDS
Dividend Remittance
1,311.00 622.00 524.00 485.00 478.00
In Foreign Currency
EARNINGS IN FOREIGN
EXCHANGE
FOB Value Of Goods 137,634.00 209,169.00 261,118.00 227,883.00 198,269.00
Other Earnings 198.00 229.00 248.00 209.00 205.00
BONUS DETAILS
Bonus Equity Share
2,108.56 2,108.56 2,108.56 2,108.56 2,108.56
Capital

NON-CURRENT
INVESTMENTS
Non-Current 30,647.00 16,950.00 18,039.00 5,329.00 3,945.00

78
Investments Quoted
Market Value
Non-Current
Investments Unquoted 83,583.00 45,920.00 34,781.00 19,065.00 23,339.00
Book Value

CURRENT INVESTMENTS
Current Investments
9,949.00 19,158.00 21,655.00 15,460.00 27,494.00
Quoted Market Value
Current Investments
29,870.00 32,165.00 12,780.00 13,486.00 -
Unquoted Book Value

79
Profit & Loss account of HDFC Life ------------------- in Rs. Cr. -------------------
Mar 19 Mar 18 Mar 17 Mar 16 Mar 15

12 mths 12 mths 12 mths 12 mths 12 mths

INCOME
Revenue From
251,241.00 340,814.00 401,302.00 371,119.00 339,792.00
Operations [Gross]
Less: Excise/Sevice
18,083.00 11,738.00 11,185.00 10,822.00 9,888.00
Tax/Other Levies
Revenue From
233,158.00 329,076.00 390,117.00 360,297.00 329,904.00
Operations [Net]
Total Operating
233,158.00 329,076.00 390,117.00 360,297.00 329,904.00
Revenues
Other Income 7,582.00 8,721.00 8,936.00 7,998.00 6,192.00

Total Revenue 240,740.00 337,797.00 399,053.00 368,295.00 336,096.00

EXPENSES
Cost Of Materials
152,769.00 255,998.00 329,313.00 306,127.00 274,814.00
Consumed
Purchase Of Stock-In
4,241.00 7,134.00 524.00 502.00 1,441.00
Trade
Operating And Direct
17,328.00 19,693.00 16,584.00 13,223.00 10,307.00
Expenses
Changes In Inventories
Of FG,WIP And Stock- 4,171.00 1,943.00 412.00 -3,317.00 -872.00
In Trade
Employee Benefit
4,260.00 3,686.00 3,370.00 3,354.00 2,862.00
Expenses
Finance Costs 2,454.00 2,367.00 3,206.00 3,036.00 2,667.00
Depreciation And
9,566.00 8,488.00 8,789.00 9,465.00 11,394.00
Amortisation Expenses
Other Expenses 12,757.00 10,593.00 9,037.00 9,621.00 7,733.00

80
Less: Transfer to / From
Investment / Fixed 2,507.00 1,573.00 0.00 0.00 0.00
Assets / Others

Total Expenses 205,039.00 308,329.00 371,235.00 342,011.00 310,346.00

Mar 19 Mar 18 Mar 17 Mar 16 Mar 15

12 mths 12 mths 12 mths 12 mths 12 mths

Profit/Loss Before
Exceptional,
35,701.00 29,468.00 27,818.00 26,284.00 25,750.00
ExtraOrdinary Items
And Tax
Profit/Loss Before Tax 35,701.00 29,468.00 27,818.00 26,284.00 25,750.00
Tax Expenses-Continued
Operations
Current Tax 7,802.00 6,124.00 5,812.00 5,244.00 5,150.00
Deferred Tax 482.00 625.00 22.00 37.00 560.00

