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GRADUATE SCHOOL OF MANAGEMENT

INTERNATIONAL ISLAMIC UNIVERSITY


ISLAMABAD

ANALYSIS OF FINANCIAL
STATEMENTS OF “GlaxoSmithKline”
Pakistan

PREPARED BY:

AAMIR HAYAT
& CLASS MATES
CONTACT: +92-314-5561080

STUDENTS OF INTERNATIONAL ISLAMIC


UNIVERSITY ISLAMABAD
Analysis of Financial Statements
of Glaxo Smith Kline Pakistan
From Years 2004-2008

This study covers five years liquidity, leverage,


profitability and investor’s point of view analysis of
Glaxo Smith Kline Pakistan which is equity based
pharmaceutical company. We performed this task
with kind help, guidance and value able knowledge
delivered by our respected teacher Sir .Muhammad
Arif Malik.

Submitted to:

Sir. Muhammad Arif Malik

Prepared by:
Aamir Hayat &
Class Mates

Class MBA 20c

Date:
December 31, 2009

GRADUATE SCHOOL
OF MANAGEMENT

INTERNATIONAL
ISLAMIC UNIVERSITY
ISLAMABAD.
Introduction

GlaxoSmithKline Pakistan

It was created on January 1st 2002 through the merger of SmithKline and French of
Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan) Limited-
standing today as the largest pharmaceutical company in Pakistan

GSK Pakistan operates mainly in two industry segments: Pharmaceuticals (prescription


drugs and vaccines) and consumer healthcare (over-the-counter- medicines, oral care and
nutritional care).

Some of key brands of GSK include Augmentin, Panadol, Seretide, Betnovate, Zantac
and Calpol in medicine and renowned consumer healthcare brands include Horlicks, Aquafresh,
Macleans and ENO.
Contents
Activity Analysis.........................................................................................................6
1.1 Current Raito: ...................................................................................................6
1.2 Acid Test Ratio:.................................................................................................7
1.3 Cash Ratio:........................................................................................................8
1.4 Receivable turnover ratio:.................................................................................9
1.5 Receivable turnover in days:...........................................................................10
1.6 Inventory turnover:.........................................................................................11
1.7 Inventory turnover in days:.............................................................................12
1.8 Day’s sales in Inventory:.................................................................................13
1.9 Operating cycle:..............................................................................................14
1.10 Working capital:............................................................................................15
1.11 Sales to working capital:...............................................................................16
Coverage Analysis....................................................................................................17
1.12 Debt to total assets: ....................................................................................17
1.13 Debt to equity ratio:......................................................................................18
1.14 Long term debt to total capitalization:..........................................................19
1.15 Current liabilities to equity ratio:...................................................................20
1.16 Debt to Tangible Net Worth:..........................................................................21
1.17 Time Interest Earned:....................................................................................22
1.18 Fixed Charge Coverage:................................................................................22
Investor’s Analysis....................................................................................................23
1.19 Degree of Financial leverage:........................................................................23
1.20 Earning per share:.........................................................................................24
1.21 Price earnings ratio:......................................................................................25
1.22 Payout ratio:..................................................................................................26
1.23 Percentage of Earnings Retained:.................................................................27
1.24 Dividing yield: ...............................................................................................28
1.25 Book Value per Share:...................................................................................29
Profitability Analysis.................................................................................................30
1.26 Net profit margin:..........................................................................................30
1.27 Gross profit margin:.......................................................................................31
1.28 Return on assets:..........................................................................................32
1.29 Total assets turnover ratio:...........................................................................33
1.30 Du pont analysis:...........................................................................................34
1.31 Return on fixed assets:..................................................................................35
1.32 Operating Income Margin:.............................................................................37
1.33 Operating Assets Turnover:...........................................................................39
1.34 DUPONT Analysis:..........................................................................................40
1.35 Return on investments:.................................................................................41
1.36 Return on common Equity/ Return on total equity:.......................................42
Vertical and Horizontal Common Size Analysis ........................................................43
1.37 Vertical Analysis of Profit and Loss Account:.................................................43
1.38 Vertical Analysis of Liabilities Side Balance Sheet:........................................45
1.39 Vertical Analysis of Assets Side Balance Sheet:............................................46
1.40 Horizontal Analysis of Profit and Loss Account:.............................................49
1.41 Horizontal Analysis of Liabilities Side Balance Sheet:....................................50
1.42 Horizontal Analysis of Assets Side Balance Sheet: .......................................52
Conclusion:...............................................................................................................54
Activity Analysis
1.1 Current Raito:
Current assets____
Current liabilities

Year 2004 2005 2006 2007 2008


4.56 times 5.1 times 4.42 times 4.27 ties 4.11 times

Current ratio is indicator of short term debt paying ability of the company. Over the years
company is showing almost constant trend except year 2005 in which company showed slight
improvement in its current debt paying ability. But in year 2008 company is showing lower
figure then past four years so there is need of careful measures in order to avoid further
deterioration.

