Financial Analysis of Ryanair and British Airways

Financial Analysis of Ryanair and British Airways Financial analysis The purpose of financial analysis is to determine the financial health of a business. Generally, this analysis is performed by the professionals who prepare reports using the ratios taken from various financial reports. The financial ratios calculated are also helpful to compare with different business. The following analysis studies the four major financial positions of BA and Ryan air; Profitability, Efficiency, Liquidity and Financial gearing. Profitability: It is the primary goal for any business, without this the business cannot be projected in long run. The purpose of measuring profitability is the key contribution for success of business. The ratios which are used to evaluate profitability are listed below: Return on ordinary shareholders funds (ROSF) Return on capital employed (ROCE) Net profit margin Gross profit margin. ROSF: It compares the amount of profit for the period available to the owner’s average stake in the business during that same period. The ratio is expressed below: ROSF = (Net profit after taxation and preference dividend (if any) / ordinary share capital +reserves) Ãâ€" 100 The Ratios calculated for BA Ryan air are shown below: From the above table, it is clearly seen that BA values are inconsistent but whereas Ryan air tends to show improvement every year which gives more profits to the shareholders. From the definition we can say that the high ROSF %, the more profit available to shareholders. The year 2011 considered to be good for both airlines BA and Ryan air, since they are making huge profits and improved revenues compared to their previous year performance. As a result, their ROSF had risen to 26% 11.34% which resulting high profits to the shareholders. This scenario has changed completely when it comes to 2012 for BA. If their investors left their money in bank, they could have got some positive returns. But instead BA returned (3.6%) to their investors. Though its revenue is increased by 8% and operational cost by 11% it continued to show appreciable operating results. However, due to exceptional costs items like expense related to pensions, BMI’s acquisition affected the BA economy. On the other hand, Ryan air returned 16.11% which is higher than previous year to the shareholders. This is because Ryan air revenue increased by 25% and profit by 50% approximately compared to 2011. (According to annual report 2012).Though its operating costs are increased due to (fuel price rise) it managed to balance that by increasing passengers fares of about 15%. In 2013, BA has raised from loss of (3.6) % to 10.78%. This is because of company attains the profit from exceptional items ( £57m) and IAG part of BA contributed  £ (265m) and also revenue rose by 5.5%. Though inconsistent in fuel prices affects their operational costs which is almost 0.3% of their total operational costs. But BA managed to stabilise it by non-fuel costs which has risen in 2012. Whereas Ryan air revenue increased by 13% which is less compared to 2012 change. Since it’s a low cost carrier it should maintain passenger fare as low as possible in order to compete with its rivals but, inconsistency in fuel prices had raised their operational costs by 45% and passenger fare by 6%. At the end company operated in profits and returned 17.35% to the shareholders. Based on ROSF results, we can say that Ryan air has performed well continuously in three consecutive year’s period by giving profits to its shareholders but BA shown some ups and downs in its results. Further ratios will give us more idea why the difference has been evolved in their performance. ROCE (Return on capital employed): It is a fundamental measure of business performance. ROCE is defined as the ratio of net operating profit to the capital employed. Capital employed is the difference b/w total assets and current liabilities. The ratio is expressed below: ROCE = (NET PROFIT BEFORE TAX / CAPITAL EMPLOYED) Ãâ€" 100 The ratios calculated for BA and Ryan air is shown below: The above table describes the ROCE of a company for a period 2011-2013. From the definition we can state that higher the value of ROSE is indicating that the company c generates more earnings per dollar of capital employed. It enables us to analyse and compare BA and Ryan air without the impact of tax. It also considered the long-term debt as a part of capital, which is not the case of ROSF.Thus; this ratio reveals how BA and Ryan air economized on its overall capital. In 2011, BA performed well by giving a positive result due to increased revenue in 2011 from premium travel passengers. But the performance is shrined in 2012 due to rise in operational costs and loss of  £ 41m on exceptional items and also  £66m due to partnership with IAG. Due to this it had shown negative result in 2012. But in 2013, it again rises to 4.11% from (1.86%) because of the factors explained in ROSF. Ryan air has shown continuous improvement for three years. In 2011 its profit increased by 26% and carefully balancing the fuel costs and operating costs. For the other two years also it continuous to shown good result even though operating cost rise to 45%. Thus, we can say from ROCE ratios Ryan air performed much better than BA. The gross-profit margin is studied below to measure the profitability. GROSS PROFIT MARGIN: It is a key financial factor that asses the profitability of a company core activities excluding fixed cost. Gross profit represents the difference b/w sales revenue and the cost of sales. The ratio is represented by gross profit to the sales revenue generated for the same period. It is a given by the formula shown below: Gross profit margin = (gross profit/sales revenue) Ãâ€" 100 Gross profit margin ratios of BA and Ryan air is shown below: It can be seen from above table that Ryan air performed well compared to BA. Though the values over three years slightly fluctuate but they were generating good profitability by improving their sales and proper balancing and control of fuel costs which has almost rise to 38% in 2013. Similarly airport charges and other operational costs were stabilised to make airline in profitable condition. On other hand, BA also performed well except for the year 2012.in which its fuel costs rise by 14 %, maintenance by 15% and operating lease costs by 34%. Due to this they showed lower values. But by gaining proper control over the above costs mentioned they started to improve their profitability by 2013. Now net profit margin is studied in order to see whether the airline is able to improve its profitability. NET PROFIT MARGIN: It is the defined as the ratio b/w net profit before tax to the sales revenue. It also measures how much each of dollar earned by the company is translated into profits. If the value is low it indicates low margin of safety and higher risk that the sales decline will erase profits and lead to net loss. It is given by the formula as shown below: Net profit margin = (profit before tax / sales revenue) Ãâ€" 100 Net profit margin ratios for BA and Ryan air shown below: The above table depicts us Ryan air is operating much better than BA. From annual reports it is known that BA invested much money for long-term asset. Hence, their net profit margins are quite low in these three years. In 2011, it invested in IAG, bought BMI at  £172.5m in 2012 and from 2011 it’s investing  £5 billion every year for new fleet and up gradation of fleet and other.in 2011 it opened T5 which will be home to A380 fleet from 2013. On the other hand, Ryan air net profit margins