gsk ratio analysis 2009 2011
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RATIOS ANALYSISOf
GlaxoSmithKline (Pak) LtdSubmitted to:
Miss: - Malika Romeo
Prepared By:Muhammad Mubeen Raza
PROGRAM: BBA
SUBJECT : Financial Management
Company’s Profile
Glaxo Smith kline (Pak) LtdGlaxoSmithKline Pakistan Limited 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
As a leading international pharmaceutical company we make a real difference to global healthcare and specifically to the developing world. We believe this is both an ethical imperative and key to business success. Companies that respond sensitively and with commitment by changing their business practices to address such challenges will be the leaders of the future. 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).
GSK leads the industry in value, volume and prescription market shares. We are proud of our consistency and stability in sales, profits and growth. Some of our key brands include Augmentin, Panadol, Seretide, Betnovate, Zantac and Carpol in medicine and renowned consumer healthcare brands include Horlicks, Aquafresh, Macleans and ENO. Web: www.gsk.com.pk
Mission StatementExcited by the constant search for innovation, we at GSK undertake our quest with the enthusiasm of entrepreneurs. We value performance achieved with integrity. We will attain success as a world-class global leader with each and every one of our people contributing with passion and an unmatched sense of urgency.
Our mission is to improve the quality of human life by enabling people to do more, feel better and live longer.
Quality is at the heart of everything we do- from the discovery of a molecule to the development of a medicine.
GSK Term Report
Glaxo Smith Kline Plc (Gsk) Ratio Analysis Liquidity Ratios
Liquidity ratios measure the company's ability to meet its short-term obligations.
Dec 31, 2009
Dec 31, 2010
Dec 31,2011
Industry Average 2011 Ratio Analysis
Current ratio 1.45 1.25 1.08 1.59
GSK’ current ratio deteriorated from 2009 to 2010 and
from 2010 to 2011.
Quick ratio 1.07 0.92 0.74 1.15
GSK’ quick ratio deteriorated from 2009 to 2010 and
from 2010 to 2011.
Cash ratio 0.56 0.49 0.39 0.69
GSK’ cash ratio deteriorated from 2009 to 2010 and
from 2010 to 2011.
Current Ratio= Current Asset / Current Liability
This shows that in 2009, 10, 11 the company has Rs 1.45, 1.25, 1.08 to pay off the liability of Rs 1 while the industry average is at 1.59 which is definitely not a good sign for the industry as well because the industry might be at trouble and has taken more debts, but comparatively industry is at a good position. Whereas the variation can be clearly seems in the company’s ratios from proceeding years that is just enough to pay off its liability of Rs 1 but this gives not a good picture because the ratio has significantly increased in 2011 but the industry is still leading. The company should reduce its debt and raise its current assets to have a improved current ratio.
Quick Ratio= Current Asset-Inventory / Current Liability
This shows that in 2009, 10, 11 GSK has quick ratio of 1.07, 0.92, 0.74 and industry average is 1.15 which means that both the industry and gsk is having more cash and less inventory. In past three years the ratios of gsk is showing significant declined and it shows that gsk is declining its cash. In 2011 the industry is comparatively at a good position than the company because the company might have more inventories and less cash or the higher liabilities. The company should either decrease its liability or increase the amount of cash or reduce the inventories.
Cash ratio = Total cash assets / Current liabilities
GSK Term Report
A cash ratio of gsk in 2009, 10, 11 respectively 0.56, 0.49, and 0.39 is decreasing frequently and also lesser than the industry average i.e. 0.69. The decreasing Cash Ratio is generally a negative sign for gsk, showing the company is less able to cover its obligations to creditors.
Debt and Solvency Ratios
Dec 31, 2009
Dec 31, 2010
Dec 31, 2011
Industry Average
2011Ratio Analysis
Debt to equity 1.62 1.70 1.86 0.42GlaxoSmithKline PLC's debt-to-equity
ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
Debt to capital 0.62 0.63 0.65 0.30GlaxoSmithKline PLC's debt-to-capital
ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
Interest coverage 11.25 5.12 11.35 15.45
GlaxoSmithKline PLC's interest coverage ratio deteriorated from 2009 to
2010 but then improved from 2010 to 2011 exceeding 2009 level.
Solvency ratios also known as long-term debt ratios measure a company's ability to meet long-term obligations.
Debt to equity = Total debt / Shareholders’ equity
The debt to equity ratios of the gsk in preceding years is frequently increasing and in the current year 2011 it is 1.86 that shows that the company taking more and more debts while the industry average is far better that is 0.42. An increasing Debt to Equity Ratio usually indicates the general operations of the company may become more risky.
2011,= 23,153 / 12,480 (USD $ in millions)
= 1.86
Debt to capital = Total debt ÷ Total capital
2011,= 23,153 / 35,632 (USD $ in millions)
= 0.65
GSK Term Report
Interest coverage = EBIT / Interest expense
The gsk interest coverage ratio decreased in 2010 from 11.25 to 5.12, decreasing Interest Coverage Ratio is usually a negative sign, showing the company is less able to pay its Interest Expense with its earnings. But in year 2011 it increases again to 11.35 and this increasing Interest Coverage Ratio is usually a positive sign, showing the company is more able to pay its Interest Expense with its earnings. Moreover, industry average is at 15.45 that is far better than gsk.