Supporting calculations:
Year 2004 2005 2006 2007 2008
4969887/ 6519159/ 7530354/ 7520402/ 7970061/
1091980 1266695 1703806 1761218 1937662

1.2 Acid Test Ratio:


Current assets – inventory – prepaid expenses
Current liabilities

Year 2004 2005 2006 2007 2008


3337579/ 4546206/ 5334947/ 5243277/ 4476007/
1091980 1266695 1703806 1761218 1937662
Ratio 3.1 times 3.58 times 3.13 times 2.97 ties 2.31 times

Acid test ratio is also an indicator of short term liquidity of the company. Company
showed positive tend in year 2005 in comparison to previous year but showed slight decrease in
year 2006 and further decrease in year 2007. But in year 2008 company is showing considerable
decrease in short term liquidity. In nut shell company is showing deterioration from year 2005,
so company should take measures to improve short term liquidity.
1.3 Cash Ratio:

Cash& cash equivalents + marketable securities


Current liabilities

Year 2004 2005 2006 2007 2008


3054057/ 4180344/ 4765570/ 4351044/ 2880408/
1091980 1266695 1703806 1761218 1937662
Ratio 2.19 times 3.3 times 2.79 times 2.47 times 1.49 times

Cash ratio is more conservative way to view the liquidity of the firm. As shown by graph
company improved its position in year 2005& 2006 in comparison to year 2004. But from year
2005 onwards company is showing continuous decrease in its short term liquidity and in year
2008 it is at its lowest position. So company should take measure to improve its position other
wise according to trend it will show further decrease in its short term liquidity.
1.4 Receivable turnover ratio:
Net Sales
Avg. Gross Receivables

Year 2004 2005 2006 2007 2008


8866959/ 9416881/ 10088247/ 10610882/ 13403224/
33407 64881 84697 116847 1016968
Ratio 265.42 times 145.14 times 119.11 times 90.81 times 13.18 times

Account receivable turnover ratio shows that “how many times receivables are converted
into cash during a year”. Company is showing very sharp decrease in receivable turnover. As
compare to year 2004 company is showing very sharp negative trend and there is very severe
need for improvement.
1.5 Receivable turnover in days:
Gross Receivable X 365
Net Sales

Year 2004 2005 2006 2007 2008


33407 X 365 64881 X 365 84691 X 365 116847 X 365 1016968 X 365
8866959 9416881 10088247 10610882 13403224
1.38 days 2.51 days 3.06 days 4.02 days 27.69 days

Account receivable turnover in days shows “how many days it take to collect cash of sale
proceeds”. In year 2004 company was collecting its cash in less then two days period but over
the years company is showing decrease in performance and in year 2008 company is collecting
its cash in almost 28 days. So there is severe need of improvement as well.
1.6 Inventory turnover:
Cost of goods sold
Avg. inventory

Year 2004 2005 2006 2007 2008


5361319/ 5570494/ 6221531/ 6658753/ 9547619/
1632308 1862631 2084180 2236291 28856145
3.28 times 3.09 times 2.99 times 2.98 times 3.31 times

Inventory turnover shows “how many times inventory is converted into cash during a
year”. In other words it indicates the liquidity of the inventory. In comparison to year 2004
company is showing poor performance in next years 2005 and 2006 and also in 2007, but in year
2008 company overcome the problem and out performs because it is showing better performance
then year 2004 even. There is need to continue this kind of performance in future.

1.7 Inventory turnover in days:


Avg. inventory X 365
Cost of goods sold

Year 2004 2005 2006 2007 2008


1632308 X 365 1802631 X 365 2084180 X 365 2236291 X 365 2885614.5 X 365
5361319 5570494 6221581 6658753 9547619

111.13 days 118.12 days 122.27 days 122.58 days 110.32 days

Inventory turnover in days shows “How many days it takes to sell inventory”. Company
is showing continuous negative trend in comparison to year 2005, 2006 and 2007.but Company
out performed in year 2008 because it is showing better performance then year 2004 even. There
is need of continuity in performance which company showed in year 2008.