are high since its investments for long term assets are low compared to BA. Ryan air continuously invest to buy new a/c’s hence it’s the reason that it has youngest fleet of planes in the world. In 2013 it decided to buy 175 new Boeing 737-800 a/c which will be a long term asset for the Ryan air to transport more no. of passengers. In conclusion to the analysis of BA and Ryan air, profitability is measured by using various ratios. The results are fluctuated for BA whereas Ryan air tends to show improvement year by year from 2011-13. Both BA and Ryan air increased their revenues, gained some control over operational costs along the analysis and deliver positive returns except for the year 2012 for BA. EFFICIENCY: The efficiency ratios measure the efficiency in which various resources are managed and used in the business. The following ratios are used to evaluate the efficiency of the business: Average settlement period for receivables Average settlement period for payables Sales revenue to capital employed Sales revenue per employee Average settlement period for Receivables: A business will usually be concerned with how long it takes for customers to pay the amounts owing. The efficient and timely collection of customer debts is a vital part of cash flow management. So this is the ratio which is very closely watched in many businesses. It is given by the formula as shown below: Avg.settlement period for receivables = (Trade receivables/sales revenue) Ãâ€"365. The ratios calculated for BA and Ryan air shown below table: The values in above table depict the average number of days used to collect its revenue from debtors. Both BA and Ryan air has got appreciable shorter period to collect their revenue. In the analysis period from 2011- 13, BA managed to get back his revenue from receivables by an average of 17 days with slightly increased in 2013 compared to 2011. When it comes to Ryan air it has got very shorter period of an average of 5 days. From the table it is clearly seen that debtor days have fallen which means business is converting credit sales into cash much quicker than BA. This shorter period certainly asset for Ryan air liquidity. Average settlement period for payables: The average settlement period for payables measures how long, on average, the business takes to pay its trade payables. The ratio is calculated by a formula shown below: Average settlement period for payables = (trade payables/credit purchases) Ãâ€"365 The ratios calculated for creditors as shown below: Sales revenue to capital employed: This ratio examines how effectively the assets of the business are being used to generate sales revenue. Greater the value represents higher productivity. The ratio is calculated by a formula shown below: Sales revenue to capital employed= (sales revenue/ (total assets-current liabilities)) The ratios are calculated for BA and Ryan air as shown below: From the table it is clearly seen that both BA and Ryan air have utilised their assets properly to improve their productivity and hence it is the reason their values of productivity rising over past three years. The values of Ryan air is small compared to BA because Ryan air revenue is almost half of BA’s total revenue. At last despite of their company size both are making use of their assets properly. Sales revenue per employee: It is the ratio relates sale revenue generated to a particular business resource, which is labour. Higher the value indicates greater staff efficiency. Its ratio is calculated by a formula shown below: Sales revenue per employee = (sales revenue / number of employees) The ratio calculated for BA and Ryan air shown below: The above tables describes about sales revenue per employee. Both companies uses different currency so for better analysis BA revenue is converted to euros according to exchange rate in that periods. The values clearly states that Ryan air is more labour productive than BA and other fact is noticed from table is that two companies increasing their efficiency over the analysis period 2011-2013. LIQUIDITY: These ratios are concerned with the ability of the business to meet its short-term financial obligations. Higher the ratio, the more liquid the business is considered to be, since liquidity is vital to the survival of a business. Liquidity is measured by the following ratios shown below: Current ratio; Acid test ratio. Current ratio: It is defined as the ratio b/w liquid assets to the current liabilities. A higher current ratio is preferable to a normal one since liquidity is vital part in business. It is given by the formula as shown: Current Ratio = (current assets/ current liabilities) The current ratio values for BA and Ryan air shown below: Values in above table clearly depict that BA current ratio values over three years On the other hand, Ryan air maintained its current ratio values >1 throughout analysis period in which it properly balanced short-term assets over liabilities and has got more liquidity compared to BA. In 2013 Ryan air current ratio value is decreased compared to 2012 because it has decided to buy 175 new Boeing 737 planes over next five years. Overall, Ryan air liquidity is better than BA. Acid-test ratio: This is an indicator that determines whether a company has enough short-term assets to cover immediate liabilities without selling inventory. This ratio is more reliable compared to current ratio because it doesn’t include inventory. This is given by a formula as shown below: Acid-test ratio=current assets / current liabilities. (Excludes inventories in current assets) The values for BA and Ryan are shown below: From the table it is seen that BA values during analysis period is 1.so, this ratio indicates that company experiencing good growth, fastly converting receivables into cash and also it can also overcome its financial obligations without depending on inventories. In conclusion to the analysis of BA and Ryan air, liquidity is measured by using various ratios. The results are fluctuated for BA whereas Ryan air tends to show improvement year by year from 2011-13. Ryan air has got more liquidity compared to BA and it can easily overcome its financial obligations. 3.4 Financial Gearing: It is the relationship b/w the contribution to financing made by the owners of the business and the amount contributed by others in form of loans. A business level of gearing is an important factor accessing risk. Gearing takes place of owner’s insufficient funds. Any business borrowing money from others agrees to pay interests; if the borrowing is heavy then this can be significant financial burden to the company. The ratios used to measure gearing are shown below: Gearing ratio; Interest cover ratio. Gearing ratio: It is defined as ratio b/w long-term lenders to the long-term capital structure of a business. It is given by a formula as shown: Gearing ratio = (non-current liabilities/capital employed) The gearing ratios for BA and Ryan air calculated below: The values from table states that both companies are highly geared businesses since their gearing ratios > 50%. Both the companies have high shares of long-term debt in their long-term capital structure. So both companies are subjected to financial risk. Ryan air tends to decrease its debts during analysed period which can be seen from the table by controlling their operational costs effectively during analysed period. Whereas, BA managed to decrease their debts with some fluctuations in values which can be observed from the years 2011-2013.so, a cash flow which is strong and reliable can handle high gearing effectively compared to cash flow which is unreliable .

