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Assignment on:
Ratio analysis of Eastern insurance limited
Subject Code: FIN 410 Section: 02

Prepared for:
Quazi Sagota Samina
Assistant Professor Department of Business Administration East West University

Prepared by:
01. Md. Taijul Islam ID: 2009-2-10-217

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Company profile:
Eastern Insurance Co. Ltd. is one of the pioneer in general insurance business operating in the private sector of Bangladesh. The Company started its operation in the year 1986. The authorized capital of the company is Tk.100,00,00,000.00 and paid up capital is Tk.43,11,01,440.00 It is a limited Company and listed with DSE & CSE in the year 1994 and 1996 respectively. The Company has a network of 23 Branches all over the country covering all important business centers of the country

Historical Background :
After Liberation of Bangladesh in 1971 Bank and Insurance companies were nationalized along with other sectors like Jute and Textile to give a socialistic flavors to the economy of the newly emerged nation which was electoral pledge of the then ruling government. But with the changed global economic situation, Bangladesh Government decided to follow an open market economy right from the early eighties. Until 1986 both life and general insurance business were carried out in the country by two state owned Corporations Jiban Bima Corporation and Sadharan Bima Corporation respectively. The beginning of 1986 witnessed emergence of a few life and general insurance companies under Private Sector after passing of Insurance Amendment Act 1983 in 3rd Parliament of the Country. Eastern Insurance Co. Ltd. one of the first 10 Public Ltd. Companies, started operation in the year 1986 under the license of the Controller of Insurance. The Company is authorized to transact all classes of general insurance business. Since its emergence in 1986 the Company has earned wide reputation in the market for its strict adherence to business norms & ethics of insurance, personalized customer service and prompt and speedy disposal of claims. Now the name itself carries value to its customers. The experience gathered during the last 24 years of its operation and reputation earned gives a new dimension to its service rendered to its customer and it is now truly a Symbol of Comprehensive Security a slogan introduced by the Company right at the time of its birth.

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Liquidity Ratio

Year 2007 2008 2009 2010 2011

Current Assets 261671197 247498938 308685382 341023609

901640797

Current Liabilities 83755784 61733406 66873337 85702468 69101194

Current ratio 3.12 : 1 4.01 : 1 4.62 : 1 3.98:1 13.05:1

The rule of thumb in liquidity ratio is 2:1. But in 2007, current ratio is 3.12:1 which indicates that company has excess cur asset and excess liquidity.it is not good for the company and it decreases the profitability. In 2008, current ratio is 4.01:1 Company has also excess liquidity. It indicates company has more unused cur asset and it decreases the profitability. The amount of cur asset is more than 2007 and it seems more unused cur asset in 2008. In 2009, current ratio is 4.62:1. The amount of cur asset is more than 2008 and it seems more unused cur asset in 2009. Company has much more cur asset .it decreases the companys profitability in a great extent. In 2010, current ratio is 3.98:1. The amount of cur asset is less than 2009 and it seems less unused cur asset in 2010 than in 2009. Since it is still more than rule thumb, company has cur asset. In 2011, current ratio is 13.05:1. The amount of cur asset is more than 2010 and it seems more unused cur asset in 2011. Company has much more cur asset .it also decreases the companys profitability in a great extent.

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Underwriting Ratio

year 2007 2008 2009 2010 2011

Loss adjustment 11661001 20668081 12919424 30903031 35350290

premium earned 116265612 128468486 129415082 132478639 152551719

loss ratio 0.10 : 1 0.16 : 1 0.10: 1 0.23:1 0.23:1

Lower the Ratio is better for the company because company paid less amount of claim, company premium earned is more. As the ratio is lower in the both cases company is better position. They paid less amount of claim but comparatively 2010 is better than 2009. In2007, lower the ratio better for the company. The loss ratio of 2007 is 0.10: 1 company paid less amount of claim which is better for the company. In 2008, the loss ratio is 0.16:1.it indicates that they paid more amount of claim and premium earned less in 2008 than 2007. Comparatively 2007 is better than 2008. In 2009, the loss ratio is 0.10: 1.company paid less amount of claim which is better for the company. They paid less amount of claim and premium earned is more in 2009 than 2008. Comparatively 2009 is better than 2008.
In 2010, the loss ratio is 0.23:1.it indicates that they paid more amount of claim and premium

earned is less in 2010 than 2009. Comparatively 2009 is better than 2010.

