Ratio Analysis

Assignment on:

Comparative ratio analysis between: “Green Delta Life InsuranceCompany Ltd. and Sandhani Life Insurance Company Ltd”.

Submitted to:

Mr. Mohd. Takdir Hossan

LecturerFaculty of Business

ASA University Bangladesh (ASAUB)

Submitted by:

Md. Abusufian

ID: 10-2-12-0071

Batch : 10th (B)

Date of submission 15/08/2012

Date: 15 August, 2012

Mr. Mohd. Takdir Hossan

Lacturar

Faculty of Business, ASA University Bangladesh (ASAUB)

Dear sir;

With due respect, we are submitting our assignment on: Ration analysis of twoinsurance company: Sandhani life Insurance & Green Delta Insurance.

We are encouraged and enthusiastic by collecting the details for the preparation ofthe assignment. Taking the direct assistance of different sources, we prepared ourcase. We believe this analysis provide clear information about that two company.Undoubtedly, we have learned a lot and have gained remarkable experience.

We sincerely hope that all our effort will be a success if you go through this paper.We truly appreciate this case and should you need any assistance in interpreting,please call us.

Yours Sincerely,

Md. Abusufian

ID: 102-12-0071

On behave of the Group member.

Acknowledgement

To begin with, we would like to express our infinite gratitude towards Almighty Allah and ourcourse teacher Mr. Mohd. Takdir Hossan, Lecturer, department of Business Administration,ASA University Bangladesh, to provide not only extremely well arranged guidelines to completeour assignment but would also help us to confront problems in our future career. We would liketo express our heartiest respect to our all group members, who have been a constant support to usand have patiently helped us throughout our report. We wish to extend our thanks to the peers ofthe Department who made it possible to work comfortably even in tough times.

Table of Contents

SL Topic Pages

01 Introduction 4

02 Liquidity Measurement Ratios 6

03 Profitability Indicator Ratios 9

04 Debt Ratios 13

05 Operating Performance Ratios 16

06 Cash Flow Indicator Ratios 17

07 Investment Valuation Ratios 19

08 conclusion 26

09 Reference 27

Executive summary

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

Here our report is about “Comparative ratio analysis between Green Delta Life InsuranceCompany Ltd. and Sandhani Life Insurance Company Ltd.”. In this report different types ofratios are calculated and compared according to the standard norm, of this two pioneer anddominating life insurance companies in Bangladesh.

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

Introduction:

There are various types of financial institutions exist in the economy of Bangladesh. Amongthese types insurance companies play a major role in our economy. These companies contributea lot in the economy by diversifying risk among many people. There are two types of insurancecompanies -general insurance companies and life insurance companies. The subject matter ofthis report is to analyze the performance of the life insurance companies of Bangladesh. Lifeinsurance companies bear the risk of peoples’ lives. There are eight listed life insurancecompanies in Bangladesh. Here we try to comparison about ratio analysis between Green DeltaLife Insurance Company Ltd. and Sandhani Life Insurance Company Ltd. Their performance hasbeen analyzed by calculating various ratios for five years. The necessary information for thisratio analysis has been collected from their respective annual reports.

Green Delta Insurance

Green Delta Insurance Company Limited (GDIC) is one of the leading private non life insurancecompanies in Bangladesh. GDIC was incorporated in December 14, 1985 as public limitedcompany under the companies’ Act. 1913. But the actual operation of the company started on 1stJanuary 1986, with a paid up capital of BDT 30.00 million only. The shares of the company arelisted with both Dhaka and Chittagong stock exchanges as a publicly quoted company. In 1997,GDIC participated in equity investment to establish Delta Brac Housing Ltd. In 2005, GDICsponsored a joint venture consortium firm named Green Delta Aims Ltd. This year, the companyalso floated its very first subsidiary “Green Delta Financial Services Ltd.” – a share brokeragefirm. At present the company has been operating its business through 36 branches located atdifferent strategically important areas of Bangladesh. Stepping at it’s 25th birthday, Green DeltaInsurance Company Limited has now become a big family of 20 respected board members, 11dedicated senior management members, 600+ committed staff, numerous valued clients andthousands of esteemed shareholders with a paid up capital of BDT 408.24 million.