The Role Of Friar Lawrence :: essays research papers

In Romeo and Juliet, a tragedy by William Shakespeare, Friar Lawrence plays a dominate role in the eventual death of Romeo and Juliet even though he is not on stage for most of the play. There are basically three major parts that lead to the tragedy; the marriage, the plan, and the inevitable deaths in all which Friar Lawrence plays a vital role.Friar Lawrence plays an essential role in the marriage of young Romeo and Juliet. At Romeo’s request Friar Lawrence states, "In one respect I’ll thy assistant be; for this alliance may so happy prove, to turn your households to pure love" (Act 2 Scene 3.) Friar Lawrence believes that this holy marriage would bring the Capulet family and Montuague family closer together, for he anticipates that the families will stop hating each other and be peaceful. His attempts to make the marriage of Romeo and Juliet are admirable but poorly planned. Friar Lawrence performs the marriage rites to unite them in holy marriage. Romeo and Juliet are now husband and wife. They have known each other a sum of two days. Friar Lawrence plays a vital role in the marriage of Romeo and Juliet.Friar Lawrence plays a significant role in the plan for Juliet to "sleep." Friar Lawrence calms a frantic Juliet by giving her and telling her to "Take thou this vial, being then in bed, and this distilled liquor drink though off" (Act 4, Scene 1). Later, Juliet is uneasy and unsure of the effects of the potion. She hopes that this is only a temporary sleep and not a permanent one. He also tells Juliet that "Shall Romeo by my letters know our drift, and hither shall hem come; and he and I shall watch thy waking, and that very night shall Romeo bear thee to Mantua" (Act 4, Scene 1.) Unforeseen to neither the Friar nor Juliet that an error such as the one of Friar John’s would prove to be deadly. Poor Romeo was not able to receive the letter. Friar Lawrence plays a significant role in the plan for Juliet to "sleep."Friar Lawrence plays an important rule in the actual deaths of Romeo, Juliet, And Paris. Friar Lawrence is unable to reach Romeo with the news of Juliet’s "death." Romeo, thinking Juliet is dead rushes to Verona, but not before buying some fast poison.

Just Do It Essay

Sharad Haksar’s Just Do It is part of his very moving series of pictures he calls â€Å"Brand Irony. † This series portrays ironic juxtapositions of world-renowned brands combined with interesting visuals. In this specific picture, Haskar shows Nike’s famous Swoosh accompanied by its â€Å"Just Do It† slogan on a wall acting as an advertisement somewhere in India. On the wall next to the ad, a young boy is urinating as a little dog looks on. At first a feeling of excitement comes over the viewer because of Nike’s large media presence and its ties to athleticism. The boy urinating next to the slogan seems to then invoke a feeling of humor. These emotions soon give way, however, to a much deeper and serious analysis. Soon enjoyment and wittiness turn into anger and sadness as the details of the image slowly come forward. Born in India, Sharad Haksar was probably accustomed to seeing this kind of situation day in and day out. For this reason, Haksar was surely biased in the way that he definitely had some kind of disgust with companies like Nike. He is trying to appeal to the same audience Nike would be trying to attract in their advertisements. This would be, for the most part, young and active people anywhere from the ages 15-40. More than that, he is also trying to appeal to anyone who has an interest in photography, advertising, and the worldwide problem of worker exploitation. He finished up his collection of photos entitled â€Å"Brand Irony† in 2006. These photos were meant to show big-market companies advertising in ironic situations and/or places. In this specific photo, his frustration with large corporations exploiting their workers seems to be the focal point. Nike is a world –power when it comes to brand imagery, and their â€Å"Just Do It† slogan is as recognizable as any. By combining the first glance humor of a boy urinating on a wall, with the more profound message hidden deeper inside the photo, Haksar creates a brilliant image that begs to be understood. Many human beings see Nike as a model company, one that is always progressing its craft, and constantly trying to better its products. Haksar realizes this, and he wants to shed some light on the other side of the business. He wants to show how huge commercial businesses like Nike affect the countries and communities in which they conduct their trades. Nike has been at the forefront of â€Å"sweatshop† controversy in India, and the dirty and grimy background of the image appeals to this controversy. The â€Å"Just Do It† slogan, rather than being the upbeat, creative influence it usually is, is now portrayed in a much darker light. In Indonesia alone, 30% of factory workers were reported as being verbally abused, with another 2. 5% experiencing â€Å"unwanted fondling† (Dukcevich). In Honduras, two Nike subcontractors closed down their plants, pushing 1,800 natives out of work. It didn’t stop there, though. In complete disregard for Hondurian law, they refused to pay the $2 million in severance that was rightfully owed. Nike’s â€Å"factory to factory† competitiveness creates â€Å"an ultra-competitive environment that drives down wages and gives factory owners virtually no choice but to disrespect workers’ basic rights† (Greenhouse). The motto â€Å"Just Do It† is supposed to cast anger over the viewer, as it is clear that this is not an option to these people; life will never grant them the chance to just do it. Haksar is trying to bring awareness to the poverty-laden countries that big companies exploit to inexpensively run their large factories. He is trying to show that these disadvantaged humans slave over products that they cannot and probably never will be able to afford. This underprivileged boy and the rest of this community are living a life that doesn’t allow them to â€Å"Just Do It,† the opportunities just aren’t there. They lead a life of struggling to survive on insufficient paying jobs, some even as factory line workers in one of Nike’s 1000 factories worldwide. It is not unusual for these workers, most of the time women and children ages 10-24, to work 13-hour shifts and come home with a meager $1. 60. This fact becomes staggering when one takes into account that the average minimum living wage in most of the third world countries that house Nike factories is somewhere around $3. 00 to $5. 00 a day (Braddock). Exploited workers in these factories have no chance of living any kind of lifestyle Nike promotes, but rather become the impoverished human beings that are the face of third-world countries around the globe. The boy in the picture that at first seemed so comical is in fact without hoes or a shirt. He is clearly indigent and the littered ground he stands on emphasizes this. A sense of pity is immediately taken up for the boy, as he cannot even afford to put a pair of shoes on his feet, let alone the ones Nike advertises. Then the focus shifts to the dog. The dog that at first seemed cute and harmonious prancing next to the boy, now seems ragged and undersized. As the powerful, commenting images slowly unfold from Haskar’s photo, the picture transforms from just an advertisement to a much more critical view of Nike’s world-power franchise. He is trying to invoke a sense of guilt and remorse in his audience for their participation in buying Nike’s products. Moreover, a sense of anger is supposed to be instilled in the viewer, caused by Nike’s insistence on advertising in countries where just a miniscule part of the population has the means to buy their products. In this sense, Haksar is appealing to his audience to recognize where and how Nike’s products are being made. The innovation in brand imagery Nike has brought to the commercial world is unparalleled. The Swoosh and the â€Å"Just Do It† slogan are reminders that Nike sits in the top of its class when it comes to advertising. Sharad Haksar’s stunning Nike image in his â€Å"Brand Irony† series is a comment on this advertising and also an insight into how the products they market are produced. The image comes off, at first, just to be a humorous depiction of a boy urinating on a wall, but in fact is trying to shed light on the cruel and inhumane ways workers are exploited by companies like Nike. What the general public sees is Nike’s innovation and their leadership in their industry. What they don’t see are images like this.

