FINANCIAL STATEMENT ANALYSIS FOR ALLIANCE INSURANCE COMPANY Financial Management

FINANCIAL STATEMENT
ANALYSIS FOR ALLIANCE
INSURANCE COMPANY
Financial Management (FIN611)
Prepared and Done by:

ALI SHAIKH ALAWI SHEHAB EMBA 181001
SALEEM ABDULLA SALEM SAROOR ALJABERI EMBA 181004
TAREQ AWADH MOHAMED OMER AL HAMEDI EMBA 181005
OBAID SAEED RASHED MOHAMMED AL SREIDI EMBA 181012
ALI HASSAN KHALAF SAQR AL HOSENI EMBA 181015
ANA MADALINA BUSNEI EMBA 181019

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JUNE 18, 2018
INSTITUTE OF MANAGEMENT TECHNOLOGY
Submitted to Dr. Samer Saade

1

Table of Contents
1. Introduction …………………………………………………………………………………………………………….. 2
2. Importance of Financial Analysis ……………………………………………………………………………….. 3
3. Balance Sheet & Income Statement of Alliance Insurances …………………………………………… 4
4. Balance Sheet and Income Statement of Two Competitors ……………………………………………. 6
5. Financial Ratio Analysis ………………………………………………………………………………………….. 10
a. Trend Analysis ……………………………………………………………………………………………………. 10
b. Comparable Analysis …………………………………………………………………………………………… 19
6. Recommendation ……………………………………………………………………………………………………. 23
References ……………………………………………………………………………………………………………………. 24
Appendix…………………………………………………………………………………………25

2

1. Introduction

OVERVIEW OF THE ALLIANCE INSURANCE
Alliance Insurance came in the UAE market in 1975, to facilitate its customers with its
insurances products. The firm get advantage in early year’s healthy financial position and
customer’s friendly products. Moreover, the firm got register with Dubai security exchange
commission and started to trade its share in the stock market in order to attract more share to
expend its business operation. The head office the Alliance Insurances is situated in the Dubai.
The firm is operating with a number of sub-office in every state of UAE. Firm became successful
in its business operation as well as in attracting more investment by continuously performing better
in the market. Alliance insurance is providing a wide range of insurance products to its customer
now, such as personal insurance, life insurance, corporate, motor insurance, health insurance etc.
The operations of the company are according to the UAE law no. 9 therefore the firm has all legal
powers to offer above mentioned products and many more. The firm currently has a considerable
position in the industry most of the customer are loyal and trusted because of the healthy insurances
policies. The wide network of branches in UAE has enable firm to provide quick services to
customer and make them loyal to stay with company for long term. Moreover, the sound financial
position and higher return on investment has also attracted firm’s investor to stay business with
firm for long time.

3

2. Importance of Financial Analysis

The analysis of the financial statements has become a basic part for the business evaluation
of any organization around the economies. The financial statement analysis has considerable
importance for the financial analyst of the finance to get better understanding financial prospectus
of the firm as well as the forecast the future financial position of the company (Sultan, 2013). All
the department within an organization used to closely associate with the financial policies.
However, the financial statement analysis are not important for the firm’s financial analyst but its
creditors and investor as well. The investor always try to be rational in their investment decision,
therefore the financial statement analysis of a company used to be helpful for the investor in order
to check the financial position of the company (Christodoul, 2015). The company with healthy
financial position used to able to attract the investor to invest in the company for future business
expansion as well as current business operation. Moreover the financial statement analysis also
prove to be helpful for the company debt holder. The debt holder used to interested to check the
financial position of the company before they approve loan or debt to company, the financial
statement analysis give detailed information about the company’s ability to payback debt from its
profit and assets (Javed, 2014). However, the major objective this report is apply the financial ratio
from major five group of the financial ratio analysis and inspect the financial position of the
Alliance Insurances company UAE. The report has also present the analysis of two major
competitor insurance companies and based on the financial analysis are have proposed the
recommendation for the company.