Page |5 In 2011, the loss ratio is 0.23:1.it indicates that they paid same amount of claim and premium

earned in 2011 compare with 2010.

Expense Ratio

year 2007 2008 2009 2010 2012

Underwriting expense 20742257 33666010 42264629 32748864 41878096

Net premium 116265612 128468486 129415082 132478639 152551719

Expense ratio 0.18 : 1 0.26 : 1 0.33 : 1 0.25:1 0.28:1

If expense ratio is lower, it is better for the company. Expense ratio indicates from net premium what percentage they have to bear as underwriting expense. On the other hand, lower portion of premium can expect as underwriting expense. In 2007, The expense ratio is 0.18 : 1. It indicates that underwriting expense for obtaining new policies from insurance carriers is low and it also means the profit for the company. In 2008, the expense ratio is 0.26 : 1. It indicates that underwriting expense for obtaining new policies from insurance carriers is higher in 2008 than 2007.and it also means the profit for the company is less in 2008 than 2007. In 2009, the expense ratio is 0.33 : 1. It indicates that underwriting expense for obtaining new policies from insurance carriers is higher than 2007.and it also means the profit for the company is less in 2009 than 2008 In 2010, the expense ratio is 0.25 : 1. It indicates that underwriting expense for obtaining new policies from insurance carriers is lower in 2010 than 2009.and it also means the profit for the company is more in 2010 than 2009.

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In 2011, the expense ratio is 0.28 : 1. It indicates that underwriting expense for obtaining new policies from insurance carriers is higher than 2010.and it also means the profit for the company is less in 2011 than 2010. Combined loss/expense Ratio

year 2007 2008 2009 2010 2011

Loss ratio 0.100296217 0.160880552 0.099829354 0.233268029 0.231726592

Expense Ratio 0.178404058 0.262056564 0.326581944 0.24720109 0.274517365

Combined loss ratio 0.29 : 1 0.42 : 1 0.43 : 1 0.48:1 0.51:1

Combined ratio indicates how the company can efficiently earned if the ratio is below than 100 percent represents a measure of profitability and the efficiency of an insurance company underwriting efficiency. In 2007, the Combined ratio is 0.29 : 1.since the ratio is below than 100 percent represents a measure of profitability and the efficiency of the company underwriting efficiency. The company can efficiently earn. In 2008, the Combined ratio is 0.42 : 1. It indicates that the ratio also is below than 100 percent but it is more than in 2007. The company can efficiently earn more in 2007 than 2008. In 2009, the Combined ratio is 0.43 : 1. Since the ratio is below than 100 percent, it also represents a measure of profitability and the efficiency of the company underwriting efficiency. But The Company can less efficiently earn than 2008 2010, the Combined ratio is 0.48 : 1. It indicates that the ratio also is below than 100 percent but it is more than in 2009. The company can efficiently earn more in 2009 than 2010.

2011, the Combined ratio is 0.51 : 1. Since the ratio is below than 100 percent, it also represents a measure of profitability and the efficiency of the company underwriting efficiency. But The Company can less efficiently earn than 2010.

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Capacity Ratio

year 2007 2008 2009 2010 2011

Net premium 116265612 128468486 129415082 132478639 152551719

Surplus 250805857 582577576 628606367 735298623 1477835031

Capacity ratio 0.46 : 1 0.22 : 1 0.21 : 1 0.18:1 0.10:1

Capacity Ratio indicates against surplus how many times company can earn premium. The more capacity ratio means the company earns more premiums and the level of capital surplus necessary to write premiums. In 2070, the capacity ratio is 0.46 : 1. It indicates that insurers are writing less than tk. 1.00 worth for every tk. 1.00 of surplus.it is not good for the company. In 2008, the capacity ratio is 0.22 : 1. It indicates that insurers also are writing less than tk. 1.00 worth for every tk. 1.00 of surplus.it means companies capacity to pay out clams is low. In 2009, the capacity ratio is 0.21 : 1. It indicates that insurers are also writing less than tk. 1.00 worth for every tk. 1.00 of surplus.it indicates that companys capacity to pay out clams is lower than 2008.

In 2010, the capacity ratio is 0.18 : 1. It indicates that insurers also are writing less than tk. 1.00 worth for every tk. 1.00 of surplus.it means companies capacity to pay out clams is low compare to the 2009.