Examining the Insurance Industry in Nigeria - Free Essay Example

Sample details Pages: 21 Words: 6276 Downloads: 1 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? Nigeria is a West African country having an area of 923,768 square kilometers. The geographical position of Nigeria is 3o and 15o east between longitudinal arena and 4o and 14o latitude in north. It has a population count near to 150 million. The growth of population is moderate and it is growing by around 2.7. The internationally country is bounded by on the West by the Republic of Benin; on the East by the Cameroon Republic; on the North by Niger and Chad Republics and on the South by a vast coastline of the Atlantic Ocean (John Harris, 1959). The Landscape Don’t waste time! Our writers will create an original "Examining the Insurance Industry in Nigeria" essay for you Create order The physical landscape of Nigeria is can be broadly classified as plains, lowlands, highlands and plateaus. The Coastal and Niger Delta area fall under low lands. Undulating plains which covered most part of the western region and the sokoto plains which are by characteristics plain are fall under plain land. The Chad basin can also be categorized under this forum these are located on the extreme northeast of Nigeria. The highlands are consisting of the Jos plateau, Mandara Mountains, Adamawa highlands and Obudu plateau. River System Niger and its tributary is the largest river in Nigeria. It flows from the North to west and joined by its major tributary. Another river named Benue flows from northeast which makes a confluence at Lokoja. The river Niger meet into the Atlantic Ocean in the end while before that it forms a network of tributaries which are known as Niger Delta. Other major rivers include the Ogun, Benin, Imo , Cross River, Kaduna, Shansha, Yobe, Komadugu, Hadijia, Shari and Sokoto. Nigeria is very rich in natural resources it has diversified climatic conditions and diversified natural resources too. Its agriculture, industries and mineral resources are very rich and diverse which also include oil and gas (William Arnett, 1979). Weather Season The climatic condition of Nigeria is varied in two major seasons. It has the wet season or rainy season after that the dry season fall. The south Nigeria is hot in comparison to the Northern part. The temperature varies from 35 0C in summers to 230C in Southern part of Nigeria while in Northern region the temperature various from 310C to 180C in the north. Though due to Global warming the average temperature has gone up in the last decade. The total annual rain fall varies from 3800 mm at Facades to below 650 mm at Maiduguri which is located in the north east of the country. Political Structure Nigeria is a democratic country which follows the federal structure of the government. It has three arms model with the executive, legislative and judicial systems are in place. In 1999 the Federal government decentralize and distributed the power in 36 small states and 774 local governments so that the development activities and their execution can be further enhanced. ICT Impact: Its Advancement Development Introduction In the past few decade information technology has attained a great deal of attention from all over the world across all the streams. It is most sought field of study not only from academia but also from business prospective because of its application in daily routine work into many corporations. In present Scenario the business environment is very dynamic and changing very rapidly. Customers are more knowledgeable, aware and ever demanding due the advancement in information technology. They can access any information about any product, service, and query, anything within a second or with a click of mouse. Business organization especially Insurance industry in the 21st century operates in such a fierce competitive and dynamic world. The word dynamic is used to explain the present climate of economic uncertainty and the advancement in information and communication technology. The management cannot ignore the information system and its advancement as they are working in contemporary environment. It has been found in their study that all the fortune 500 companies cash flow is linked to the information and communication system (Laudan Laudan, 1991). It has become imperative for insurance industry to critically analyse the fundamental importance of applicability of information and communication technological concept. It has become a regular practice for insurance companies to be local and internationally competitive. ICT directly affect the decision making ability of management and their offering. It plays a vital role in planning and offering to a particular product and services. It is continuously changing the way how insurance organization maintains their corporate and customer relationship. ICT has also enhanced the quality and speed of services offered by the insurance service provider. Literature Review of ICT in Insurance Industry Insurance service providers are requiring modifying and improving their traditional operational practices to make their business viable in the 21st century (Harlod and Jeff, 1995). They found that the one of the most significant shortcoming of insurance industry is negligence of information and communication technology advancement. The senior management need to understand the grasp of importance of ICT technologies in formulation of strategic decision accordingly. Woherem (2000) claimed that the financial organizations which will modernize their payment and other delivery operational activities and apply new ICT technologies are likely to survive and prosper in the new millennium. He advice the banks and other financial institutions to re-examine their service offering and delivery systems in order to re-frame them as per latest framework of information and communication technology. The insurance industry in Nigeria has been passed through various advancement in ICT in through the past few years. In the pursuance of survival, global relevance, maintenance of existing market share and to sustain development many organization had already exploited the advantages ICT by applying some automated devices which imperative for industry. The study evaluates the impact of ICT on insurance sector in Nigeria, how they have impacted the insurance market in Nigeria and their direction of future. Information and Communication Technology Advancement As per Khalifa (2000) Information Technology (IT) is the automation of processes, controls, and information production using computers, telecommunications, software and ancillary equipment such as automated teller machine and debit card. It is a term which is usually covers the usage of electronic technology for communication, collection, storage, dissemination and presentation of information. Some of the financial services are revolutionized by the use of ICT technologies for example to purchase a insurance now customer can avail all the related information online, they do not require to consult an agent and to stand in a queue to meet the insurance personal, and waste a substantial amount of time, money and energy. They can easily open their policies online submit online document, transacts online and other queries can be solved easily (Irechukwu, 2000). Now the consumer get premium alert via e-mail, phone, messages etc which reduces the chances of any mistake. Communication techn ology also dealt with the physical devices such as hardware as well as software devices which connect or work as a interface between hardware devices. Software link also connect some of the hardware devices to transfer data from one location to another location (Laudon and Laudon; 2001). ICT product used in insurance industry includes smart card, Telephonic services, Online services, MICR, Electronic Data interchange, Electronic fund transfer, electronic access to the account and policies documents. Several researches has been done to identify the impact of ICT in insurance sector within the Nigeria country. Agboola et al (2002) discussed the basic attributes in which the ICT has played a crucial role within the economy of Nigeria. They include the use of