Vision

Our vision is to mature into a sustainable, coherent organization, raise competitiveness to thehighest level in the insurance industry, maintain high profitability & balanced quantitativegrowth and exceed customer’s expectations by offering legendary services, embrace a newcorporate identity and creative corporate culture.

Mission

Our mission is to create shareholders value through customer’s satisfaction and employee’scommitment to excellence.

Sandhani Life Insurance

SLIC is one of the leading Life Insurance Company in Bangladesh since 1990.Clients are thespirit of our business, so we build a genial & realistic relationship with clients.SLIC enlarge its

network by establishing agency offices. As a result in 31st December 2010 8.61 lac Policyholderis now under the shade of Sandhani. SLIC provide Life Insurance coverage in the remote area aswell as within all the people of the country.

The core business activities of SLIC covers Micro Insurance for the Poor People, Ordinary LifePolicy for the General, Group Insurance for the Corporate, Education Policy for the Students,Hajj Policy for the Religious People and so on. To be a competent service provider, SLICmaintain the quality, also increasing the growth rate by maximizing the Return on Investment.As a whole SLIC is a complete package with corporate practice, diversified business profile andfoster entrepreneurship.

Vision & Mission:

1. To ensure social & family protection through Life Insurance Policy of all families ofBangladesh.2. To ensure highest possible services to Shareholders & Policyholders of the company withmodern technology & dedicated professionalism.3. To settle & handover insurance claims to the doorstep of policyholders or their nomineeswithin quickest possible time.4. To provide highest dividend & bonus to the shareholders & policyholders respectively.5. To increase asset, investment & life fund with modern technology & most efficientmanagement.

Liquidity Measurement Ratios:

1. Current Ratio

The current ratio is a popular financial ratio used to test a company’s liquidity (also referred to asits current or working capital position) by deriving the proportion of current assets available to

cover current liabilities. The concept behind this ratio is to ascertain whether a company's short -term assets such as cash, cash equivalents, marketable securities, receivables and inventory arereadily available to pay off its short-term liabilities such as notes payable, current portion of termdebt, payables, and accrued expenses and taxes. In theory, the higher the current ratio, the better.

Formula:

The current ratios of the listed life insurance companies of Bangladesh are presentedbelow-

Name of Companies 2007 2008 2009 2010Green Delta Life Insurance Company

Ltd.4.12 : 1 3.57 : 1 5.49 : 1 6.68 : 1

Sandhani Life Insurance CompanyLtd.

3.65 : 1 5.51 : 1 3.79 ; 1 2.97 : 1

Performance Analysis:

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

2006: In 2006, the current ratios of these two companies are-

1. Sandhani Life Insurance Company Ltd. – Current ratio 4.02: 1

2. Green Delta Life Insurance Company Ltd. – current ratio 3.79: 1

2007: In 2007, the current ratios of these two companies are-


2. Green Delta Life Insurance Company Ltd. – current ratio 4.29: 1

2008: In 2008, the current ratios of these two companies are –

1. Sandhani Life Insurance Company Ltd. – current ratio 5.51: 1

2. Green Delta Life Insurance Company Ltd. – Current ratio 5.46: 1


1. Sandhani Life Insurance Company Ltd. – current ratio 6.69: 1





2. Quick Ratio:

The quick ratio also known as the acid-test ratio - is a liquidity indicator that further refines the

current ratio by measuring the amount of the most liquid current assets there are to cover current

liabilities. The quick ratio is more conservative than the current ratio because it excludes

inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher

ratio means a more liquid current position.

The quick ratio is a more conservative measure of liquidity than the current ratio as it removes

inventory from the current assets used in the ratio's formula. By excluding inventory, the quick

ratio focuses on the more-liquid assets of a company.

The basics and use of this ratio are similar to the current ratio in that it gives users an idea of the

ability of a company to meet its short-term liabilities with its short -term assets. Another

beneficial use is to compare the quick ratio with the current ratio. If the current ratio is

significantly higher, it is a clear indication that the company's current assets are dependent on

inventory.