1.8 Day’s sales in Inventory:


Ending inventory X 365
Cost of goods sold

Year 2004 2005 2006 2007 2008


1632308 X 365 1972953 X 365 2195407 X 365 2277175 X 365 3494054 X 365
5361319 5570494 6221581 6658753 9547619
111.12 days 129.28 days 128.79 days 124.8 days 133.58 days
Day’s sale in inventory shows “How many days it takes to sell current inventory”.
Company is showing continuous deterioration in performance over the years. Company slightly
improved its performance in year 2006&2007 in comparison to previous year but showed poor
performance in year 2008 again so there is need of improvement in performance and company
should take measures to improve its performance.

1.9 Operating cycle:


Inventory turnover in days + receivable turnover in days

Year 2004 2005 2006 2007 2008


111.13+1.38 118.12+2.51 122.27+3.06 122.58 + 4.02 110.32 + 27.67

112.51 days 120.63 days 125.33 days 126.6 days 138.01 days
Operating cycle shows “How many days it takes to sell inventory and collect cash of sale
proceeds”. Company is showing continuous decrease in performance because company is taking
more and more days to complete this cycle. There is also a need of improvement.

1.10 Working capital:


Current assets – current liabilities

Year 2004 2005 2006 2007 2008


4969887 – 6519159 – 7530354 – 7520402 – 7970031-
1091980 1266695 1703806 1761218 1937662
3877907 5252464 5826548 5759184 6032399

Working capital is an indication of short term solvency of company. Company is showing


continuous improvement in terms of working capital in comparison to year 2004 except year
2007 which is showing slight decrease. There may be idle funds that should be put into some
profitable operation.

1.11 Sales to working capital:


Sales________
Avg. working capital

Year 2004 2005 2006 2007 2008


8866959 9416881 10088247 10610882 13403224
3877907 4565186 5539506 5792866 5895792
2.29 times 2.06 times 1.82 times 2.87 times 2.27 times
Sale to working capital gives an indication of the turnover in working capital per year.
Company showed decrease in performance in year 2005& 2006 in comparison to year 2004. But
company showed reasonable increase in performance in year 2007 and then again a reasonable
decrease in year 2008. lower sales to working capital ratio mean less profitable use of working
capital while higher ratio shows more profitable use of working capital.

Coverage Analysis
1.12 Debt to total assets:
______Debt _
Total assets

Year 2004 2005 2006 2007 2008


1317036 1522549 1906904 2046868 2270734
6865190 8260511 9443822 10164509 10625625

19.18% 18.43% 20.19% 20.13% 21.37%


Debt to total assets ratio shows how much asses are financed by borrowed money.
Company showed better performance in year 2005 as compare to previous year. From year 2006
and onward company is showing slight decrease in performance as compare to previous years
and in year 2008 almost 21% assets are financed by borrowed money as compare to 20% in
2007.

Note: that company is equity based but we used current liabilities as debt to compute this ratio.

1.13 Debt to equity ratio:


Debt___
Equity

Year 2004 2005 2006 2007 2008


1317036 1522549 1906904 2046868 2270734
5548154 6737962 7536918 8117641 8354891
23.74% 22.60% 25.53% 25.21% 27.72%
Debt to equity ratio determines entity’s debt paying ability. It shows how well the
creditors are protected against insolvency. Company is showing continuous decrease in
performance except year 2005 in which company showed better performance in comparison to
previous year. Management should take measures to improve performance.

1.14 Long term debt to total capitalization:

Long term debt____


Total capitalization

Year 2004 2005 2006 2007 2008


225056 255854 203098 285650 333072
5773210 6963816 7740016 8403291 8687963
3.89% 3.67% 2.64% 3.39% 3.83%
Long term debt to total capitalization ratio shows how much debt company is using in
comparsion to tottal capitalization of the company. As this company is equity based so we have
calculated this raio on the basis of current debt of the company. Company’s debt decreased in
year 2005 in comparsion to previous year and it furthur decreased in year 2006 in comparsion to
year 2005. After year 2006 company is showing increase in debt in years 2007&2008. Despite of
this slight increase in debt company is in strong position to pay ots debts.

1.15 Current liabilities to equity ratio:


Current liabilities
Equity

Year 2004 2005 2006 2007 2008


1091980 1266695 1703806 1761218 1937662
5548154 6737962 7536918 8117641 8354891
19.68% 18.79% 22.60% 21.69% 23.19%
Current liabilities to totoal equity raio shows the percentage of liabilities of the firm in
comparsion to its equity. This also indicate the debt paying ability of the company. Company is
showing slight decrease in current liabilities in year 2005 in comparsion to year 2004. But it is
showing significant increase in libilities in years 2006&2008 with a slight decrease in year 2007
in comparsion to year 2006. We can say that company is in position to pay its current liabilities
and it is capable of meeting its cuuent liabilities.