Magnetic ink character reader (MICR) for various document verification processes. It makes the procedure of encoding, reading and sorting of document more convenient. Plastic card and electronic fund transfer system is the second attribute which make the money settlement at the same time and more safe and convenient to use. The automated delivery channel which makes it easier for service provider to convey their message to the consumer. Use of interactive TV channels and internet made revolution in insurance industry. Agboola (2001) studied the impingement of ICT on the financial services in Lagos and found that with the advancement in information and communication technology the financial services offered by the institutions have been significantly improved in Lagos. The study was limited to the financial nerve of the Nigeria, Lagos and concentrated on only six major financial institutions. Woherem (1997) discovered that Nigerian financial institutions have significantly performed better since 1980 in the prospective investment in information and communication technology than the other industrial sector of Nigeria. An analysis of the study carried out by African Development Consulting Group Ltd. (ADCG) on IT diffusion in Nigeria shows that financial institutions have invested more on IT, have more IT personnel, more installed base for PCs, LANs, and WANs and 6 a better linkage to the Internet than other sectors of the Nigerian economy. The study, however pointed out that whilst most of the financial institutions in the west and other parts of the world have at least one PC per staff, Nigerian banks are lagging seriously behind, with only a PC per capital ratio of 0.18 (Woherem, 2000) More or less the offering from insurance organization is standardised. They are offering same set of product and services. The banking and insurance industry increasingly utilises computers and telecommunication equipment connected via the Internet as the ordinary distribution channel of their services. Ranging from Online brokerage and Home banking to Electronic insurance contracts by companies like Cosmos Direct, information and communications technologies (ICTs) have changed the financial service industry significantly over the past decade. By looking at the expenditure in financial industry on information and technology investment is comparatively high than any other industry after 1995 (for the US see e.g. Council of Economic Advisors, 2001, for the EU see EITO, various yearbooks 1996 until 2001) The key to success for financial industry is to grow by continuous investment in technology and advancement in financial services. The online premium payment facilities, Account statement, Access their portfolio from any location in any branch are some of the little advancement which has taken place in the insurance industry in Nigeria. With the availability of internet it has given the power to user to access their investment in insurance from any corner of the world. While the revolution in mobile technology has also changed the way people do transactions. While it is not the end of innovation still a lot of transforming process has yet to be completed. Still a lot of new innovations and labour-saving process has to be implemented in near future. The Structure of the Nigerian Financial System The financial system of Nigeria which are comprmised of banking and non-banking activities.. The regulatory body of financial system in Nigeria are), Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Federal Ministry of Finance (FMF Federal Mortgage Bank of Nigeria (FMBN), National Insurance Commission (NAICOM), National Bank of Communities Board (NBCB) and Securities and Exchange Commission (SEC). Federal Ministry of Finance (FMF) It play a vital role in the finance related strategic decision taken by the government it helps and suggest the government of Nigeria on its financial operation and other monetary counts. The Central Bank of Nigeria (CBN) The central bank of Nigeria act 1959 lead to the establishment of the Central bank of Nigeria and it started its operation soon early in July, 1959. It is the apex body in Nigerian financial system. Its same like federal bank in United State America and Reserve Bank in India. Their primary functions are to make sure the monetary stability in the state and to maintain a sound financial system. It also acts as a bank and financial adviser to the federal government. It is the bank of bank, it also provide framework and platform for other financial institution to operate effectively (Yanusa, 1998). The Nigerian Deposit Insurance Corporation (NDIC) NDIC is autonomous body and directly answerable to Federal Ministry of Finance. it complement the supervisory and controlling, and regulatory role of CBN in financial activities. NDIC is formed in 1989 to deposit insurance and other related services for banks so that the confidence in banking industry will strengthen. It has power to check the books and accouts of the insured bank and other deposit taking financial institutions. It ask only one percent of the deposit liabilities from banks as insurance premium. The maximum cap of claim exercised is limited to N50, 000 in the case of bank failure. It has planned to hike the exercised limit from N50, 000 to N200, 000. The Securities and Exchange Commissions (SEC) Under the Sec act, 1979 Securities Commission Exchange was established. Formerly it was known as Capital Issues Commission. As the name suggest it play a dynamic role in capital market and the apex body capital market regulation. Any merger and acquisition require to be get approve from SCE prior to their exercise. It establishes the unit trust. It maintain the surveillance on the capital market to enhance it efficiency and effective utilization of resources. It issues and designs the guideline for the establishment of the stock exchanges and after that the deregulation of the Nigerian capital market. It also releases the guideline related to the foreign direct investment in Nigerian capital market. Debt Management Office (DMO) Debt related affairs are left as there is was no autonomous body to regulate and direct it. Hence the Federal Government of Nigeria has taken a major step and formulated an autonomous debt management office (DMO). By the creation of DMO all the debt related affairs has been handled by it, hence a consolidated picture and proper coordination has been developed between various agencies as these are handled by a single agency. The DMO centralize and coordinates the entire debt recording and management related activities of Nigeria. It includes debt service forecast, advising of debt negotiation, debt service payment and new borrowings (Yasuna, 1998). National Insurance Commission (NAICOM) The National Insurance Commission (NAICOM) is new form of the Nigerian Insurance Supervisory Board (NISB). It is powered by more efficient and effective administration, supervision, regulation and control over the insurance business in Nigeria. It is policy making body regarding insurance activities. The specific function of the body consist of the establishment of the procedures for the conduct of insurance business, protection of insurance policy holders and the establishment of a council to which any issue, complaint can be submitted related to any insurance company and their intermediaries by the customer. NAICOM manage the adequate level of cash and reserve, management practices, the level of technical expertise and engagement of ICT. The Federal Mortgage Bank of Nigeria (FMBN) The Care of assets and liabilities of Nigerian Building Society is taken by the Federal Mortgage Bank of Nigeria (FMBN). It provides the advisory services to and executes the research related to housing and development activities. The FMBN is empowered in 1990 with the adoption the housing policies to license and regulating the institution which deal in pimary mortgage in Nigeria and act as a apex body for regulating mortgage finance industry. The Federal Mortgage Finance dealt with the financing which was earlier comes under the jurisdiction of Federal Mortgage Bank of Nigeria. While it is still having its regulatory role and it take the guidance from Central