Formula:

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

Name of Companies 2007 2008 2009 2010Green Delta Life Insurance Company 3.74 : 1 3.05 : 1 4.37 : 1 4.32 : 1

Ltd.Sandhani Life Insurance Company Ltd. 3.13 : 1 5.19 : 1 3.28 : 1 2.46 : 1

Performance Analysis:

2007: In 2007, the Quick ratios of these two companies are-

1. Sandhani Life Insurance Company Ltd. – Quick ratio 3.74: 1

2. Green Delta Life Insurance Company Ltd. – quick ratio 3.81: 1

2008: In 2008, the Quick ratios of these two companies are –

1. Sandhani Life Insurance Company Ltd. – quick ratio 5.19: 1

2. Green Delta Life Insurance Company Ltd. – Quick ratio 4.94: 1



2. Green Delta Life Insurance Company Ltd. – Quick ratio 5.09: 1



2. Green Delta Life Insurance Company Ltd. – Quick ratio 5.67:

3. Cash Ratio:

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

Calculation (%):


Ltd.406.76 413.63 406.31 411.92

Sandhani Life Insurance Company 271.00 346.01 396.32 426.32

Ltd.

Inference: As we can see here all of the companies have high cash ratio. In case of Green

Delta Life Insurance Company Ltd. it is most. They have cash ratio of around 7:1. This means tosatisfy of one taka current liabilities they have seven taka of cash or cash equivalent. SandhaniLife Insurance has also high cash ratio. But this kind of very high ration indicates that the firmshave not invested in long term fields of earning and so they have lower return from their cash.But as an insurance company it also necessary to hold enough cash or cash equivalent so thatthey can meet the insurance claims quickly.

Profitability Indicator Ratio:

1. Return on Equity (ROE):

Return on equity or return on capital is the ratio of net income of a business during a year to itsstockholders’ equity during that year. It is a measure of profitability of stockholders' investments. Itshows net income as percentage of shareholder equity. The higher the ratio is the better the firm is.

Calculation (%):

Name of Companies 2007 2008 2009 2010Green Delta Life Insurance

Company Ltd.29.78 29.34 31.89 37.82


32.26 38.20 38.86 37.21

Inference: Here almost all of the firms have good ROE. Specially Green Delta Life Insurance

Company Ltd. has the best one. Last three years they have maintain a good level of ROE. Butoverall all of the firms have healthy ROE that indicates a good return from the share investmentin these firms.

2. The Return on Capital Employed (ROCE):

The Return on Capital Employed (ROCE) ratio, expressed as a percentage, complements thereturn On Equity (ROE) ratio by adding a company's debt liabilities, or funded debt, to equity toreflect a company's total "capital employed". This measure narrows the focus to gain a betterunderstanding of a company's ability to generate returns from its available capital base.

By comparing net income to the sum of a company's debt and equity capital, investors can get aclear picture of how the use of leverage impacts a company's profitability. Financial analysts

consider the ROCE measurement to be a more comprehensive profitability indicator because itgauges management's ability to generate earnings from a company's total pool of capital.

Calculation (%):

Name of Companies 2006% 2007% 2008% 2009% 2010%Green Delta Life Insurance

Company Ltd.16.26 17.24 15.55 15.25 19.24


18.25 17.23 17.65 16.36 18.45

In 2007:

In 2007 Green Delta Life Insurance has higher ROCE it indicate that in this year they aredominating Insurance sector for capital Employed activities.

In 2008:

In 2008 Green Delta Life Insurance has higher ROC E it indicates that in this year they aredominating Insurance sector for capital Employed activities.

In 2009:

In 2009 Green Delta Life Insurance has higher ROCE it indicate that in this year they aredominating Insurance sector for capital Employed activities.

In 2010:

In 20010 Sandhani Life Insurance Company has higher ROCE it indicate that in this year theyare dominating Insurance sector for capital Employed activities.

3. Return On Asset (ROA):

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

Calculation:

Name of Companies 2006 2007 2008 2009 2010Green Delta Life Insurance Company

Ltd.14.20 13.20 14.45 17.51 16.21

Sandhani Life Insurance Company Ltd. 11.52 12.36 14.52 12.33 17.81

In 2007:

In 2007 Sandhani Life Insurance has higher ROA it indicate that in this year they are the mostsuccessful life insurance company in their operating activities.