1.16 Debt to Tangible Net Worth:

Total Liabilities
Total Shareholder’s Equity-Intangible Assets

Year 2004 2005 2006 2007 2008


1317036 1522549 1906904 2046868 2270734
5548154-0 6737962-0 7536918-0 8117641-0 8354891-0
23.74% 22.60% 25.53% 25.21% 27.72%
Debt to tangible net worth is more conservative way to look at debt paing ability of the
company. Company is showing continuous increase in its debs except year 2005 in which
company showed slight decrease in comparsion to year 2004. But as whole company is in
position to cover its debt because these are only short term debts. So we can say that company is
capable of covering its debts, but management should take measures to keep current liabilities at
some constant point.

1.17 Time Interest Earned:

EBIT
Interest

As mentioned earlier company is equity based so there is no long term debt and no interest
liability.

1.18 Fixed Charge Coverage:

EBIT+Interest Portion of Lease Rentals______


Interest + Interest Portion on Lease Rentals

Note: Company is equity based so these ratios do not exist.

Investor’s Analysis
1.19 Degree of Financial leverage:

EBIT
EBT

Year 2004 2005 2006 2007 2008


2147886 2707645 2651185 2670093 3077899
2147886 2707645 2651185 2670093 3077899
1 Times 1 Times 1 Times 1 Times 1 Times
The degree of financial leverage is the multiplication factor by which the net income
changes as compared to the change in EBIT. As the company is equity based so it shows 1
degree of financial leverage. It means that the company was not in a position to use any debt.
The financial leverage from 2004-2008 between 1 to 1 indicates that as earnings before interest
changes, net income will change by 1 times that amount. If earnings before interest increase, the
financial leverage will be favorable.

1.20 Earning per share:

Net income – preference share dividend:


Common shares out standing

Year 2004 2005 2006 2007 2008


1471285000 -0 1813668000 – 0 166496300 – 0 1670525000 – 0 1955187000 – 0
109226800 109219980 136537475 170671844 170671844
13.47 per share 16.60 per share 12.19 per share 9.8 per share 11.46 per share
It shows the amount of net income earned on a share of common stock during an
accounting period. It applies only to common stock and to corporate income statement. As per
the above table, the earning per share increases between 2004-2005, from 13.47 per share to
16.60 per share. This shows profitable opportunities of earnings for company in 2005. But
earning per share ratio decreased between 2005-2007 and then slightly increased in 2008. In
2007 the earning per share ratio is 9.7 per share, which shows less profitable opportunities for the
company. So overall, in 2005 the company’s earnings is 16.60 per share, where as in 2007 the
company’s earnings is 9.7 per share which is unprofitable for the company.

1.21 Price earnings ratio:


Market price per share
Earnings per share

Year 2004 2005 2006 2007 2008


181/13.47 186.3/16.60 157.9/12.19 192.4/9.8 75.9/11.46
13.4 times 11.2 times 12.9 times 19.5 times 6.6 times
Price earnings ratio expresses the relationship between the market price of a share of
common stock and that stock’s earnings per share. The above table shows that the price earnings
ratio has been decreased between 2004-2005 from 13.4 Times to 11.2 Times. This is due to
increase in market price as well as earning per share. And the ratio has been increased between
2004-2005 and after wards decreased between 2005-2008. This shows that the company has less
profitable opportunities in 2007 and 2008 as compared to 2004 and 2006. 2006 is considered to
be good year for the company. But 2008 is considered to be the worst year for the company.

1.22 Payout ratio:


Dividend per share
Earnings per share

Year 2004 2005 2006 2007 2008


7/13.47 8/16.60 8/12.19 7.5/9.8 9.5/11.5
51.97% 48.19% 65.62% 76.60% 82.26%
The dividend payout ratio measures the portion of current earnings per common share
being paid out in dividends. The ratio has been continuously increased between 2004 to 2008.
This shows the profitable opportunities for the short term investors. But this shows the
unprofitable opportunities for long term investors. This is due to the dividend per share. It means
that the company has not in a position to operate the profitable projects.