Bank of Nigeria. (Bassey Enamatte, 2001). The Money Market and Its Institutions The money markets are short-term debt instrument, it manipulate or facilitate the sector which are facing a deficit problems. It gets the funds diverted from the cash plus sector of the economy to the other sectors of the economy which are experiencing a downfall. The deficit unit can be public or private; they can access the money market to meet their short term need. They can trade in Commercial Papers (CP), call money, Certificate of Deposit (CD), Treasury Bills and Treasure Certificates. The horizon of the money market has been improved significantly with the help of the Open Market Operation (OMO) commenced by the CBN. Discount houses worked as a catalyst and it helped in the raising of participant member in the market. These institutions club the hub of a financial system. It consist of special purpose bank, commercial, rural development, merchant bank, discount houses, like Nigerian agricultural co-operative bank and community bank etc. Discount Houses The discount houses were established as an intermediary between CBN, financial institution and with the other incensed banks. It directly controls the market based financial system. A discount house is a non-bank financial institution. It helps the mobilizing in securities while keeping the view of liquidity in the market (Glaser, 1992). It does by providing some discount on the money market instrument of the government securities, which lead to the purchase of these by institutions and individual. Hence in turn it creates money liquidity in the market. Some the operating major discount houses in Nigeria are Associate Discount House Limited, Consolidated Discount house Limited, First Securities Discount House Limited, Express Discount House Limited, and Kakawa Discount House Limited. Universal Banking The Universal Banking in the Nigeria has been introduced by CBN. After the formulation of guidelines for universal banking in Nigeria till now more than 10 banks are having universal banking status. Hence these banks can operate as commercial and merchant functions. Commercial and Merchant Banks Banks and other financial institutions (BOFI) act works as legal and statutory framework for commercial and merchant banks in Nigeria. Basically three main functions are performed by commercial bank in Nigeria. These functions can be classified as granting of loans and operation of payment, acceptance of deposit and settlement mechanism. A rapid growth in commercial banking sector has been observed since September 1986 as the government commenced the active deregulation on the same year (Rotberg, 2004). The number of commercial banks has been grown significantly and their offerings become too wide and complex. Nigerian Acceptance Limited (NAL) is the first merchant bank in Nigeria which started its operation in 1960. These banks take deposit and cater the need of corporate world. These banks helps the corporate and institutional customer by providing them loan syndication financing and engaging in activities such as equipment leasing, medium and long term loans project advice, debt factoring to their client. In turn they get better return on their loan and charge for their services. Now the trends have been changed and merchant banks are also performing the general banking operations. It helps them to diversify their risk and portfolio and also leads to creation of funds. Community Banks Today more than 1366 licensed community banks exist in the Nigerian market. First community bank started its operation in 1990. The National Board for Community Banks (NBCB) is the apex body which decides the suitability and feasibility for the establishment of the community banks. Basically the purpose of a community bank is to provide financial assistance to a particular community. These are self-sustaining financial institutions owned and managed by a particular and within the community members (Patike Communication, 2002). The Capital Market It is used for generating long term fund into the market. Securities and Exchange Commission (SEC) is the apex body which serve as a regulatory authority of the market; also it is the main player in the market. The Nigerian Stock Exchange (NSE) is the issuing house of securities and stock broking firm. NSF is the main exchange for large enterprise which encourages the large as well as small and medium scale enterprise to have the benefit of the public listing. Second-Securities Market (SSM) is the market for small and medium scale enterprises where the listing requirement rules are less stringent and complex. Nigerian Capital Market has enjoyed a phenomenal growth rate in the first twenty years of its inception. It has maintained its operation in the primary and secondary markets. The market capitalization has been grown from N 1.7 billion in 1980 to N 472.9 billion in years 2000. On the other hand the listed companies have grown by 92 in 1980 to 196 at the end of year 2000. In the year 2000, 21 new listing raised N 16.71 billion from the capital market to fund their expansion and development projects (Patike Communication, 2002). Keeping in the views of financial resources of big and small player Unit trust Schemes has been started in the market for the purpose mobilization of the funds. The retail customer can achieve maximum return with minimum risk on their investment. At present there are 14 Unit Trust Operation in the Nigerian market. Major Participant in the Nigerian Capital Market (Uka Eznewe, 2003) The Securities and Exchange Commission (SEC), it is the apex body and responsible for the overall law and regulation of the entire market. The Nigerian Stock Exchange (NSE), it is a self-regulatory body in NCM that supervises and surveillances the operations of the formal quoted market. Market Operators, these consist of the Issuing Houses (Stock broking firms and Merchant Banks), Trustees, Registrars, and Stockbrokers etc. Pension Fund, Insurance Companies, Investors, Unit Trusts (Institutional Investors) and Individuals. The Central Bank of Nigeria (CBN). The Federal Ministry of Finance Development FinanceÂÂ ¿Institutions (DFIS) To contribute the development of some specific sectors of the economy some specialised banks or development finance institutions (DFIs) were established. For enhancing the operation and effectiveness of the DFI a lot of structural changes have been made and most of the DFI has been merged and restructured. The Bank of Industry (BOI) and the Nigerian Agricultural Co- operative and Rural Development Bank (NACRBD) are result of merger and restructuring of the various DFIs. These two banks are engaged in agricultural development related activities and provide soft loans to industries related to agriculture. Federal Mortgage bank (FMB), Urban Development Bank (UDB) and Education Bank (EB) are some of the other existing DFI to cater the sector specific need as specified by their name. Other Financial Institutions and Funds Apart from banking institutions there are other non-banking institutions within the financial system. These institutions play an important intermediating role. Some of these institutions are as follow: Insurance Companies Insurance companies are combination of life and non-life and of those which are engage in both types of activities. There are some reinsurance firms also. The investments made by insurance companies are basically in government organization and Mortgage funds. They play a role of financial intermediary and mobilize the fund relatively for a long term. In the past decade a significant growth in the insurance industry has been observed. The sourced fund are mainly from reduction in outgoing and other assets, if calculate their contribution stand for 80.8 % of the total fund value. The insurance cover for insurance companies is provided by the National Insurance Commission. Other function of National Insurance Commission includes helping the government in attaining its economical and social goal in the areana of insurance and re-insurance. It is mandatory for all the registered insurance companies in Nigeria to park 20 % of their annual premium collected with the National Insurance Commi ssion. Finance