In 2008:

In 2008 Sandhani Life Insurance has higher ROA it indicates that in this year they are the mostsuccessful life insurance company in their operating activities.

In 2009:

In 2009 Green Delta Life Insurance has higher ROA it indicate that in this year they are the mostsuccessful life insurance company in their operating activities.

In 2010:

In 2010 Sandhani Life Insurance has higher ROA it indicate that in this year they are the mostsuccessful life insurance company in their operating activities.

4. Earnings per Share – EPS

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

Calculated as:

When calculating, it is more accurate to use a weighted average number of shares outstandingover the reporting term, because the number of shares outstanding can change over time.

However, data sources sometimes simplify the calculation by using the number of sharesoutstanding at the end of the period.

Earnings per share are generally considered to be the single most important variable indetermining a share's price. It is also a major component used to calculate the price-to-earningsvaluation ratio.

For example, assume that a company has a net income of $25 million. If the company pays out$1 million in preferred dividends and has 10 million shares for half of the year and 15 millionshares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted fromthe net income to get $24 million, and then a weighted average is taken to find the number ofshares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).

An important aspect of EPS that's often ignored is the capital that is required to generate theearnings (net income) in the calculation. Two companies could generate the same EPS number,but one could do so with less equity (investment) - that company would be more efficient atusing its capital to generate income and, all other things being equal would be a "better"company. Investors also need to be aware of earnings manipulation that will affect the quality ofthe earnings number.

Earnings per Share – EPS (Ratio)

Name of Companies 2006 2007 2008 2009 2010Green Delta Life Insurance Company

Ltd.1482.20 2688.45 3142.11 4120.45 5210.78

Sandhani Life Insurance Company Ltd. 413.14 532.42 652.74 613.32 720.11

As calculated Earning per Share we can say that the Delta Life Insurance Company has thehighest EPS of all of the company this Ratio indicate that their financial strength is stronger thanother companies.

Debt Ratios

1. debt-equity ratio

The debt-equity ratio is another leverage ratio that compares a company's total liabilities to itstotal shareholders' equity. This is a measurement of how much suppliers, lenders, creditors andobligors have committed to the company versus what the shareholders have committed. To alarge degree, the debt-equity ratio provides another vantage point on a company's leverageposition, in this case, comparing total liabilities to shareholders' equity, as opposed to total assetsin the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is usingless leverage and has a stronger equity position.

Formula:

Variations:

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

Commentary:

The debt-equity ratio appears frequently in investment literature. However, like the debt ratio,this ratio is not a pure measurement of a company's debt because it includes operationalliabilities in total liabilities. Nevertheless, this easy-to-calculate ratio provides a generalindication of a company's equity-liability relationship and is helpful to investors looking for aquick take on a company's leverage. Generally, large, well-established companies can push theliability component of their balance sheet structure to higher percentages without getting intotrouble.

The debt-equity ratio percentage provides a much more dramatic perspective on a company'sleverage position than the debt ratio percentage. For example, IBM's debt ratio of 69% seemsless onerous than its debt -equity ratio of 220%, which means that creditors have more than twiceas much money in the company than equity holders (both ratios are for FY 2005).

Debt-Equity Ratio


Company Ltd.641.25 312.45 712.78 825.14


105.81 251.12 312.10 213.11

After calculating Debt Equity Ratio of Eight company we reach a decision that among thecompany Green Delta Life Insurance Company Ltd. has less Debt-equity ratio that indicate theyused less leverage and has a stronger equity position.

2. Debt ratio:

Debt Ratio is a financial ratio that indicates the percentage of a company's assets that areprovided via debt. It is the ratio of total debt (the sum of current liabilities and long -termliabilities) and total assets (the sum of current assets, fixed assets, and other assets such as'goodwill'). A low percentage means that the company is less dependent on leverage, i.e., moneyborrowed from and/or owed to others. The lower the percentage, the less leverage a company isusing and the stronger its equity position. In general, the higher the ratio, the more risk thatcompany is considered to have taken on Debt ratio of two life insurance Company for the year2006 to 2010:


Ltd.10% 8.5% 8% 7%


9% 8% 7% 6.5%

3. Cash flow to debt ratio:

This ratio provides an indication of a company's ability to cover total debt with its yearly cashflow from operations. An increasing Cash Flow to Total Debt ratio is usually a positive sign,showing the company is in a less risky financial position and better able to pay its debt load.Cash flow to debt ratio of two life insurance Company for the year 2006 to 2010:


Ltd.47% 63% 71% 61%


62% 55% 69% 67%

4. Capitalization Ratio:

Capitalization ratios, also known as financial leverage ratios, are used to determine a company’sstability by comparing its long-term debt with its current equity and assets. A capitalization ratioprovides investors and analysts with information about the extent to which a company is using itsequity to finance its operational costs, and to what extent it is incurring new debt to do so.Capitalization ratios provide an indication of the company’s solvency and viability over the longterm and allow more accurate risk assessments for prospective investors.

Typically, a company’s capitalization ratio is calculated by dividing the company’s long -termdebt by the sum of the long-term debt and the shareholders’ equity, as follows:

Calculation:


Company Ltd.83.26% 87.30% 87.61% 93.59%


67.99% 78.50% 92.04% 94.47%

Operating Performance Ratio:

1. The fixed asset turnover ratio:

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

Here is how the fixed asset turnover ratio is calculated:

There is no exact number that determines whether a company is doing a good job of generatingrevenue from its investment in fixed assets. This makes it important to compare the most recentratio to both the historical levels of the company along with peer company and/or industryaverages.

Before putting too much weight into this ratio, it's important to determine the type of companythat you are using the ratio on because a company's investment in fixed assets is very muchlinked to the requirements of the industry in which it conducts its business. Fixed assets varygreatly among companies. For example, an internet company, like Google, has less of a fixed -

asset base than a heavy manufacturer like Caterpillar. Obviously, the fixed-asset ratio for Googlewill have less relevance than that for Caterpillar.

Calculation:


Ltd.6.83 12.25 15.29 19.21


28.24 19.36 18.90 24.52

Cash flow indicator Ratio:

1. Operating Cash Flow/Sales Ratio:

OFC/Sales ratio is the ratio of operating cash flow of a company to its sales revenue. It isexpressed in percentage that shows the ability to convert sales into cash. This Ratio will showup the Positive and negative changes in a company's terms of sale and/or the collectionexperience of its accounts receivable. It gives investors an idea of the company's ability to turnsales into cash. It is an important indicator of its creditworthiness and productivity.

Calculation (%):


Company Ltd.22.79 20.67 13.14 21.78


31.24 27.54 29.01 29.30

Inference:

As we can see here all of the companies have high OFC ratio. In case of Green Delta LifeInsurance Company Ltd. it is most. This indicates its creditworthiness and productivity.

Sandhani Life insurance has also high cash ratio. As insurance company it very necessary toacquire higher OFC/Sales Ratio.

2. Dividend Payout Ratio:

This ratio identifies the percentage of earnings (net income) per common share allocated topaying cash dividends to shareholders. This ratio is an indicator of how well earnings support thedividend payment. Lower this percentage, more secure the dividend payment. A normal rangefor companies that do pay dividends is 25% to 50% of earnings. But the percentage may vary if acompany keeps the amount of its dividend consistent with past dividends regardless of a drop inits earnings.

Calculation (%):


Company Ltd.27.1 36.24 20.14 21.4


20.1 29.1 34.85 39.23

Inference:

Here almost all of the firms have good Dividend Payout ratio. Specially Green Delta LifeInsurance Company Ltd. has the best one. Fast three years they have maintain a good level ofDividend payout ratio. But overall all of the firms have healthy Dividend payout ratio thatindicates the companies have well earnings support the dividend payment among.

3. Short term debt coverage ratio:

This ratio measures the ability of the company’s operating cash flow to meet its obligations –short term debt. It is one of the operating cash flow coverage ratios.

The operating cash flow is simply the amount of cash generated by the company from its mainoperations, which are used to keep the business funded.

The larger the operating cash flow coverage for these items, the greater the company's ability tomeet its obligations, along with giving the company more cash flow to expand it s business,withstand hard times, and not be burdened by debt servicing and the restrictions typicallyincluded in credit agreements.