Total Tax Expenses 8,284.00 6,749.00 5,834.00 5,281.00 5,710.00

Profit/Loss After Tax
And Before 27,417.00 22,719.00 21,984.00 21,003.00 20,040.00
ExtraOrdinary Items
Profit/Loss From
27,417.00 22,719.00 21,984.00 21,003.00 20,040.00
Continuing Operations
Profit/Loss For The
27,417.00 22,719.00 21,984.00 21,003.00 20,040.00
Period
Mar 17 Mar 16 Mar 15 Mar 14 Mar 13

12 mths 12 mths 12 mths 12 mths 12 mths

OTHER ADDITIONAL
INFORMATION
EARNINGS PER SHARE
Basic EPS (Rs.) 84.66 70.25 68.05 64.82 61.21

81
Diluted EPS (Rs.) 84.66 70.25 68.05 64.82 61.21
VALUE OF IMPORTED AND
INDIGENIOUS RAW
MATERIALS
Imported Raw Materials 140,109.00 232,867.00 295,338.00 277,824.00 251,583.00
Indigenous Raw
12,660.00 23,131.00 33,975.00 28,303.00 23,231.00
Materials

STORES, SPARES AND LOOSE

TOOLS
Imported Stores And
1,810.00 2,176.00 1,843.00 1,725.00 1,816.00
Spares
Indigenous Stores And
2,955.00 2,526.00 2,603.00 2,074.00 1,666.00
Spares

DIVIDEND AND DIVIDEND

PERCENTAGE
Equity Share Dividend 3,095.00 2,944.00 2,793.00 2,628.00 2,531.00
Tax On Dividend 605.00 615.00 475.00 447.00 410.00
85.00
Equity Dividend Rate
(%)
105.00 100.00 95.00 90.00

Key Financial Ratios of HDFC Life ------------------- in Rs. Cr. -------------------

Mar 19 Mar 18 Mar 17 Mar 16 Mar 15

Per Share Ratios

Basic EPS (Rs.) 84.66 70.25 68.05 64.82 61.21
Diluted EPS (Rs.) 84.66 70.25 68.05 64.82 61.21
Cash EPS (Rs.) 114.15 96.44 95.21 94.36 96.10
Book Value 741.28 667.98 609.76 554.17 498.22

82
[ExclRevalReserve]/Share
(Rs.)
Book Value
[InclRevalReserve]/Share 741.28 667.98 609.76 557.43 507.78
(Rs.)
Dividend / Share(Rs.) 10.50 10.00 9.50 9.00 8.50
Revenue from
719.62 1,016.92 1,207.05 1,115.82 1,008.57
Operations/Share (Rs.)
PBDIT/Share (Rs.) 147.29 124.61 123.18 120.11 121.71
PBIT/Share (Rs.) 117.76 98.38 95.99 90.80 86.88
PBT/Share (Rs.) 110.19 91.06 86.07 81.40 78.72
Net Profit/Share (Rs.) 84.62 70.21 68.02 65.04 61.27
Profitability Ratios
PBDIT Margin (%) 20.46 12.25 10.20 10.76 12.06
PBIT Margin (%) 16.36 9.67 7.95 8.13 8.61
PBT Margin (%) 15.31 8.95 7.13 7.29 7.80
Net Profit Margin (%) 11.75 6.90 5.63 5.82 6.07
Return on Networth /
11.41 10.51 11.15 11.73 12.29
Equity (%)
Return on Capital
8.24 7.41 8.08 8.92 8.85
Employed (%)
Return on Assets (%) 5.98 5.71 5.98 6.59 6.78
Total Debt/Equity (X) 0.38 0.41 0.43 0.30 0.36
Asset Turnover Ratio (%) 50.93 82.72 106.13 113.11 111.77
Liquidity Ratios
Current Ratio (X) 0.72 1.27 1.42 1.73 1.92
Quick Ratio (X) 0.50 0.87 0.97 1.22 1.40
Inventory Turnover Ratio
8.32 9.00 9.09 8.43 9.18
(X)
Dividend Payout Ratio 11.28 12.95 12.70 12.51 12.62