Companies Finance companies are private or publicly owned institutions that focus in short-term, non-banking intermediation. They collect the fund from public and mobilize it by investing it in public. They channelize it through borrowing, facilitate Local Purchase Order (LPO), debt factoring, project financing and equipment leasing etc. These finance companies are controlled and supervise by CBN. BOFI act has given the power to CBN to tackle any issue related to finance companies (Odoko, 2004). Bureaux de Change Authorised since 1989 the Bureaux de change has been in lieu of to expand the foreign exchange market and to ameliorate the process and function to access the foreign exchange especially for small enterprise and users. Today there are more than 240 licensed Bureau de changes are operating in the Nigerian economy. Exchange Control Regulations In Nigeria foreign exchange transaction are taken place at the autonomous foreign exchange market. The royalties and technical fees are payable on imported technical services while on the same time profit, unconditional repatriation of capital and dividends are allowed. The disposal of assets from a repatriation of proceeds is allowed (Issac Dada, 2003). Primary Mortgage Institutions (PMIS) All the primary mortgage institutions are requiring operating within the set guideline of act no 53 of 1989. The saving are mobilize towards the development of housing societies by PMI. The total asset/liabilities outstanding were increased to the level of N 7248.2 million in 1999. To check it and make correction and to rectify it the Federal Mortgage bank of Nigeria tightened its surveillance of PMIs by issue Clean Bill of Health to 116 institutions which deal in mortgage. As a result the new criteria for primary mortgage institutions to have a share capital of at least not less than N 20 Million. Nigerian Social Insurance Trust Fund (NSITF) Nigerian Social Insurance Trust fund (NSITF) s designed to replace the defunct National Provident Fund (NPF). NPF was a compulsory pension scheme to the non-governmental employee or non-pensionable public servants who works in private sectors. The main objective of this fund to adopt a more comprehensive social securitys of the employee who work in the private sectors organizations. The basic purpose behind the creation of this fund is to keep the interest of private employees. Organizations which having at least a staff of 25 people or more than that it is compulsory for them to register under NSTIF. Employee contribution in NSTIF is around 2.5 % of their basic salary while the employer contribution is around 5 %. When the employee gets retired they got pension and other benefit from this corpus and they got a handsome return on the same also. The financial System of Nigeria has undergone some remarkable changes in the past few time. Various developmental action has been taken place some of these developments include the promulgation of the Failed Banks (Recovery of Debt) and Financial Malpractice in Banks Decree No. 18 of 1994. Creation of Financial Services Regulatory Coordinating Committee (FSRCC) by the CBN in 1994 is another major step. The agenda behind these changes is to coordinate and standardize the regulatory practices of all financial institutions in the system with a view to evolving coherence and comprehensiveness. The forbearance is granted by CBN to finance companies operating in Nigeria whereby they were given a maximum of four years to amortize their classified assets portfolio against their current profits (Charles R Ghiest, 1988). The financial system of Nigeria has observed some significant changes in recent times. It consist the announcement of the failed banks (recovery of debt) and the malpractices which are taking place in the financial markets. The most crucial development was the establishment of the Financial Services Regulatory coordination Committee (FSRCC) by the CBN in 1994. The basic aim behind this to coordinate and restructure the all financial institutions which are available in the systems. A comprehensive picture of the financial system can be prediction could become possible with the help of FSRCC. The financial companies which are operating in Nigeria forbearance has been granted by the CBN. Their asset portfolio should only be against their current profits. Managing Insurance Business A Peep into The Future The present time phase is indeed both interesting and on the same time is challenging for Nigerias insurance industry. Till few year back its was like a Beautiful Bride and luring to both local and foreign investors. It was flourishing very high and the risk base was low. In 2008 a hike 24 % has been observed in the insurance index of FSDH. Now the sector is getting more complex and competitive as new players are coming into that and they are fighting for the same share pie. The regulatory framework became more stringent and complex. The insurance service providers are obliged to work under the given guidelines. There is no free lunch in this world (J. Onoho, 1980). Recent Past The instruction made by Central Bank of Nigeria In 2004, to the banks to re-capitalize by the end of 2005 to a minimum of N25billion (about USD20million). It leads to the emergence of 25 banks which was a tough requirement at that time. Today no less than six bank out of these bank are having paid-up capital more than N 500 Billion. It can be easily inferred from this higher level of capitalization which paced the economic activities in Nigeria. Banks have also shown their active participation in insurance sector. In 2006, new capitalisation rules were also introduced in the insurance industry N2billion for Life and N3billion for Non-Life business, this was from a base of N150million and N250million respectively. 49 companies met this requirement through business consolidations and a much wider equity ownership. GDP per capital in Nigeria increased from USD 800 (2006) to USD1,300 (2007). The increase in the All Share Index was 38% in 2006 and 75% in 2007. However, Life, Health and Household insurance premiums accounted for less than 0.3% of our GDP in 2006/7. It thus seems that there are significant opportunities to deepen insurance penetration if acceptable products can be designed and appropriate marketing programmes embarked upon new capital will help finance these development needs. A peep into the future Business growth and wider ownership structures will likely lead to (management) reporting challenges in the future. Quality people and adequate information systems need to be acquired to administer, manage and report on the increased business volumes. Shareholders will require more frequent and accurate information on the business trend and their worth. Hence operating ratios, the calculation of technical reserves and declared underwriting profits will be under more scrutiny than hitherto (Cottarelli, 1997). We illustrate below issues we believe management will in future, need to communicate in details to stakeholders shareholders, investment analysts, rating agencies, and the regulator. We believe potential and current shareholders will wish to be appraised as in other industries of how the business `adds up and what efforts are being put in place to ensure value/worth is not eroded. Put another way, insurers will have to demonstrate how they manage risk! Risk Management In our view, risk management will be a major contributor to the successful future of the insurance sector. Management will need to constantly review the adequacy of the premium rates, underwriting policies and (Know Your Client) KYC enquiries, reassurance programmes, investment policy, operating systems, processes, people etc. We believe stakeholders will require companies to establish risk management principles to identify the sources of business risk and install processes that will mitigate the risks jeopardising business objectives and Shareholders worth. We give below some examples of risk and mitigating actions (Schroeck, 2002). Type of Risk Example Some Mitigating Actions Market Risk An adverse change in asset market values without a corresponding change in liability values. Have a formal asset distribution policy, define