In 2011, the capacity ratio is 0.10 : 1. It indicates that insurers are also writing less than tk. 1.00 worth for every tk. 1.00 of surplus.it indicates that companys capacity to pay out clams is lower than 2010.

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Profitability Ratio

Year 2007 2008 2009 2010 2011

Net Operating Income 31672959 35168773 48730819 75801415 96537773

Total Revenue 38473951 40399521 56701741 85630926 108205287

Return on revenue 82% 87% 86% 89% 89%

Return on Revenue indicates the profitability of the company.it is the profit which is computed after all expenses and taxes paid. In 2007, the company Return on Revenue is 82%. After all expenses and taxes paid, companies profitability is 82%.from total revenue company can earn 82% profit. In 2008, the company Return on Revenue is 87%. After all expenses and taxes paid, companys profitability is 87% which is more than in 2007. From total revenue company can earn 87% profit. In2009, the company Return on Revenue is 86%. After all expenses and taxes paid, companys profitability is 86% which is less than in 2008. From total revenue company can earn 86% profit.

In 2010, the company Return on Revenue is 89%. After all expenses and taxes paid, companys profitability is 89% which is more than in 2007. From total revenue company can earn 89% profit.

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In 2011, the company Return on Revenue is 89%. After all expenses and taxes paid, companys profitability is 89% which is less than in 2008. From total revenue company can earn 89% profit.

Return on Asset

year 2007 2008 2009 2010 2011

Net Operating Income 31672959 35168773 48730819 75801415 96537773

Mean average Asset 401234682 718398658 767933389 869090750 1660697657

Return on asset 8% 5% 6% 9% 6%

Return on Asset indicates by utilizing all assets what proportion of Profit Company can earn. The higher proportion means the higher profitability. In 2007, the proportion of Return on Asset is 8%.it means by utilizing all Asset Company can earn 8% profit.

In 2008, the proportion of Return on Asset is 5%. it means by utilizing all Asset Company can earn 5% profit. But it is lower than in 2007. In 2009, the proportion of Return on Asset is 6%.it means by utilizing all Asset Company can earn 6% profit which is slightly better than in 2008.

In 2010, , the proportion of Return on Asset is 9%. it means by utilizing all Asset Company can earn 9% profit. But it is more than 2009.

In 2011, the proportion of Return on Asset is 6%.it means by utilizing all Asset Company can earn 6% profit which is slightly lower than in 2008.

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Return on Equity

year 2007 2008 2009 2010 2011

Net Operating Income 31672959 35168773 48730819 75801415 96537773

Average common Equity 205887868 236369398 575987136 645833125 1414978421

Return on equity 15% 15% 8% 12% 7%

Return on equity (ROE) measures the rate of return on the ownership interest of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are generally considered good. It indicates from common equity what rate of income can company can earned common shareholders. The higher the return on equity means the more profitable for the company and the possibility of providing more dividends.

In 2007, the return on equity is 15% .So Company can earn from common equity 15% for shareholders which is generally considered good. In 2008, the return on equity is 15%. So company can earn from common equity 15% for shareholders. . In 2009, the return on equity is 8% .So Company can earn from common equity 8% for shareholders which is not generally considered good.

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In 2010, the return on equity is 12%.So company can earn from common equity 12% for shareholders which is better than 2009.

In 2011, the return on equity is 7%.So company can earn from common equity 7% for shareholders which is not generally considered good because it is lower than 2010.. .

Investment Yield

Year 2007 2008 2009 2010 2011

Average Investment Asset 95164325 238505580 227486386 296382523 516413061

Net Investment Income 18137836 24744002 23665821 27107177 60011463

Invest yield 5.25 times 9.64 times 9.61 times 10.93 times 8.61 times

Investment Yield indicates that investment is equal to how many times of investment income. The fewer ratios indicate the more profitability. In 2007, the Investment Yield 5.25 times that means investment assets is equal to 5.25 times of investment income. In 2008, the Investment Yield 9.64 times that means investment assets is equal to 9.64 times of investment income. Since the fewer ratios indicate the more profitability, the ratio is higher than in 2007 that mean profitability is less 2008 than in 2007. In 2009, the Investment Yield 9.61times that means investment assets is equal to 9.61 times of investment income. Since the fewer ratios indicate the more profitability, the ratio is slightly less than in 2008 that means profitability is less 2009 than in 2008 In 2010, the Investment Yield 10.93 times that means investment assets is equal to 10.93 times of investment income. Since the fewer ratios indicate the more profitability, the ratio is higher than in 2009 that mean profitability is less 2010 than in 2009.