83
(NP) (%)
Dividend Payout Ratio
8.36 9.43 9.07 8.62 8.05
(CP) (%)
Earnings Retention Ratio
88.72 87.05 87.30 87.49 87.38
(%)
Cash Earnings Retention
91.64 90.57 90.93 91.38 91.95
Ratio (%)

Valuation Ratios
Enterprise Value (Cr.) 424,125.00 344,442.92 349,271.40 254,803.73 263,781.58
EV/Net Operating
1.82 1.05 0.90 0.71 0.80
Revenue (X)
EV/EBITDA (X) 8.89 8.54 8.77 6.57 6.63
MarketCap/Net Operating
1.45 0.81 0.77 0.69 0.74
Revenue (X)
Retention Ratios (%) 88.71 87.04 87.29 87.48 87.37
Price/BV (X) 1.41 1.23 1.52 1.40 1.50
Price/Net Operating
1.45 0.81 0.77 0.69 0.74
Revenue
Earnings Yield 0.08 0.09 0.07 0.08 0.08

84
 CHAPTER-IV
DATA ANALYSIS & INTERPRETATIONS

85
 4.1 Data Analysis & Interpretations
Total Current Liabilities
Current liabilities are a company's debts or obligations that are due within one year,
appearing on the company's balance sheet and include short term debt, accounts
payable, accrued liabilities and other debts.
Particular 2015 2016 2017 2018 2019

Total Current 68,888.00 83,286.00 95,566.00 91,301.00 125,022.00

Liabilities (Cr.)

Total Current Liabilities (Cr.)

140,000.00 125,022.00
120,000.00
95,566.00
91,301.00
100,000.00 83,286.00
80,000.00 68,888.00
Total Current Liabilities
60,000.00 (Cr.)

40,000.00
20,000.00
0.00
2015 2016 2017 2018 2019

Interpretations:

If the current liabilities increases as a result of this working capital decreases.

If the current liabilities decreases as a result of this working capital increase. Here
Total Current Liabilities in the year 2015, 2016, 2017, it was 68,888.00, 83,286.00,
95,566.00. Here current liabilities increases so, working capital decreases. In the year
2018, it was 91,301.00 means working capital increases & in the year 2019, it was
1,25,022.00 means working capital decreases.

86
Gross Working Capital
Gross working capital is the sum of all of a company's current assets (assets that are
convertible to cash within a year or less). Gross working capital includes assets such
as cash, checking and savings account balances, accounts receivable, short-term
investments, inventory and marketable securities.
Gross Working Capital = Total Current Assets
Particular 2015 2016 2017 2018 2019

Total Current 132,344.00 143,976.00 135,333.00 116,152.00 90,564.00

Assets (Cr.)

Total Current Assets (Cr.)

160,000.00 143,976.00
132,344.00 135,333.00
140,000.00
116,152.00
120,000.00
100,000.00 90,564.00

80,000.00 Total Current Assets (Cr.)

60,000.00
40,000.00
20,000.00
0.00
2015 2016 2017 2018 2019

Interpretations: Here Total Current assets in the year 2015, it was 1,32,344.00, in the
year 2016, it was 1,43,976.00 increases in the year 2015 to 2016. If the current assets
increases as a result of this, working capital also increases. If the current assets
decreases as a results of this working capital decreases. In the year 2017, it was
1,35,333.00 which was decreases in the previous year, in the year 2018 & 2019, it was
1,16,152.00 & 90,564.00 also decreases in the comparison of previous year.