4

3. Balance Sheet ; Income Statement of Alliance Insurances

Balance Sheet:

5

Income statement:

6

4. Balance Sheet and Income Statement of Two Competitors

Balance sheet of Dubai Insurances

7

Dubai Insurance Income Statement

8

Orient Insurances Balance sheet

9

Orient Insurance Income Statement

10

Financial Ratio Analysis

a. Trend Analysis

The analysis of the financial statement is based on the five major groups of the financial
ratio.
1. Liquidity
This is helpful to understand the liquidity position of the Alliance insurance Dubai. The liquidity
analysis are based on the number of the ratios each of them used to provide different information
of the liquidity position of the firm (Maggina, 2015). However, in this group we have choose two
main ratios to check the liquidity position of the firm.
Current Ratio
Current ratio is important method to assess the liquidity position of the firm in term of its
current assets and current liabilities. Moreover the current ratio can be calculate simple dividing
the current assets of the firm with its current liabilities (Horrigan, 2011). Moreover, the ratio assess
the firm position of pay its current liabilities from its current assets. In simple works this ratio
shows how much current assets firm required to pay its current payable. If the value of current
ratio is higher it means that the firm is in good position to pay its current liabilities, if the value is
less then firm is not. However, the graph below shows the analysis of the current ratio of the
Alliance Insurance company Dubai.

11

According to the analysis of the current ratio of the Alliance Insurance Dubai during 2017 was
0.404 and during the 2016 the ratio was 0.33

However, ratio shows us that the Alliance insurance during 2017 has improved its
financial position to pay its current payable from its current assets.

CSCL
20171693208841899357
20161731678351251113
0
20000000
40000000
60000000
Current Assets and Libilities
20172016
20172016
Alliance0.4041133140.337881
0.3
0.32
0.34
0.36
0.38
0.4
0.42
Current Ratio

12

Total Assets Turnover Ratio
According to the analysis give in above picture the assets turnover ratio of the
Alliance insurance during the 2017 was 0.22 whereas the ratio during fiscal year 2016 was 0.23.
However, the analysis depicts that the firm assets turnover during the fiscal year 2016 was better
than 2017.
2. ASSETS MANAGEMENT
The assets management ratio shows that firm performance to utilize the assets against its
sale (Helfert, 2004). However, if the firm is able to utilize its assets in more effective way it would
be more able to generate higher revenue ultimately for its sale vs. we have choose following two
ratios from this group the assess the Alliance Insurance assets management position.
Return on assets ratio shows the firm efficiency to utilize its assets to generate sale.
Moreover, a higher ratio of the return on assets used explain that the firm is good position and
using its assets in efficient way to generate higher sales.
20172016
0.2187658350.22612631
0.214
0.216
0.218
0.22
0.222
0.224
0.226
0.228
Assets Turnover Ratio

13

Return On Assets
Above graph shows the analysis of the return on assets ratio. However, according to the
analysis the ratio during the 2017 was 0.64, whereas, during the fiscal year 2016 the ratio was 0.66,
which means that firm has utilize its assets more efficiently in 2017 to earn higher profit.
Receivable turnover ratio is an important ratio which shows the firm ability to manage
it receivable against its sale. However the ratio can be calculated by applying the formula sale/
account receivable. If the ratio is higher it means that the firm has higher receivable management
or firm is more efficient to manage its accounts receivable for its sale. However, graph below
shows the receivable turnover ratio of the Alliance Insurance Dubai.

20172016
Return on Assets0.6366613870.655782083
0.625
0.63
0.635
0.64
0.645
0.65
0.655
0.66
Return on Assets

14

Receivables Turnover
According the analysis of the receivable turnover ratio, firm’s receivable management
during 2016 was more efficient than 2017. The ratio during 2017 was 20.78 whereas, during 2016
it was 22.26.

3. DEBT MANAGEMENT
The debt management used to assess the efficiency of the firm to assess the debt position.
However the debt assessment can be performed by using a number ratio (Gibson, 2007). We
have chosen the following two ratios to assess the debt management of the Alliance Insurance.
Debt to ratio
The debt ratio can be calculated by subtracting inventories from total assets and dividing
total assets. The ratio is useful to assess the firm debt position against its total assets. In simple
20172016
Receivables Turnover20.7753060722.25896916
20
20.5
21
21.5
22
22.5
Receivables Turnover

15

words the ratio shows that how much debt firm has against its assets. The graph below shows the
analysis of the debt ratio of the Alliance insurance.

According to the analysis the debt ratio of the firm during fiscal year 2017 was 25.5%
against its total assets whereas it 2016 the ratio was 24.3%. Which means that firm had less debt
during the fiscal year 2017 than 2016 against its assets.