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In 2011, the Investment Yield 9.61times that means investment assets is equal to 9.61 times of investment income. Since the fewer ratios indicate the more profitability, the ratio is less than in 2010 that means profitability is more in 2011 than in 2010.

Leverage Ratio

Year 2007 2008 2009 2010 2011

Total Liability 150428825 135821082 139327022 169398582 182862626

Total Asset 401234682 718398658 767933389 869090750 1660697657

Leverage ratio 0.37 : 1 0.19 : 1 0.18 : 1 0.19:1 0.11:1

It indicates from total asset what proportion has been financed from debt sources. The high ratio means the high risk and the high profit. In 2007, the debt ratio is 0.37 : 1. It indicates that from 1 tk. total asset company financed from debt sources .37 tk. In 2008, the debt ratio is 0.19 : 1. It indicates that from 1 tk. total asset company financed from debt sources .19 tk. Since The high ratio means the high risk and the high profit but in 2008 the ratio is lower than in 2007 that means low risk and low profit. In 2009, the debt ratio is 0.18 : 1. It indicates that from 1 tk. total asset company financed from debt sources .18 tk. Since the high ratio means the high risk and the high profit but in 2009 the ratio is lower than in 2008 that means low risk and low profit. In 2010, the debt ratio is 0.19 : 1. It indicates that from 1 tk. total asset company financed from debt sources .19 tk. Since the high ratio means the high risk and the high profit. in 2010 the ratio is higher than in 2009 that means high risk and high profit.

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In 2011, the debt ratio is 0.11 : 1. It indicates that from 1 tk. total asset company financed from debt sources .11 tk. Since the high ratio means the high risk and the high profit but in 2011 the ratio is lower than in 2010 that means low risk and low profit.

Market Ratio

Price Earnings Ratio Year 2007 2008 2009 2010 2011 Market Price Per Share 300 612.52 811.52 836.07 54.66 EPS 2.70 2.50 2.91 3.74 2.32 Price earnings Ratio 111.11 245.01 278.87 223.55 23.56

If price earning ratio is high it indicates that companys stock demand is high and companies have good market condition. A high price earnings ratio means that investors are willing to pay a premium for the company stock because company has expected to have higher future earnings growth. In 2007, the price earning ratio is 111.11.which is more than 2006. So investors are willing to pay a premium for the company stock because company has expected to have higher future earnings growth than 2006. In 2008, the price earning ratio is 245.01. Investors are willing to pay more premiums for the company stock than 2007 because company has expected to have higher future earnings growth. In 2009, the price earning ratio is 278.87. It indicates that companys stock demand is high and companies have good market condition than 2008. A high price earnings ratio means that investors are willing to pay a premium for the company stock than 2008.

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In 2010, the price earning ratio is 223.55. Investors are willing to pay less premium for the company stock than in 2009 because company has expected to have lower future earnings growth.

In 2011, the price earning ratio is 23.56. Investors are willing to pay less premiums for the company stock than 2010 because company has expected to have lower future earnings growth.

Book Value of Equity

Year 2007 2008 2009 2010 2011

Market Price Per Share 300 612.52 811.52 836.07 54.66

Book Value Per Share 21.40 44.95 40.42 37.49 35.99

Book value of equity 14.02 13.63 20.08 22.30 1.52

Price/book value ratio is an investment valuation ratio used by investors or finance providers to compare market value of a companys shares to its book value (Shareholder Equity). This ratio indicates how much shareholders are contributing/paying for a companys net assets. The price to book or price/book value ratio helps investors to compare the market value, or the price they are normally paying per share, to the traditional measure of the firms value. In 2007, Book value of equity is 14.02. Market price of share is 14.02 times more than book value per share price. In 2008, Book value of equity is 13.63. Market price of share is 13.63 times more than book value per share price. In 2009, 20.08 Book value of equity is 20.08. Market price of share is 20.08 times more than book value per share price.

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In 2010, Book value of equity is 22.30. Market price of share is 22.30 times more than book value per share price. In 2011, 1.52 Book value of equity is 1.52. Market price of share is 1.52 times more than book value per share price.

Reference:
01. www.dsebd.org/ 02. www.easterninsurancebd.com/ 03. www.wikipedia.org/wiki/Accounting_ratio 04. www.google .com 05. DSE monthly review 06. DSE library

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