87
Net Working Capital
An analysis of the net working capital will be very help full for knowing the
operational efficiency of the company. The following table provides the data relating
to net working capital of HDFC Life.
Net Working Capital = Current Assets – Current liabilities
Years Current assets Current Liabilities Net Working Capital
(Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.)
2015 132,344.00 68,888.00 63456
2016 143,976.00 83,286.00 60960
2017 135,333.00 95,566.00 39767
2018 116,152.00 91,301.00 24851
2019 90,564.00 125,022.00 -34458

Net Working Capital(Rs. In Crore)

70000 63456 60960
60000
50000 39767
40000
24851
30000
20000 Net Working Capital(Rs. In
Crore)
10000
0
-10000 2015 2016 2017 2018 2019
-20000
-30000
-40000 -34458

Interpretations: The above chart shows the during the year 2015 the company has
63456 Cr., In the year 2016 decrease in the net working capital is 60960 Cr. and in the
year 2017 the company has 39767 Cr. net working capital in the year 2018 the
company has 24851 Cr. net working capital. The Net working capital of the company
is decreasing compared to the previous years, in the year 2019 the company has -
34458 Cr. Net Working Capital this means the company in a negative position & Net
working capital has decrease very fast as compared to the previous years which show
liquidity position of the HDFC Life has always less & insufficient working capital
available to pay off its current liabilities.

88
 Current ratio

It is a ratio, which express the relationship between the total current assets and
current liabilities. It measures the firm’s ability to meet its current liabilities. It
indicates the availability of current assets in rupees for every one rupee of current
liabilities. A ratio of greater than one means that the firm has more current assets than
current liabilities claims against them. A standard ratio between them is 2:1.
Current Ratio = Current Assets/Current Liabilities

Particular 2015 2016 2017 2018 2019

Current ratio 1.92:1 1.73:1 1.42:1 1.27:1 0.72:1

Current ratio
1.92
2 1.73
1.8
1.6 1.42
1.27
1.4
1.2
1 0.72 Current ratio
0.8
0.6
0.4
0.2
0
2015 2016 2017 2018 2019

Interpretation: It is seen from the above chart during the year 2015 the current ratio
was 1.92, during the year 2016 it was 1.73 and in the year 2017 it was 1.42 and in the
year 2018 it was 1.27 and in the year 2019 it was 0.72. This shows the current ratio
decreases every year. The current ratio is less the standard ratio i.e, 2:1. Hence it can
be said that there is less current assets in HDFC Life to meet its current liabilities.

89
 Quick Ratio

Quick Ratio also termed as Acid Test or Liquid Ratio. This ratio establishes a
relationship between quick/liquid assets and current liabilities. It measures the firms’
capacity to pay off current obligations immediately. An asset is liquid if it can be
converted into cash immediately without a loss of value; inventories are considered to
be less liquid. Because inventories normally required some time for realizing into
cash. This ratio is also known as acid-test ratio. The standard quick ratio is 1:1, is
considered satisfactory.
Quick Ratio = Quick Assets (current assets – Inventory)/Current Liabilities
Particular 2015 2016 2017 2018 2019

Quick ratio 1.40:1 1.22:1 0.97:1 0.87:1 0.50:1

Quick ratio
1.4
1.4 1.22
1.2
0.97
1 0.87

0.8
0.5 Quick ratio
0.6
0.4
0.2
0
2015 2016 2017 2018 2019

The ideal Quick Ratio of 1:1 is considered to be satisfactory. Here the Quick ratio in
the year 2015, 2016, 2017, 2018 & 2019 is 1.40:1, 1.22:1, 0.97:1, 0.87:1 & 0.5:1. So,
Quick ratio in the year 2015 & 2016 is satisfactory and 2017, 2018 & 2019 is not
satisfactory.

