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Introduction
A funds flow statement is a technical device designed to analyze, the changes In the financial
condition of a business enterprise between two years. It is also called as a Statement of sources
and applications of funds. The funds flow statement is becoming Popular with the management
because it not only helps them in analyzing financial Operations, providing basis for comparison
with budgets, and serving as a tool of Communication, but also explain the financial
consequences of such operations such as the reason why the company is experiencing difficulty
in making payments to creditors or why the bank balance is getting thinner.
There is general recognition in industry and business and among professional Accounting bodies
that financial statements should provide relevant information which Sub serves the multiple
objectives of shareholders, investors, creditors, customers and the public and which enable them
to arrive at rational economic decisions. Normally what the shareholders look for in these
statements is an account of the stewardship of the firm and the amount which may be expected as
dividend. Potential investors look upon funds flow statement as the source of their realistic view
of the value of a companys shares in terms of an expected futures stream of distribution and
judge the efficiency of the management accordingly.
Rs. Rs.
Issue of share and **** Redemption of ****
Debentures **** preference ****
Long term loans Shares and debentures ****
Sale of investment ,Fixed **** Repayment of loan
assets, etc **** Purchase of investment, ****
Non-trading income **** fixed assets, etc ****
Decrease in working Non-trading expenses ****
capital Increases in working
**** capital+ ****
Therefore the funds flow statement shows the movement of funds into or out of the current asset
account of the firm.
Sources of funds.
Uses of funds.
The former supply funds to the working capital and enhances its position. On the other
hand, the latter consume funds and erode the working capital position.
Sources of funds
The sale value of fixed assets including if any is one of the sources of funds. If such
profits have been including in the sale value, they are not including in the profit figure. The
reason that this would led to double counting.
Sale of shares
The full amount collected from the issue of shares is treated as source of funds.
This means that the amount of premium discount if any is taken into account for this purpose.
Loans raised including any premium or net of discount are considered as source of funds.
However loans in from of supplies or services of a non current nature do not constitute source of
funds.
The most important source of funds is profit from its operations. Profit
From operations means the net profit after taxes plus the non cash expenses.
USES OF FUNDS
Acquisition of fixed assets causes an outflow of funds from the working capital pool.
While beginning this effect to the funds flow statement, double counting must be avoided.
Repayment of capital
A company redeems the redeemable preference shares. Moreover equity shares can also
be paid back as per the procedures laid down in the Indian companies Act, 1956.
INDUSTRY PROFILE
The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance
Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance
Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. With such a
large population and the untapped market area of this population Insurance happens to be a very
big opportunity in India. Today it stands as a business growing at the rate of 15-20 per cent
annually. Together with banking services, it adds about 7 per cent to the countrys GDP .In spite
of all this growth the statistics of the penetration of the insurance in the country is very poor.
Nearly 80% of Indian populations are without Life insurance cover and the Health insurance.
This is an indicator that growth potential for the insurance sector is immense in India. It was due
to this immense growth that the regulations were introduced in the insurance sector and in
continuation MalhotraCommittee was constituted by the government in 1993 to examine the
various aspects of the industry. The key element of the reform process was Participation of
overseas insurance companies with 26% capital. Creating a more efficient and competitive
financial system suitable for the requirements of the economy was the main idea behind this
reform.
The business of life insurance in India in its existing form started in India in the year
1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the
important milestones in the life insurance business in India are given in the table 1.
1912 The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business
1928 The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses
1938 Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.
1956 245 Indian and foreign insurers and provident societies taken over by the
central government and nationalized. LIC formed by an Act of
The General insurance business in India, on the other hand, can trace its roots to the Triton
Insurance Company Ltd., the first general insurance company established in the year 1850 in
Calcutta by the British. Some of the important milestones in the general insurance business in
India are given in the table .
1907 The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance business
1957 General Insurance Council, a wing of the Insurance Association of India, frames
a code of conduct for ensuring fair conduct and sound business practices
1968 The Insurance Act amended to regulate investments and set minimum solvency
margins and the Tariff Advisory Committee set up.
1972 The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companys viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd. and the United India Insurance Company Ltd. GIC
incorporated as a company.
Insurance has a long history in India. Life Insurance in its current form was introduced in
1818 when Oriental Life Insurance Company began its operations in India. General Insurance
was however a comparatively late entrant in 1850 when Triton Insurance company set up its base
in Kolkata. History of Insurance in India can be broadly bifurcated into three eras: a) Pre
Nationalization b) Nationalization and c) Post Nationalization. Life Insurance was the first to be
nationalized in 1956. Life Insurance Corporation of India was formed by consolidating the
operations of various insurance companies. General Insurance followed suit and was nationalized
in 1973. General Insurance Corporation of India was set up as the controlling body with New
India, United India, National and Oriental as its subsidiaries. The process of opening up the
insurance sector was initiated against the background of Economic Reform process which
commenced from 1991.