Debt/ Equity Ratio
This ratio can be calculated by dividing debt with equity. The ratio shows that how
much debt firm has against its equity. However, graph below shows the analysis of the debt/ equity
ratio of Alliance Insurance.
20172016
Total Debt Ratio25.524.3
23.6
23.8
24
24.2
24.4
24.6
24.8
25
25.2
25.4
25.6
Total Debt Ratio

16

According to the analysis debt/ equity ratio during the 2017 was 0.12 whereas, the ratio
during the fiscal year 2016 was 0.11, which shows that the firm has higher debt against its equity
during the fiscal year 2017 than 2016.
4. Profitability
The profitability ratios analysis used to assess the firm profitability position. The
profitability analysis used to be based on number of ratio. However, we have chosen the following
ratio to assess the profitability position of the Alliance Insurance.

Profit Margin Ratio
The profit margin ratio used to be helpful for internal as well as external stock holder of
the firm. The profit margin ratio can be calculated by dividing net income with total sale. However,
graph below shows the analysis of the profit margin of the Alliance Insurance.
20172016
Debt/Equity0.12349340.111598103
0.104
0.106
0.108
0.11
0.112
0.114
0.116
0.118
0.12
0.122
0.124
0.126
Debt/Equity

17

According to the analysis the profit margin of the firm during fiscal year 2017 was 16.61%
whereas it was 14.95% during the fiscal year 2016, which shows that firm has earned higher profit
margin on sales during the fiscal year 2017.
Return On Equity
Return on equity is an important profitability ratio which used to assess how much profit
company has earned on investment through equity. In simple words the ratio show financial
earning of firm on equity invest in the firm. Graph below shows the analysis of the equity of
Alliance Insurance.

20172016
Profit Margin Ratio0.1660986510.149502906
0.14
0.145
0.15
0.155
0.16
0.165
0.17
Profit Margin Ratio
20172016
ROE0.100007840.098212612
0.097
0.0975
0.098
0.0985
0.099
0.0995
0.1
0.1005
ROE

18

According to the analysis of the ROE. The firm has earned 10% during the fiscal year 2017
on equity invested in the business, whereas ROE during the 2016 was about 9.8%
5. Market value
The market value of firm can assess by applying number of method. However we have
applied the following method to assess the market value of the firm.
Market to Book Value
The market to book value can be calculated by applying the formula market value divided
by firm book value. The ratio shows the market worth of the firm in a period. However the
analysis of the ratio are given below.

The above graph shows the analysis of the market to book value of the firm. However,
according to the analysis the market to book value ratio during the 2017 was 0.34 and in 2016 it
was 0.36.

20172016
market to book value0.3442179170.363338613
0.33
0.335
0.34
0.345
0.35
0.355
0.36
0.365
Market to Book Value

19

b. Comparable Analysis

Current Ratio
Current ratio is important method to assess the liquidity position of the firm in term of its
current assets and current liabilities. Moreover the current ratio can be calculate simple dividing
the current assets of the firm with its current liabilities. Moreover, the ratio assess the firm position
of pay its current liabilities from its current assets. In simple works this ratio shows how much
current assets firm required to pay its current payable. If the value of current ratio is higher it means
that the firm is in good position to pay its current liabilities if the value if less than firm is not.
However, the current ratio of the Dubai insurance during 2016 was 0.60 and in 2017 was 0.63.
Moreover, the current ratio of Orient insurance during the 2017 was 0.80 and in 2016 was 0.763.
Hence, the analysis depict that the current ratio of the Alliance Insurance was lowest during both
years as compared to the competitors.
AllianceDubai insOrient
20170.4041133140.6018066680.808877469
20160.3378810.6383152920.763235841
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Current Ratio
20172016

20

Total Assets Turnover
According to the analysis given in above picture the assets turnover ratio of the Alliance
Insurance and its competitors during the 2017 was 0.22 whereas the ratio during fiscal year 2016
was 0.23. However, the analysis depicts that the firm assets turnover during the fiscal year 2016
was better than 2017. The ratio of the Dubai Insurance during the 2017 was 0.40 and 0.35 in 2016
the ratio of the Orient Insurance during the 2017 and 2016 was 0.60 and 0.40. The analysis depicts
that the financial position in term of current ratio and assets turnover is good and attractive for
investors as well as it alarming situation for the firm as well.