90
 Working Capital Turnover Ratio
This ratio indicates the number of times the working capital is turned over in
the course of the year. This ratio measures the efficiency with which the working
capital is used by the firm. A higher ratio indicates efficient utilization of working
capital and a low ratio otherwise. But a very high working capital turnover is not a
good situation for any firm.
Working Capital Turnover Ratio = Net Sales/Net Working Capital
Particular 2015 2016 2017 2018 2019

Working Capital 30.04 34.81 31.91 36.02 35.06

Turnover Ratio

Working Capital Turnover Ratio

37 36.02
36 34.81 35.06
35
34
33 31.91
32 Working Capital Turnover
Ratio
31 30.04
30
29
28
27
2015 2016 2017 2018 2019

Interpretations: The Working Capital Turnover ratio is fluctuating year to year that
was low in the year 2015, 30.04 times; there was increase in the year 2016 to 34.81
times. But in decrease in the year 2017 to 31.91 times; again increase in the year 2018
to 36.02 times. But it decreases in the year 2019 to 35.06. This shows the company is
utilizing working capital effectively.

91
RETURN ON ASSETS

Return on assets (ROA) is an indicator of how profitable a company is relative to its

total assets. ROA gives an idea as to how efficient management is at using its assets to
generate earnings. Calculated by dividing a company's annual earnings by its total
assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on
investment". The higher the ROA number, the better, because the company is earning
more money on less investment.

The formula for return on assets is:

Particular 2015 2016 2017 2018 2019

Return on Assets 6.78 6.59 5.98 5.71 5.98

Return on Assets
6.78
6.8 6.59
6.6
6.4
6.2 5.98 5.98
6
5.71 Return on Assets
5.8
5.6
5.4
5.2
5
2015 2016 2017 2018 2019

Interpretation

Here Return on Assets in the year 2015, it was 6.78 means better return, in the year
2016, 2017 & 2018, it was 6.59, 5.98 & 5.71 means return decreases consequently.
Again in the year 2019, it was 5.98 means return increases.

92
 Net Profit Ratio
Net Profit Ratio is also termed as Sales Margin Ratio or Margin Ratio or Net
Profit to Sales Ratio. This ratio reveals the firm’s overall efficiency in operating the
business. Net profit ratio is used to measure the relationship between net profit and
sales. Net profit (NP) ratio is a useful tool to measure the overall profitability of the
business. A high ratio indicates the efficient management of the affairs of business.
This ratio can be calculated by the following formula:
Net Profit Ratio = (Net Profit After Tax/Net Sales) * 100
Particular 2015 2016 2017 2018 2019

Net Profit Ratio 6.07 5.82 5.63 6.90 11.75

Net Profit Ratio

11.75
12

10

8 6.9
6.07 5.82 5.63
6 Net Profit Ratio

0
2015 2016 2017 2018 2019

Interpretation

Here Net Profit Ratio in the year 2015, it was 6.07, in the year 2016 & 2017, it was
5.82 & 5.63 means profit decreases. In the year 2018 & 2019, it was 6.9 & 11.75
means profit increases in the subsequent year.

93
Asset Turnover Ratio
Asset Turnover Ratio = Cost of Goods Sold/Total Assets
Particular 2015 2016 2017 2018 2019

Asset Turnover 3.47 0.09 0.08 0.08 0.08

Ratio

Asset Turnover Ratio

3.47
3.5
3
2.5
2
Asset Turnover Ratio
1.5
1
0.5 0.09 0.08 0.08 0.08
0
2015 2016 2017 2018 2019

Interpretation

Here Asset Turnover Ratio is 2015, 2016, 2017, 2018 & 2019 is 3.47,
0.09, 0.08, 0.08 & 0.08.

94
4.2 FINDINGS

 Return on Assets in the year 2015, it was 6.78 means better return, in the
year 2016, 2017 & 2018, it was 6.59, 5.98 & 5.71 means return
decreases consequently. Again in the year 2019, it was 5.98 means
return increases.

 Total Current Liabilities in the year 2015, 2016, 2017, it was 68,888.00
cr., 83,286.00 cr., 95,566.00 cr.. Here current liabilities increases so,
working capital decreases. In the year 2018, it was 91,301.00 cr. means
working capital increases & in the year 2019, it was 1,25,022.00 cr.
means working capital decreases.

