Qatar Islamic Insurance Company - Research Proposal Example

Qatar Islamic Insurance Company Introduction The Qatar Islamic Insurance Company (QIIC) was founded in the year 1995 and ever since, it has been rapidly growing. It is one of the leading Takaful companies in Qatar. The company’s policy and principles adhere to Islamic Sharia. The company believes in dynamic work management and innovation, which has resulted in introduction of new products and services and continuous up-gradation of operations. Despite of tremendous local and regional competition, the company has achieved exceptional growth and revenue. The successful management structure of the company is reflected in its financial position and has facilitated flexibility (“History”). The company operations are influenced by Islamic principles and are supervised by Sharia Supervisory Board. The company’s efficiency is expressed in terms of their delivery. According to them, their product and services are accessible from any part of the world. The company claims to deliver satisfaction to its customers by reducing premium value and providing stock dividend. The company offers a wide variety of products to its consumers. Along with life insurance, other services offered range from medical, vehicle, property, accidents to travel. The company also provides insurance facilities for different sectors of business such as, aviation, marine, fright, banking, electronics, computer, construction, engineering, agriculture and energy. Overall, the company provides both commercial as well as personal insurance (“Qatar Islamic Insurance Company”). The company has shown sufficient growth in its profit over the years. Moreover, efficiency of company is expressed by its well-trained professional executives who treat their consumers with utmost priority (“History”). Financial Data of QIIC for 2013 Paid-up capital: QAR 150, 000, 000 Total revenues: QAR 102, 927, 128 Net profit: QAR 70, 883, 926 Total assets: QAR 741,289,506 Shareholders’ Equity: QAR 293,875,218 Market Capitalization (‘000): QAR 1,060,500 Par value per share: QAR 10 Offering price: QAR 70.70 Outstanding shares (‘000): 15, 000 Lead Underwriter: Qatari Shareholding Company (Qatar Islamic Insurance Company) Ratio analysis of QIIC (Source: “Qatar Islamic Insurance Co. – QISI”) Per Share Data Price/ Earnings Ratio: The P/E ratio determine the amount investors are willing to pay for every Qatari Riyal. The P/E ratio of the company and that of the industry are 16.67 and 20.14, which shows that company’s earnings per QAR with respect to rest of the industry is QAR 3.47 higher. Hence, the company has sufficient prospect of growth. Price/ Book value: This ratio represents a comparative measurement and relationship between market price of the stock and its book value. Essentially, it represents the proportion of company’s net assets that is accessible to the shareholders with respect to aggregate sale value of its stock. The benchmark for P/B ratio is 1 and any stock value less than that expresses undervaluation. The P/B ratio of the company and that of the industry shows that both the stocks are overvalued, while that of the industry is higher. The P/B ratio of the company illustrates that in case of solvency of Qatar Islamic Insurance Company, the stock will be valued at 3.84 times of net asset value of the company (Alexander 105-150). Price/ Cash flow ratio: It represents the stock price with respect to cash flow per share. The P/CF ratio is an important indicator of the valuation of stock. While a single-digit value is considered as under-valuation, high values shows potential over valuation. The respective P/CF ratios for QIIC and the industry are 38.17 and 63.79. This implies that both have the propensity towards over valuation. Earning yield: The earning yield ratio determines whether assets are optimally allocated. The ratio shows percentage of every QAR earned by the company that has been invested in the stock. The earning yield ratio of QIIC is higher than that of the industry, which signifies that it is performing better than overall industry (Alexander 105-150). Dividend Dividend yield ratio: Dividend yield can be defined as return on investment per share. It is the ratio of dividend amount paid by the QIIC to its shareholders annually with respect to its share price. The dividend yield ratio of the company is comparatively high, which shows that it pays better dividend over other companies in the industry. Payout ratio: The dividend payout ratio illustrates the relationship between earning and dividend paid per share. In general, a low payout ratio is considered better for a company so that it does not pay more than net income. The ratio analysis of QIIC and that of the industry represents that QIIC has a tendency to pay high dividend to shareholders. Profitability ratio Net Profit Margin: The net profit margin ratio is a useful measure to indicate profitability of a company with respect to other companies in the same industry. A high net profit margin indicates greater profit and better control over cost. The net profit margin of QIIC is 57.14% and that of the industry is 38.15%; this explains that the company has managed its cost more efficiently than other insurance companies in the industry and as a result, enjoys better profitability (Alexander 105-150). Rate of Return Return on Assets: The return on asset shows profitability of a company with respect to the asset. It is a measure that indicates efficiency of a firm in utilizing its asset to earn profit. The ROA of QIIC is 9.48%, while that of the industry is 10.55%. Hence, it can be said that the firm not as efficient as rest of the industry in employing its assets in earning profit. Return on Equity: Return on equity ratio shows that net income that is earned by the firm over its equity capital. ROE of QIIC reflects efficiency of the firm in generating income as a percentage of the shareholders equity. On an average, ROE of the firm is almost same to that of the industry; so, it can be assumed that performance of all companies in the industry is almost same (Alexander 105-150). Financial Strength Current and liquid ratio: The current and liquid ratios are useful to determine liquidity position of a firm or industry. It helps in understanding the firm’s position, whether it is in a position to meet all current obligations with the help of its current asset. While current and liquid ratios of the industry are 1.39 and 1.35 respectively, data relevant to that of QIIC are unavailable. Thus, on an average, it can be assumed that the company may have stable liquidity position. Debt/ Equity ratio: The D/E ratio of the industry is around 17%, while that of the company is 0%. The only possible explanation for this result is that the firm does not support debt financing and is mainly an equity financed company. The standard debt equity ratio should be around 33% as excessive dependence on debt financing is considered unfavorable for a company. The industry ratio of 17.06% is acceptable (Alexander 105-150). Stock Valuation (Source: “Qatar Islamic Insurance Co. – QISI”) (Source: “Qatar Islamic Insurance Co. – QISI”) In the above stock valuation, data has been collected from the QIIC website for six years, 2008-2013. The average market return is calculated by using the formula (P0/P1 – 1). The average return has been collected on a monthly basis. For calculation purpose, excel tools have been used. From the stock evaluation, it has been observed that initial years such as, 2008 and 2009, had positive market return, while the next two years showed negative return. In 2012, and 2013 the return has again improved. Works Cited “History”. QIIC. Qatar Islamic Insurance Company, 2012. Web. 20 May 2014. “Qatar Islamic Insurance Co. – QISI”. Gulfbase. K. Zughaibi & B. Kabbani General Partnership, 2014. Web. 20 May 2014. “QIIC Qatar Exchange Stock”. QIIC. Qatar Islamic Insurance Company, 2012. Web. 20 May 2014. Alexander, Carol. Market models: a guide to financial data analysis. John Wiley & Sons, 2001. Print. Qatar Islamic Insurance Company Q.S.C. “Financial statements and independent auditor’s report.” QIIC, 2013. PDF file. Read More