Formula:

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

Short term debt coverage in Life Insurance Company:

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


Company Ltd.1 1.6 2.2 1.6


1 .9 1.5 1.5

Investment Valuation Ratios

1. Price/Cash Flow Ratio

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

Formula:

Operating cash flow per share:

A value calculated by dividing a firm’s operating cash flow (minus dividends) by the number ofshares of the capital stock that are outstanding.

Price to cash flow ratio in Life Insurance Company:

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

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


Company Ltd.2.32 2.13 2.19 2.26


1.97 2.45 1.77 3.16

2. Price to earnings ratio:

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

Formula:

Price to Earnings Ratio (Times)

(Year wise comparison)


Company Ltd.0.068 0.14 0.059 0.064


0.271 0.470 0.541 0.624

Inferences:

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

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

3. Price to sales ratio

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

Formula:

Price to Sales Ratio (times)

(Year wise comparison)


Company Ltd.5.335 8.749 6.671 5.467


15.82 22.15 18.762 19.018

Inferences:

From the ratio table we can derive that the investors of the respective firms would expect thestock price to be timed at their sales holding. Moreover we can say that Progressive lifeinsurance would pay a higher amount of stock to hold their annual sale s. But researchersconclude that "low price-to-sales ratios beat the market more than any other value ratio, and doso more consistently.

So above analysis infer that Delta life insurance is in a good position in terms of sales to price(P/S) ratio. In addition Fareast and Green Delta Life Insurance also pay low portion for every Tk.to hold the annual sales.

4. Dividend Yield Ratio:

A financial ratio that shows how much a company pays out in dividends each year relative to itsshare price. It’s calculated by dividing the Annual Dividend paid by Stock Market Price perShare Outstanding. In the absence of any capital gains, the dividend yield is the return oninvestment for a stock. Dividend yield is calculated as follows:

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

Ratio Analysis Matrix (in decimal):

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


Company Ltd.0.371592639 0.25002502 0.332510815 0.368830022

Sandhani Life InsuranceCompany Ltd.

0.00312326 0 0.003949275 .003038143

Calculations:

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

Annual Dividend paid by Companies as per their yearly Financial Statement


Company Ltd.49.421821 40.75107779 47.21653569 55.6933333


8.56179775 7.013885714 7.148148148 12.5555556

Market Price per Share as per DSE Index


Ltd.133 163 142 151

Sandhani Life Insurance Company Ltd. 122 143 156 211

5. Price to Book Value Ratio:

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

Ratio Analysis Matrix (in decimals):

Below presented is the Price to Book Value Ratio Analysis Matrix of these two companies forthe last 5 years.


Company Ltd.1.126203526 1.06453965 0.593870692 0.932943134


0.10819312 0.95632995 1.033170678 0.867020116

Calculation (in decimal):

The calculation requires collecting the market Capitalization Amount and dividing them by theTotal Book Value of the firm.

Book Value Calculations:

Total Assets – Intangible Assets – Total Liabilities

Market Capitalization Rate as per respective companies’ websites

Market Capitalization


Company Ltd.174322386 176349877 143876534 437217649


326890000 327892470 473429800 567311689

Total Book Value calculated by the formula:

Total Book Value= Total Assets – Intangible Assets –Total Liabilities

Total Book Value


Company Ltd.154787640 16568346 242269127 46864340


3021345689 342865420 458230000 65432356

Conclusion:

After the twenty financial ratio analyses, we have seen that there is a good balance among thefirms. Most of the firms have good ratio figure. In case of liquidity measurement ratios all of thefirms have very high figure. This means they retain much cash then need. This reduces the abilityof the firm of earning. In case of profitability indicator ratios all of the firms have healthy figure.This means all of the firms have high net income. Firms have good debt indicator ratios. On theother hand in case of cash flow indicator ratios all of the firms have adequate good figure which

refers that all of the firms generate enough cash for their activity. Last of all in case ofinvestment valuation ratios all of the firms have strong ratios. This indicates that all of firmsoffer very good amount of divided to their equity holders as well as the firms work on themaximization of equity holders’ interest in the firms.

Reference:

Annual and half yearly Report of Green Delta Insurance and Sandhani Life Inssurance co. ltd.

Year: - 2007,2008,2009,2010

Ratio Analysis

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