AllianceDubai insOrient
20170.2187658350.4027748190.604017664
20160.226126310.3463780960.403466637
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Total Assets Turnover
20172016

21

Debt to Equity Ratio
This ratio can be calculated by dividing debt with equity. The ratio shows that how
much debt firm has against its equity. However, graph above shows the analysis of the debt/ equity
ratio of Alliance Insurance. According to the analysis debt/ equity ratio during the 2017 was 0.12
whereas, the ratio during the fiscal year 2016 was 0.11, which shows that the firm has higher debt
against its equity during the fiscal year 2017 than 2016. Moreover, the ratio of the competitor
during the 2017 was 0.67 for Dubai Insurance and 0.63 Orient whereas in the 2016 it was 0.72 and
0.61 for Orient. The analysis shows that debt/ equity position of the Alliance is better than its
competitors
AllianceDubai insOrient
Debt/Equity
20170.12349340.6709047450.628406368
20160.1115981030.722542370.610345841
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Debt/ Equity Ratio
20172016

22

Profit Margin Ratio
The profit margin ratio used to be helpful for internal as well as external stock holder of
the firm. The profit margin ratio can be calculated by dividing net income with total sale. However,
graph above shows the analysis of the profit margin of the Alliance Insurance. According to the
analysis the profit margin of the firm during fiscal year 2017 was 16.6% whereas it was 14.9%
during the fiscal year 2016, which shows that firm has earned higher profit margin on sales during
the fiscal year 2017. Moreover, the ratio of the competitors in 2017 and 2016 was 0.08 / 0.10 and
0.18 / 0.15 for the both Dubai and Orient. However, analysis shows the firm has better position
than Dubai insurance but Orient has still edge over Alliance Insurance.

AllianceDubai insOrient
Profit Margin Ratio
20170.1660986510.0768523530.182875373
20160.1495029060.0961986350.145787605
00.020.040.060.080.10.120.140.160.180.2
Profit Margin Ratio
20172016

23

5. Recommendations:

Above analysis are based on the financial statement analysis where we have collected the
data from official websites of the firms. We have performed ratio from all five groups to assess
the financial position of the Alliance Insurances and major ratio to assess the firm competitors.
However, based on the analysis we are proposing the following recommendations for the Alliance
Insurances:
• Based on the financial analysis we strongly recommend the Alliance Insurance to
restructure its financial policy in order to improve its ability to pay current
liabilities.
• Since the assets turnover ratio of the Alliance Insurance is much lower than its
competitor, therefore we are recommending to firm should take serious steps to
improve efficiency for assets turnover which ultimately help the firm to get higher
profits.

24

References:

Christodoul. (2015). An Accounting Examination of the long-run Performance of Greek
acquiring Firms. International Journal of Financial Services Managment .
Gibson, C. (2007). Financial Reporting and Analysis: Using Financial Accounting Information.
Thomson South-Western.
Helfert, E. (2004). Techniques of Financial A A Guide to Value Creation. Mcgraw Hill.
Horrigan. (2011). A Short History of Financial Ratio Analysis. . Accounting Review .
Javed, A. (2014). Determinats of Financial Performance of a Firm . Journal of Economics and
International Finance.
Maggina, A. (2015). On the Distributional Properties of Financial Ratios in Annual Reports of
greek listed Companies, . International Journal of Managerial and Financial .
Sultan, A. S. (2013). inancial Statements Analysis – Measurement of Performance Profitability:
Applied Study of Baghdad Soft-Drink Ind. Research Journal of Finance and Accounting
.
http://www.alliance-uae.com/wp-
content/uploads/2018/03/ALLIANCE_FS_Ann_E_06_03_2018.pdf

http://www.insuranceuae.com/wps/wcm/connect/56b1e113-6f96-43dc-a4e9-
8ac68f89fb3c/ORIENT+ANNUAL+REPORT+2017+ENG.pdf?MOD=AJPERES&CONVERT_
TO=url&CACHEID=ROOTWORKSPACE-56b1e113-6f96-43dc-a4e9-8ac68f89fb3c-mdyO7d4

http://www.dubins.ae/en/portals/0/DubinsFile/pdf/Financials2017English.pdf

25

Appendix

26

27

28

29

30

31

32

33

34

35

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