1.23 Percentage of Earnings Retained:


Net Income – All Types of Dividend
Net Income

Year 2004 2005 2006 2007 2008


1813668-874400 1664963-1092296 1670525-1280040 1955187-1621384
----- 1813668 1664963 1670525 1955187
----- 51.78% 34.43% 23.37% 17.07%
It shows how much percentage of earnings the company retained after distributing the
dividends to the shareholders. The above table shows that the ratio gas been decreased between
2005-2008, which means that the company pays all most all of its earnings as dividends this is
due to the payout ratio in 2008. So in 2005 the ratio is 51.78% and in 2008 the ratio is 17.07%.
Which means that the 2008 is bad year for the company.

1.24 Dividing yield:


Dividind per share
Market price per share

Year 2004 2005 2006 2007 2008


7/181 8/186.3 8/157.9 7.5/192.4 9.5/75.9
3.86% 4.29% 5.06% 3.89% 12.51%
The dividend yield indicates the relationship the dividends per common share and the
market price per common share. As per the above table shows the ratio has been increased
between 2004-2006 from 3.86% to 5.06%. This shows the positive trend for the company. It also
shows the profitable opportunities for the company. But the ratio has been decreased between
2006-2007 from 5.06% to 3.89%, and the ratio suddenly increased in 2008 i.e., 12.51%. This
shows that the company has less profitable opportunities in 2004 and 2007.

1.25 Book Value per Share:

Total Equity-Preferred Equity


No. of Shares of Common Stock Outstanding

Year 2004 2005 2006 2007 2008


----- 6737962-0 7536918-0 8117641-0 8354891-0
109300 136537 170672 170672
----- Rs.61.64 Rs.55.20 Rs.47.56 Rs.48.95
Book vales per share indicates the amount of stockholder’s equity that relates to each
share of outstanding common stock. The above table shows that the book value has been
decreased between 2005 to 2007 from Rs.61.64 to Rs.47.56. This shows that the book value of
the company is higher in year 2005 but the book value has been decreased in 2007 and 2008.
This shows the positive trend in 2005 and 2006 as compared to years 2007 and 2008.

Profitability Analysis
1.26 Net profit margin:
Net profit
Net sales

Year 2004 2005 2006 2007 2008


1471285 1813668 1664963 1670525 1955187
8866959 9416881 10088247 10610882 13403224
16.5% 19.3% 16.5% 15.7% 14.5%

Net profit margin gives a measure of net income generated by each dollar of sales.
Company showed increase in margin during year 2005 in comparsion to year 2004 but after year
2005 net profit margin is countinuously decreasing upto 2008 which is indicator of deterioration
in performance. Management sholud take measures to keep net profit margin high.

1.27 Gross profit margin:


Gross profit
Net sales

Year 2004 2005 2006 2007 2008


3505640 3846387 3866666 3952129 3855605
8866959 9416881 10088247 10610882 13403224
39.5% 40.8% 38.2% 37.24% 28.8%
Gross profit equals the difference between net sales and cost of goods sold. Company is
showing continuous decrease in gross profit margin except year 2005 in which company showed
slight increase in comparsion to year 2004. Management should take measures to increase or at
least keep it at some constant piont.

1.28 Return on assets:


Net income
Avg. total assets

Year 2004 2005 2006 2007 2008


1471285 1813668 1664963 1670525 1955187
6865190 7562851 8855092 9804166 10395067
21.4% 27% 18.8% 17% 18.8%
Return on assets measures firm’s ability to utilize its assets to create profits by comparing
profits with asstes that generate the profits. Company showed increase in return in year 2005 in
comparion with year 2004, but then showed significant decrease in subsequent year i.e.
2006&2007. In year 2008 company is showing increase in return on assets in comparsion to
previous couple of years which is an ary of hope for the company but there is need of continuous
improvement i.e. company should use its aeetes more properly to generate more and more prifts.

1.29 Total assets turnover ratio:


Net sales
Avg. totlas assets

Year 2004 2005 2006 2007 2008


8866959 9416881 10088247 10610882 13403224
6865190 7562851 8855092 9804166 10395067
1.29 times 1.24 times 1.14 times 1.08 times 1.29 times
Total assets tuenover measures the activity of the assets and the ability of the firm to
generate sale through the use of the assets. Company is showing contunuous decrease in return
from year 2004 to year 2007 but then showed a significant increase in year 2008 in comparsion
to previous years. There is continuous varion in return of total assets, this gives an ambigous
indication to investors. So it recommended that management should try keep it at some constant
point.