 Total Current assets in the year 2015, it was 1,32,344.00 cr., in the year
2016, it was 1,43,976.00 cr. increases in the year 2015 to 2016. If the
current assets increases as a result of this, working capital also increases.
If the current assets decreases as a results of this working capital
decreases. In the year 2017, it was 1,35,333.00 cr. which was decreases
in the previous year, in the year 2018 & 2019, it was 1,16,152.00 cr. &
90,564.00 cr. also decreases in the comparison of previous year.

 Working Capital of the HDFC Life was decreasing and showing

negative working capital per year.

 The HDFC Life has higher current and quick ratios are i.e., 1.92 and
1.40 respectively.

 Working capital turnover ratio is very low in the year low in the year
2015, 30.04 times; there was increase in the year 2016 to 34.81 times.
But in decrease in the year 2017 to 31.91 times; again increase in the
year 2018 to 36.02 times. But it decreases in the year 2019 to 35.06.
This shows the company is utilizing working capital effectively.

95
 CHAPTER-V
CONCLUSION & SUGGESTIONS

96
5.1 CONCLUSION
If properly analyzed and interpreted, Working Capital can provide

valuable insight into a firm’s performance. Working Capital may be done

for a variety of purpose, which may range from a simple analysis of the

short term liquidity position of the firm to a comprehensive assessment of

the strength and weakness of the firm in various areas. It is helpful in

assessing corporate excellence, judging credit worthiness, forecasting

bond ratings, predicting bankruptcy and assessing market risk.

I have studied the attached balance sheet and Profit and Loss

Account of HDFC Life at 31st March 2015 to 31st March 2019.

Here Net Profit Ratio in the year 2015, it was 6.07, in the year

2016 & 2017, it was 5.82 & 5.63 means profit decreases. In the year 2018

& 2019, it was 6.9 & 11.75 means profit increases in the subsequent year.

HDFC Life utilizing working capital effectively last 5 years, It is

also a good sign for the company. Net Profit ratio in the year 2018 &

2019, it was 6.9 & 11.75 means profit increases in the subsequent year. It

is also a good sign for the HDFC Life.

The Financial status of HDFC Life is not good. In the last year

2019 the return on assets has increased, this is good sign for the company.

The company’s liquidity position is good with regard to the investments

in current assets there are adequate funds invested in its.

97
5.2 SUGGESTIONS
 Promote saving and investment plans of HDFCSL in colleges and

corporate houses.

 Tap the rural market where there is large potential diversity product

portfolio.

 Make products more straight forward – reduce complexities.

 Attract the youth of India with higher returns on investment as

returns are the motivating factor which influence purchase of

HDFCSL Products.

 Create a positive perception about insurance.

 Speak about the good features a plan offers like high returns life

cover, tax benefits, and accidental cover while prospecting

customers.

 The company should try to increase his financial performance in

the future.

 The company should try to increased his product cycle.

 Many of the people are not aware about HDFC Life so they have to

advertise their company and their product.

 Improve the efficiency in operations

98
BIBLIOGRAPHY

99
 BIBLIOGRAPHY

BOOKS:
 Agrawal, N.K. (2003) Management of Working Capital, Sterling

Publishers Pvt. Ltd., New Delhi.

 Agrawal, N.P. (1983) Analysis of Financial Statements, National

Publishing House, New Delhi.

 Gupta, R.K. (1990), Profitability, Financial Structure and

Liquidity, Jaipur, Printwell Publishers.

 Guthmann, H.G. (1953): Analysis of Financial Statement, New

York Hanson, A.M. (1962): Managerial Problems in Public

Enterprises.

 Smith, K.V. (1974): Management of Working Capital, West

Publishing Company, New Delhi.

 Sharma, B.S. (1974): Financial Planning in Indian Public Sector –

A Management Approach, Vikas Publishing House, New Delhi.

News Papers:

 The Economics times

 The Times of India

INTERNET

www.hdfclife.com

www.wikipedia.org
100