ANALYSIS OF FINANCIAL
STATEMENTS OF “GlaxoSmithKline”
Pakistan
PREPARED BY:
AAMIR HAYAT
& CLASS MATES
CONTACT: +92-314-5561080
Submitted to:
Prepared by:
Aamir Hayat &
Class Mates
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
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
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
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 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
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
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
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.
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.
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.
Coverage Analysis
1.12 Debt to total assets:
______Debt _
Total assets
Note: that company is equity based but we used current liabilities as debt to compute this ratio.
Total Liabilities
Total Shareholder’s Equity-Intangible Assets
EBIT
Interest
As mentioned earlier company is equity based so there is no long term debt and no interest
liability.
Investor’s Analysis
1.19 Degree of Financial leverage:
EBIT
EBT
Profitability Analysis
1.26 Net profit margin:
Net profit
Net sales
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.
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
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:
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:
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:
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
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.
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:
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