For this purpose Malhotra Committee was formed during this year who submitted their
report in 1994 and Insurance Regulatory Development Act (IRDA) was passed in 1999.
Resultantly Indian Insurance was opened for private companies and Private Insurance Company
effectively started operations from 2001.
The insurance sector was opened up for private participation four years ago. For years
now, the private players are active in the liberalized environment. The insurance market have
witnessed dynamic changes which includes presence of a fairly large number of insurers both life
and non-life segment. Most of the private insurance companies have formed joint venture
partnering well recognized foreign players across the globe.
There are now 29 insurance companies operating in the Indian market 14 private life
insurers, nine private non-life insurers and six public sector companies. We the offing, the
insurance industry in India today stands at a crossroads as competition intensifies and companies
prepare survival strategies in a detariffed scenario.
There is pressure from both within the country and outside on the Government to increase
the foreign direct investment (FDI) limit from the current 26% to 49%, which would help JV
partners to bring in funds for expansion.
There are opportunities in the pensions sector where regulations are being framed. Less
than 10 % of Indians above the age of 60 receive pensions. The IRDA has issued the first licence
for a standalone health company in the country as many more players wait to enter. The health
insurance sector has tremendous growth potential, and as it matures and new players enter,
product innovation and enhancement will increase. The deepening of the health database over
time will also allow players to develop and price products for larger segments of society.
State Insurers Continue to Dominate There may be room for many more players in a large
underinsured market like India with a population of over one billion. But the reality is that the
intense competition in the last five years has made it difficult for new entrants to keep pace with
the leaders and thereby failing to make any impact in the market.
Also as the private sector controls over 26.18% of the life insurance market and over
26.53% of the non-life market, the public sector companies still call the shots.
The countrys largest life insurer, Life Insurance Corporation of India (LIC), had a share
of 74.82% in new business premium income in November 2005.
Similarly, the four public-sector non-life insurers New India Assurance, National
Insurance, Oriental Insurance and United India Insurance had a combined market share of
73.47% as of October 2005. ICICI Prudential Life Insurance Company continues to lead the
private sector with a 7.26% market share in terms of fresh premium, whereas ICICI Lombard
General Insurance Company is the leader among the private non-life players with a 8.11%
market share. ICICI Lombard has focused on growing the market for general insurance products
and increasing penetration within existing customers through product innovation and
distribution.
Itch many more joint ventures in the battle has so far been fought in the big urban cities,
but in the next few years, increased competition will drive insurers to rural and semi-urban
markets.
Global Standards While the world is eyeing India for growth and expansion, Indian
companies are becoming increasingly world class. Take the case of LIC, which has set its sight
on becoming a major global player following a Rs280-crore investment from the Indian
government. The company now operates in Mauritius, Fiji, the UK, Sri Lanka, Nepal and will
soon start operations in Saudi Arabia. It also plans to venture into the African and Asia-Pacific
regions in 2006.
The year 2005 was a testing phase for the general insurance industry with a series of
catastrophes hitting the Indian sub-continent.
However, with robust reinsurance programs in place, insurers have successfully managed
to tide over the crisis without any adverse impact on their balance sheets.
With life insurance premiums being just 2.5% of GDP and general insurance premiums
being 0.65% of GDP, the opportunities in the Indian market place is immense. The next five
years will be challenging but those that can build scale and market share will survive and
prosper.
LIFE INSURANCE:
The traditional life insurance business for the LIC has been a little more than a savings
policy. Term life (where the insurance company pays a predetermined amount if the policyholder
dies within a given time but it pays nothing if the policyholder does not die) has accounted for
less than 2% of the insurance premium of the LIC (Mitra and Nayak, 2001). For the new life
insurance companies, term life policies would be the main line of business.
HEALTH INSURANCE:
Health insurance expenditure in India is roughly 6% of GDP, much higher than most other
countries with the same level of economic development. Of that, 4.7% is private and the rest is
public. What is even more striking is that 4.5% are out of pocket expenditure (Berman, 1996).
There has been an almost total failure of the public health care system in India. This creates an
opportunity for the new insurance companies.
Thus, private insurance companies will be able to sell health insurance to a vast number
of families who would like to have health care cover but do not have it.
PENSION:
The pension system in India is in its infancy. There are generally three forms of plans:
provident funds, gratuities and pension funds. Most of the pension schemes are confined to
government employees (and some large companies). The vast majority of workers are in the
informal sector. As a result, most workers do not have any retirement benefits to fall back on
after retirement. Total assets of all the pension plans in India amount to less than USD 40 billion.