1.30 Du pont analysis:


Net profit margin X total assets turnover

Year 2004 2005 2006 2007 2008


.165 X 1.29 .193 X 1.24 .165 X 1.14 .157 X 1.08 .145 X 1.29
21.3% 24% 18.8% 16.9% 18.6%
In Du Pont Return on Assets we combine net profit margin and return on total assets to
view the performance of the company. Company showed significant increase in performance in
year 2005 in comparsion to year 2004.then it showed countinuous decrease in years 2006&2007
in comparsion to previous years. In year 2008 company is showing reasonable increase in returns
in comparsion to year 2007. This is also showing ambiguity in performance so management
should try to keep these returns at constant point.

1.31 Return on fixed assets:


Net income
Fixed assets

Year 2004 2005 2006 2007 2008


1471285 181668 1664963 1670525 1955187
1433626 1503102 1774449 2236720 2415255
1.026 1.206 0.94 0.75 0.809
Return on fixed asstes measurs the firms ability to utilize its fixed assets to generate
profits. Company showed increase in rerurn in year 2005 in comparsion to year 2004. In
subsequent years company showed decrease in returns. It means that company did not use its
assets for generating maximum profits during those year. Then in year 2008 company is showing
increase in profit generation as compare to year 2007. There is also a need of consistancy in
performance.
1.32 Operating Income Margin:
Operating Income/EBIT
Net Sales

Year 2004 2005 2006 2007 2008


2147886 2707645 2651185 2670093 3077899
8866959 9416881 10088247 10610882 13403224
24.22% 28.75% 26.28% 25.16% 22.96%

The above trend shows increase in operating income margin from year 2004-05, but there
is a continuous decline in the subsequent years till 2008. Hence it is required to improve the
operating income margin.
1.33 Operating Assets Turnover:

Net sales
Avg Operating Assets

Year 2004 2005 2006 2007 2008


1.079 Times 1.15 Times 1.29 Times 1.42 Times 1.75 Times

This ratio measures the ability of operating assets to generate sales. As the trend shows
the continous increase in the above ratio, i.e sales are increasing due to the profitable utilization
operating assets. So company must attained the trend.
1.34 DUPONT Analysis:

Operating Income Margin X Operating Assets Turnover

Year 2004 2005 2006 2007 2008


25.78% 33% 33.64% 35.57% 39%

This analysis indicates that an increase in operating assets turn over and operating income
margin resulted in an increase in return on operating assets. This is a positive trend and it is
required that company must maintained the current trend.
1.35 Return on investments:

Net income + interest ( 1 – Tax )


Avg ( long term debt + net worth )

Year 2004 2005 2006 2007 2008


1471285 + 0 1813668 + 0 1664963 + 0 1670525 + 0 1955187 + 0
2797927 3388765 3786352 4085698 4208279
52.5% 53.5% 43.9% 41.0% 46.0%

Return on investment applies to ratios measuring the income earned on the invested
capital. This ratio measures the ability of the company to reward those who provide long term
funds to the company. Company showed slight increase in returns in year 2005 in comparsion to
previous year but went down sharply in years 2006&2007. Then in year 2008 company
improved significantly. This increase in returns in year 2008 is providing some hope for further
improvement in performance but there is also a need of cosistancy.
1.36 Return on common Equity/ Return on total equity:

Net income – Dividend of redeamable preference shares


Total equity
(As company has issued only common shares so both ratios are same)

Year 2004 2005 2006 2007 2008


1471285 1813668 1664963 1670525 1955187
5548154 6737962 7536918 8117641 8354891
26.5% 26.9% 22.0% 21.0% 23.0%

Return on total equity measures the retrn to both common and preferred stockholders.
Company provide slightly increased returns to stock holders in year 2005 but then decreased in
two following years i..e. 2006&2007. In year 2008 company company improved its performance
and provided stockholder with increased rteturns. Management should take measures to futher
improve this retrun and there is also a need of consistancy.
Vertical and Horizontal Common Size Analysis