sartorial distribution, and stock selection criteria. Match assets to liability profile. Interest Risk A change in the discount rate adopted in calculating liability values without matching changes in asset values. Prudential Reserving Approaches Insurance Risk An increase in mortality experience (e.g. group life). An increase in life expectancy (annuity business). Increase/decrease policy lapses etc. Anticipate potential changes through prudential reserving Operational Risk Inadequate premiums ICT failures Failure to reassure Inadequate staff Review Rates Document ICT processes, external backup sites, maintenance etc Review administrative processes Train staff, review recruiting and remuneration policies Credit Risk Failure of reassure Failure of debtors (debt security/large broker/agent) Have operational and financial criteria for choosing reassures and debt securities Liquidity Risk Failure to meet obligations due to cash flow strains or having illiquid assets. Asset liability matching Secure adequate banking arrangements etc. Embedded Value The change in end year reserves directly impacts the declared underwriting profits and by implication the overall business profits, dividends and shareholders worth. We anticipate that reserve calculation methods and their adequacy will in future need to be justified to stakeholders. The calculation methods will have to be scientific, independent of management and be in line with best global practice (Carey, 2006). As in other territories we perceive stakeholders will require Shareholders Worth to be expressed as the Embedded Value (EV), which essentially is The Adjusted Net Asset Value (NAV) balance sheet NAV if assets and liabilities are expressed at their fair values The estimated future profits to shareholders from the business currently in force. Typically, the EV will exceed the normally reported NAV. Companies are beginning to privately calculate their EVs in Nigeria and we expect that as insurance market analysts and financial consultants get increasingly involved in the insurance sector, demands for companies published EVs will increase as is happening in Asia, Australia, Europe and the Americas. Economic Capital We foresee businesses/managers in the near future enquiring of the amount of Capital actually needed to be dedicated to insurance business to reflect the projected business mix and growth over a review period (typically 1 year). This capital, called the Economic Capital, will reflect the entitys risk appetite and will, for instance, differ for identical companies with different reassurance programs (Schztz, 1997). In Nigeria, where capital requirements are presently high in comparison to technical liabilities the concept of economic capital will immediately be useful for the investment management of the Shareholders Funds. A relatively risk free approach could be adopted for the investment of the economic capital whilst a more risky approach may be adopted for the balance of funds, reflecting the degree of the enterprises risk adverseness. We anticipate the latter half of 2008 and, particularly 2009 to herald significant changes in the insurance sector (Onosode, 1993). Management making significant investments in operating systems and people Active new Product development efforts More educative and aggressive marketing efforts Significant business expansions occurring in 2009 A relative influx of foreign potential core investors Improved financial reporting, especially a shift to EV reporting Increased regulatory alertness/requirements. The current rules based approach to capitalisation and reserves may yield to a principles based approach. It has been estimate that 2010 will be the year of the `big bang with Life, health and household insurance premium incomes exceeding 1% GDP and at least three (3) insurance companies recognised as being leaders in Nigerias financial services sector. Reforms in the Insurance Industry The Government of Nigeria in view of keeping the confidence of common man and organization in the market and to enhance the insurance industry has taken some reformative action . it include the process of recapitalisation and consolidation. As to remain competitive in the global world these are desperately required. After the reform new bigger and stronger player come into the existence which can fight in a global environment with the other foreign companies. Post reform the Nigeria insurance industry works on a small marginal scale. Which restricted the growth of the market and the organization as the profitability is low and premiums are high. It can specially be referred in the context of oil and energy business. The government feel there is immense potential in the field of insurance industry if some corrective measure to be taken. The absence of private and public developmental infrastructure also hindered the growth of insurance industry in Nigeria. There is a vision 2020 determined by the Nigerian government for insurance sector which shows the future of the market and some prediction has been made about the industry. The vision was focused towards the choices available among the emerging market. To be count in the top 20 insurance market in the world Nigerian insurance market is require to be attain more efficiency and safety measure, more transparent and a higher market penetration and capacity. Keeping the view of vision 2020 the reforms in the insurance industry being developed so that the bigger and stronger player can emerge which can in turn fight with the global competition and trends. While there scale of operation will be large and can bear the any uncertainty in more professional way (Mehta, 1990). Okechukwu Chukwulozie, talked on the reforms in insurance industry that One of the major task faced by the NAICOM is to the increase the market charming of the share of insurance companies. So that the individual and corporate house can feel the insurance companies share more attractive than others. According to him it is prerequisite for NAICOM to increase the awareness in the public about the insurance companies, to publish the great financial performance attained by the insurance companies. It will lead to the confidence building in the public hence will lead to the purchase of insurance and their companies shares. Later on it will have ripple effect. He emphasized on the reformative active action has to settled as soon as possible as companies have to accept the reality and look for a bigger picture by compromising on their personal objectives for short term. According to him Oil and Gas insurance business is the most important for Nigerian Insurance Industry. Though the industry has made a remarkable progress in this regard but it still require the co-operation from the NNPC. According to Okechukwu Chukwulozie the future of insurance industry in Nigeria is very bright and it looks more promising as the government enforce 45 % local content policy in Oil and Gas industry. Also the insurance companies are having their own committee which are run by the representative of the relevant stakeholders which look after the interest of all working projects. With the government enforcement of 45 % local content policy the insurance industry is expected to boost up by over USD 400 million in the coming two year. This phenomenon wills not just only the profit for the coming years but also throw up new challenges and opportunities. Some more researched and calculative action has to be taken in lieu of strengthening of insurance industry of Nigeria. (Edwin, 2005). The task in front of insurance industry is to build up a Sovereign Trust franchise at local and international level. A more strategic partnership is requiring with the West African Sub-region. The privatization or partial privatization is welcomed for ill unites and non-performing erstwhile public companies. Nigeria is a rapidly developing economy is experiencing the entry of foreign companies in the domestic market in telecommunication, banking, energy and petroleum which will further fuel the competition. Economic Capital Shareholders Real Worth Reported Profits + Dividend Policy True Underwriting Profits Technical Reserves (Calculation Method) Risk Management Policies