Therefore, there is a huge scope for the development of pension funds in India. The
finance minister of India has repeatedly asserted that a Latin American style reform of the
privatized pension system in India would be welcome (Roy, 1997). Given all the pros and cons,
it is not clear whether such a wholesale privatization would really benefit India or not (Sinha,
2000).
The introduction of private players in the industry has added value to the industry. The
initiatives taken by the private players are very competitive and have given immense competition
to the on time monopoly of the market LIC. Though LIC still holds the 75% of the insurance
sector but the upcoming natures of these private players are enough to give more competition to
LIC in the near future. LIC market share has decreased from 95% (2002-03) to 81 %( 2004-05).
There are a total of 13 life insurance companies operating in India, of which one is a Public
Sector Undertaking and the balance 12 are Private Sector Enterprises.
AVIVA 0.79
India with about 200 million middle class household shows a huge untapped potential
for players in the insurance industry. Saturation of markets in many developed
economies has made the Indian market even more attractive for global insurance
majors. The insurance sector in India has come to a position of very high potential and
competitiveness in the market. Indians, have always seen life insurance as a tax saving
device, are now suddenly turning to the private sector that are providing them new
products and variety for their choice.
Consumers remain the most important centre of the insurance sector. After the entry of the
foreign players the industry is seeing a lot of competition and thus improvement of the customer
service in the industry. Computerization of operations and updating of technology has become
imperative in the current scenario. Foreign players are bringing in international best practices in
service through use of latest technologies
The insurance agents still remain the main source through which insurance products are sold.
The concept is very well established in the country like India but still the increasing use of other
sources is imperative. At present the distribution channels that are available in the market are
listed below.
Direct selling
Corporate agents
Group selling
Brokers and cooperative societies
Banc assurance
COMPANY PROFILE
National Insurance Company Limited was incorporated in 1906 with its registered office
in Kolkata. Consequent to passing of the General Insurance Business Nationalisation Act in
1972, 21 Foreign and 11 Indian Companies were amalgamated with it and National became a
subsidiary of General Insurance Corporation of India (GIC) which is fully owned by the
Government of India. After the notification of the General Insurance Business (Nationalisation)
Amendment Act, on 7th August 2002, National has been de-linked from its holding company GIC
and presently operating as a Government of India undertaking.
National Insurance Company Ltd (NIC) is one of the leading public sector insurance
companies of India, carrying out non life insurance business. Headquartered in Kolkata, NIC's
network of about 1000 offices, manned by more than 16,000 skilled personnel, is spread over the
length and breadth of the country covering remote rural areas, townships and metropolitan cities.
NIC's foreign operations are carried out from its branch offices in Nepal.
Befittingly, the product ranges, of more than 200 policies offered by NIC cater to the
diverse insurance requirements of its 14 million policyholders. The paid-up share capital of
National is Rs.100 crores. Starting off with a premium base of 500 million rupees (50 crores
rupees) in 1974, NIC's gross direct premium income has steadily grown to 4021.97 million
rupees (4021.97 crores rupees) in the financial year 2007-2008.
Banking, Telecom, Aviation, Shipping, Information Technology, Power, Oil & Energy,
Agronomy, Plantations, Foreign Trade, Healthcare, Tea, Automobile, Education, Environment,
Space Research etc.
The steady growth in premium income has been commensurately matched by profits over
the years. As of March 2008, NIC's general reserve stood at 1457.25 million rupees (1457.25
crores rupees) with an asset value of 8867.99 million rupees (8867.99 crores rupees) signaling
strong financial fundamentals. No wonder than that NIC has been accorded AAA/STABLE
financial strength rating by CRISIL rating agency, which reflects the highest financial strength to
meet policyholders obligations. With about 1000 offices and 16,000 employees and agents, the
company operates in all of India, and neighboring Nepal.
In 2008, the company signed a deal with HCL Technologies worth almost INR 4 Billion
to outsource the companys information technology requirements over 7 years.
Personal Insurance policies include medical insurance, accident, property and auto
insurance coverage
Rural Insurance policies provide protection against natural and climatic disasters for
agriculture and rural businesses
Industrial Insurance policies provide coverage for project, construction, contracts, fire,
equipment loss, theft, etc.
Commercial Insurance policies provide protection against loss and damage of property
during transportation, transactions, etc.
AWARDS:
The company received the Best Auto Insurer 2010 award from J. D. Power and
Associates in the Asia Pacific for customer satisfaction. The criteria evaluated for the award
included interaction, claims, product/policy offerings, renewal/purchase process, billing/payment
process and premium/price.
ACHIEVEMENTS:
WE ARE:
Internationally recognized as one of the top 5 General Insurance Companies in the Asia
Pacific.
PRODUCT DEVELOPMENT:
More than 200 products available to cater to the needs of various sectors of the economy.
R&D cell set up at Head Office for distinctive product innovation relevant to indigenous
conditions and rural masses.