1.37 Vertical Analysis of Profit and Loss Account:


Vertical Analysis of Profit & Loss
Years 2004 2005 2006 2007 2008
% % % % %
Net Sales 100 100 100 100 100
C.G.S 71 63 61.67 62.75 71.23
Gross Profit 29 37 38.33 37.25 28.77
selling, marketing, distribution
Expenses 9.9 11.4 10.44 11.41 9.9
administrative Expenses 3.9 4.6 4.33 4.6 1.55
other operating Expenses 1.55 2.1 2.2 2.11 1.55
other operating income 9.54 6.02 4.92 6.02 9.55
operating profit 23 25 26.28 25.2 22.96
financial charges 0.57 0.11 0.19 0.11 0.57
Profit Before t 22.4 25 26 25 22.39
Taxation 7.8 9.26 9.6 9.26 7.8
Profit after taxation 14.6 15.74 16.5 15.74 14.59
The C.G.S of the company decreases from 2005-07 as compare to 2004, but in 2008
management did not manage C.G.S in 2008, as a result C.G.S increases. Due to decrease in
C.G.S the gross profit also increases from 2005-07 but due to increase in CGS gross profit also
decreases. The profit of the company also increases from 2005-06 due to decrease in CGS and
expenses, but due to increase in CGS company’s profit also decreases slightly. The overall
position of the company is better for the investors.
1.38 Vertical Analysis of Liabilities Side Balance Sheet:
Vertical Analysis Of Balance Sheet
Liabilities
% % % % %
20 20 200 200 200
Years 04 05 6 7 8
Share capital and reserves
Authorized capital
12. 13. 14.4 16.7 16.0
Issued & paid up capital 7 2 6 9 6
68. 68. 65.3 63.0 62.5
Reserves 1 3 5 7 7
Non current liabilites
Staff retirement ben 2.2 1.9 0.70 0.23 0.20
1.1 1.1
Defered taxation 1 8 1.45 2.58 2.94

Current Liabilites
13. 10. 16.9 16.7 17.5
Trade & other paybales 9 8 3 1 7
2.0 4.5
Taxation 1 1 1.12 0.62 0.66
Total Liabilities & Shares
Holder'sEquity 100 100 100 100 100
The Issued & Paid up capital of the company is increases from 2005-08 as compare to
2004. The reserves of the company are in decreasing trend. The reserve decreases from 68% to
62.57% during 2004-08. The company did not manage its Liabilities efficiently due to which
current liabilities of the company increases.

1.39 Vertical Analysis of Assets Side Balance Sheet:

VERTICAL ANALYSIS OF BALANCE SHEET


Assets
200 200 200 200 200
years 4 5 6 7 8
17.3 18.2 18.7 22.0 22.7
Fixed Assets 6 0 9 1 3

0.58
Long Term Loans 0.7 0.48 0.38 0.53 0
0.08 0.06
Long Term Deposits 0.1 5 0.07 0.07 4
1.02 3.41
Investments 5.9 23.2 1 2 1.62
Current assets
stores & spares 0.79 0.6 0.69 1.05 1.09
23.2 32.8
stock in trade 23.8 23.9 5 22.4 8
9.57
Trade debts 0.5 0.79 0.90 1.15 1
Loans and Advances 0.7 0.8 0.58 0.80 1.12
Trade deposits and prepayments 0.6 0.8 0.81 0.83 0.88
Accrued interest 0.3 0.8 2.01 1.08 0.76
0.41
Other receivables 15.9 0.7 8 3.72 1.45
1.04
Investments 0 2.4 9 9.66 1.46
44.4 48.2 49.4 41.8 25.6
Cash & bank balances 9 3 1 4 4
Total Assets 100 100 100 100 100
The fixed Assets of the company increases year by year. It increases from 17.36% to
22.73% of the total assets. The company also taking long term loans which are also increasing
from 2004-08. In 2005 company invests more as compare to 2004, but from 2006-08 the
investment also decreases. The trade debts of the company also increase. From 204-07 there is
small increase in trade debts, but in 2008 there is unexpected change in trade debts. This shows
that company did not efficiently manage its trade debts.
1.40 Horizontal Analysis of Profit and Loss Account:
HOROZONTAL ANALYSYS OF P&L A/C
Years 2004 2005 2006 2007 2008
% % % % %
Net Sales 100 106.2019 113.7735 119.6677 151.1592
C.G.S 100 103.9016 116.0457 124.1999 178.0834
Gross Profit 100 109.72 110.2984 112.7363 109.9829
selling, mkt, dis Expenses 100 86.86008 101.4753 116.6409 128.0185
administrative Expenses 100 103.0864 124.2946 138.4933 148.0241
other operating Expences 100 144.5186 142.257 143.701 133.7169
other operating income 100 186.8044 264.6327 340.8813 682.2745
operating profit 100 126.0609 123.4323 124.3126 143.299
financial charges 100 46.31307 67.5361 40.3832 268.7284
Profit Before Taxation 100 127.1372 124.1866 125.4453 141.6062
Taxation 100 135.9153 149.2139 152.4719 161.3971
Profit after taxation 100 123.271 113.1639 113.5419 132.8898

The sales of the company shows increasing trend from 2004-08. The gross profit of the
company also increasing from 2004-07, but due to unexpected increase in CGS the gross profit
in 2008 decreases. The operating profit of the company also increases due to increases in sales.
The profit of the company also shows increasing trend. Profit increases from 23% to 32% from
2005-08 as compare to 2004.
1.41 Horizontal Analysis of Liabilities Side Balance Sheet:
Horizontal Ananlysis of Balance Sheet
Liabilities
200
Years 4 2005 2006 2007 2008
% % % % %
Share capital and reserves
Authorized capital
195.312
Issued & paid up capital 100 125 156.25 4 195.3124
120.780 137.152
Reserves 100 5 132.031 2 142.2278

Noncurrent liabilities
106.305 44.3130
Staff retirement benefits 100 8 4 15.5579 13.95461
128.160 345.398
Deferred taxation 100 1 180.348 6 410.9519
Current Liabilities
93.7453 167.580 178.058
Trade & other payables 100 1 6 5 195.7662
269.650 76.2745 45.4893
Taxation 100 6 1 6 50.94932
The Issued and Paidup capital of the company increasing from 2004-08. The reserves of
the company also increases from 20.78% to 42.22% as compare to 2004. The payables of the
company also decreased in2005 as compare to 2004., but company did not manage its payables ,
therefore the payables are in increasing trend from 2006-08.
1.42 Horizontal Analysis of Assets Side Balance Sheet:
HORIZONTAL ANALYSIS OF B/S ASSETS
Assets
Years 2004 2005 2006 2007 2008
Non-Current Assets: % % % % %
Fixed Assets(property, plant ,equipment) 100 104.85 123.77 156.02 168.47
Long term loans 100 82.95 75.02 112.70 129.28
Long term deposits 100 96.69 93.93 93.93 93.65
Investments 100 47.13 23.71 85.27 42.25
Current Assets
Stores & spares 100 97.96 120.41 198.59 215.05
Stock in trade 100 120.87 134.50 139.51 214.06
Trade debts 100 194.21 253.53 349.77 3044.18
Loans and Advaces 100 125.25 128.99 161.84 238.13
Trade deposits and prepayments 100 140.60 171.66 189.47 209.75
Accrued interest 100 308.09 877.82 507.98 372.70
Other receivables 100 70.21 111.17 473.07 192.53
Cash & Bank Balances 100 130.46 152.80 139.25 89.22
The fixed assets of the increases from 4.58% to 68.47% in 2005-08 as compare to 2004.
Its shows company is in good position. The percentage of the loan taken by the company
decreases from 2005-06 as compare to 2004, but in from 2007-08 loan of company decreases.
The investment made by the company decreases from 2005-08 as compare to the 2004.
Company did not invests from its reserves. The management of the company is inefficient in
taking receivables from its customers. The trade debts increases from 94.21% to 3044.18%,
which is unexpected increase as compare to 2004.
Conclusion:

Company is showing decline in performance when viewed through liquidity analysis.


Especially years 2006&2007 are showing decline in performance. In year 2008 company is
showing slight improvement in performance. Company’s operating cycle is also increasing
which is also an indicator of detoriation in performance of the company. There is need of
improvement in performance of management. And the company needs to improve its operations
and management to earn more profit.

As mentioned earlier that the company do not have any long term debt liability so we can
say that company have strong ability to repay its current debts, despite of the fact that current
debts of the company are increasing. As the company does not use the interest bearing debts, so
we find only the short term debt ratios. Graph shows that in years 2005 and 2006 the company
debt position is some what good. But in years 2007 and 2008 company’s debt position is not
good. Because these years become bad for the company due to higher financial leverage.

If we see company from investor’s point of view only year 2008 is giving some hope to
investors to make investment in company so company should improve its performance and
should bring consistency in performance to gain investor’s confidence. As the Glaxo Smith Kline
Company is equity based, so its has financial leverage is equal to one. The reason is that the
company is not used the long term debt, so the degree of financial leverage of the company is
one. As we take a look on the investor’s analysis we can say that there is more opportunity for
the investor’s to invest in the company in 2008, but on the other hand 2005 and 2006 are not
going to be good for the investors to invest in the company.

Company is also showing deterioration in profitability and profitable use of assets over
the years. As we take a look on the profitability analysis of the company, we come to know that
in years 2005 and 2006 the profit margins of the company goes up, but on the other hand in 2007
and 2008 the profits of the company going down. But if we look on the returns on fixed assets
and return on assets the company perform well in year 2005. But overall the company’s
performance was very well in year 2005. And the company’s performance was very bad in the
year 2007 and 2008. So 2008 was the bad year for the company in terms of profitability.

Reference:

www.gsk.com.pk
www.google.com

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