OUR HERITAGE:
NIC is the oldest Insurance Company in India. Since incorporation in the year 1906, NIC has
been carrying on general insurance business under private management until 1972, when its
services were dedicated to the nation by the General Insurance Nationalization Act. NIC started
functioning as a subsidiary of the General Corporation of India (GIC) taking in its fold 22
foreign and 11 Indian Insurance Companies which were amalgamated with it.
Since then, NIC have been in the service of the nation carrying on general insurance
business guided by our mission and values
POLICIES-PERSONAL LINE:
1. MOTOR-TWO WHEELERS:
Policy indemnifies bonafide owner of Two wheelers, used for personal purposes
against the loss due to damage/theft/burglary of vehicle or any part thereof, electrical
accessories and also includes cover against liability towards third party personal injury
and property damage.
2. HOUSEHOLDERS POLICY:
Policy covers risks of different types and protects the house as well a personal
effects and household goods.
Research:
Research is a process in which the researcher wishes to find out the end result for a given
problem and thus the solution helps in the future course of action. Redman and Mory defines
research as a systematized effort to gain new knowledge.
Research Design:
A research design is the arrangement of condition and analysis of data in a manner that
aims to combine relevance to the research purpose with company in procedure. In fact of the
research design is the conceptual structure within which research is conducted; it constitutes the
blue print for the collection, measurement and analysis of data.
Data sources
Primary Data:
Secondary Data:
Data collection:
Chittoor.
A financial statement contains income statement showing sales, revenues, tax expenses etc. on
the other side; the balance sheet shows the liabilities and assets position during the year.
Analysis of the liquidity and profitability of the current assets and current liability.
Analysis of the long term financial of the firm over a period of time.
The main need of the study is to study the sources and application of funds in the
company and methods to evaluate the financial performance of the company.
1. The financial pattern of the firm can be known with the help of funds flow
statement analysis.
2. The funds flow weevil clearly the causes for the financial difficulties of the
company.
3. If is important to know about the need for the funds for the growth of the
firm and the working capital position of the company.
4. We can estimate the cash balances of the company, with the help of the
funds flow statement.
To determine and analyze the statement of changes in working capital through out the
study period 2011-2016.
To determine and analyze the funds from operations during the study period.
To study various sources and applications of funds of the National Insurance Company
limited 2011-2016.
To analyze the changes through trend for the study period.
SCOPE OF STUDY
The present study focuses as sources funds and application of funds for a periodof time. The
study financial position of the National Insurance company limited between the beginning and
ending financial date 2011-15.
It provides only information regarding flow of funds, so It should remember that a funds
flow statement is not a substitute of an income statement or balance sheet The study based on the
available annual report and internal information of National Insurance company Ltd only.
Working capital(A-B)
--- ---
Decrease on working
capital
4406873 ---
8843955 8843955
Working capital(A-B)
--- ---
Decrease on working
capital
17369954 ---
20909087 20909087
Working capital(A-B)
---- ---
Decrease on working
20651663 20651663
-84825209 -102740280
Sub Total (B)
Working capital(A-B)
---- ---
Decrease in working
capital
17915071 ---
36616100 36616100
23459083 23459083
Working Capital shows that decreasing working capital, FFO shows that loss
from operation.
YEAR AMOUNT
2012 748874
2013 3252136
2014 5350603
2015 6303570
2016 7428359
Amount
8000000
7000000
6000000
5000000
Amount
4000000
3000000
2000000
1000000
0
2012 2013 2014 2015 2016
Interpretation:
The funds from operations are continuously increasing during the years.2011- 2016
Findings
During the study period 2011-2016 working capital decreased year to year which shows
that firms inefficiency in matintaing good woring capital position
During studing period 2011-2016 funds from operation showing profits except in the year
2011-12 and 2015-16
During study period the major sources of fund are sale of investment sale of fixed assets
receipts of loans
During study period the major application of funds purchase of fixed assets and
investment
Decreasing investment, decreasing working capital, repeat of funds and so on.
SUGGESTIONS
It may be suggested that the National Insurance Company Limited should
utilize limited funds for the purchase of fixed assets. If the financial
services limited spend more money on purchase of investments e growth
of the National insurance company limited.
When the statement shows the decrease in working capital the company
require raising short term funds to maintain the liquidity position.
CONCLUSION:-
The insurance sector was opened up for private participation four years ago. For years
now, the private players are active in the liberalized environment. The insurance market have
witnessed dynamic changes which includes presence of a fairly large number of insurers both life
and non-life segment. Most of the private insurance companies have formed joint venture
partnering well recognized foreign players across the globe.
BIBLIOGRAPHY
-Prasanna Chandra
Advanced accountancy
-M.c.Sukla-T.S.Grewal
-Revised by S.C.Guptha
Internet:
www.nationalinsuranceindia.com
www.google.com