2011,= 13,117 / 1,156 (USD $ in millions)
= 11.35
Short-Term (Operating) Activity Ratios
Activity ratios measure how efficiently a company performs day-to-day tasks, such us the collection of receivables and management of inventory.
DEC 31,
2009
DEC 31,
2010
DEC 31, 201
1
Industry Average
2011Ratio Analysis
Inventory turnover 6.98 7.40 7.07 10.67
GlaxoSmithKline PLC's inventory turnover improved from 2009 to
2010 but then slightly deteriorated from 2010 to 2011 not reaching
2009 level.
Receivables turnover 5.17 6.01 6.17 6.47
GlaxoSmithKline PLC's receivables turnover improved from 2009 to 2010 and from 2010 to 2011.
Payables turnover
15.29
13.26
10.66 13.18
GlaxoSmithKline PLC's payables turnover declined from 2009 to 2010
and from 2010 to 2011.
Working capital
turnover3.69 4.42 4.77 5.80
GlaxoSmithKline PLC's working capital turnover improved from 2009
to 2010 and from 2010 to 2011.
receivable collection
period71 61 59 56
GlaxoSmithKline PLC's average receivable collection period
improved from 2009 to 2010 and from 2010 to 2011.
Inventory turnover = Turnover / Inventories
GSK Term Report
The gsk inventory turnover ratio in 2010 showing an increasing Inventory Turnover 6.98 to 7.40 that indicates gsk is more efficiently able to convert its inventory into sales. But it fall down in 2011 to 7.07 that a decreasing Inventory Turnover indicates gsk is less efficiently able to convert its inventory into sales. Moreover, industry average showed a good picture that is at 10.67 respectively.
2011,= 42,553 / 6,018 (USD $ in millions)
= 7.07
Receivables turnover = Turnover / Trade receivables The gsk accolunt receivable ratios are decreasing frequently that decreasing Accounts Receivable Turnover showed gsk is not successfully executing its credit policies and is slower to turn its Accounts Receivables into cash.2011,
= 42,553 / 6,900 (USD $ in millions)
= 6.17Payables turnover = Turnover / Trade payables
2011,= 42,553 / 3,990 (USD $ in millions) = 10.66
Working capital turnover = Turnover / Working capitalThe gsk working capital turnover ratios are increasing frequently in the preceding years that are 3.69, 4.42 and 4.77 respectively; the increasing Working Capital Turnover is a positive sign, showing gsk is more able to generate sales from its Working Capital. But it’s not good overall because industry average is at 5.80 that showed a good picture and still far better than gsk.2011,
= 42,553 / 8,928 (USD $ in millions) = 4.77
Receivable collection period = 365 / Receivables turnover
2011,= 365 / 6.17 (no. of days)= 59
GSK Term Report
Net fixed asset turnover Total asset
turnover Equity turnover
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
31-Dec-09
31-Dec-10
31-Dec-11
Industry Average 2011
Short-Term (Operating) Activity Ratios
Long-Term (Investment) Activity Ratios:
Activity ratios measure how efficiently a company performs day-to-day tasks, such us the collection of receivables and management of inventory.
Dec 31, 2009
Dec 31, 2010
Dec 31, 2011
Industry Average
2011Ratio Analysis
3.13 4.44Net fixed asset turnover 3.03 3.14
GlaxoSmithKline PLC's net fixed asset turnover improved from 2009 to 2010
but then slightly deteriorated from 2010 to 2011.
GSK Term Report
Total asset turnover 0.66 0.67 0.67 0.57
GlaxoSmithKline PLC's total asset turnover improved from 2009 to 2010
but then slightly deteriorated from 2010 to 2011 not reaching 2009 level.
Equity turnover 2.84 3.19 3.41 1.22
GlaxoSmithKline PLC's equity turnover improved from 2009 to 2010 and from
2010 to 2011.
Net fixed asset turnover = Turnover / (fixed asset – depreciation)
The gsk net fixed asset ratio increased from 3.03 to 3.14 in 2010 from 2009 but in 2011 it slightly decreased to 3.13. An increasing Fixed Asset Turnover means gsk has been more effective using company's investments in Net Property, Plant, and Equipment and decreasing Fixed Asset Turnover means that gsk has been less effective using company's investments in Net Property, Plant, and Equipment. Moreover, the industry average showed a good picture that is at 4.44 respectively.
2011,= 42,553 / 13,592 (USD $ in millions)
= 3.13
Total asset turnover = Turnover / Total assets
The gsk total assets turnover ratios in the preceding years are almost unchanged it showed that an unchanged Total Asset Turnover indicates the gsk’s effectiveness in the using the investments made in the company (Total Assets) has remained the same.
2011,= 42,553 / 63,828 (USD $ in millions)
= 0.67
Equity turnover = Turnover ÷ Shareholders’ equity
2011,= 42,553 / 12,480 (USD $ in millions)
= 3.41
GSK Term Report
31-Dec-09 31-Dec-10 31-Dec-11 Industry Average 2011
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Net fixed asset turnover
Total asset turnover
Equity turnover
Long-Term (Investment) Activity Ratios
Profitability Analysis
GSK Term Report
Profitability ratios measure the company's ability to generate profitable sales from its resources (assets).
31-Dec-2009
31-Dec-2010
31-Dec-2011
Industry Average
2011Ratio Analysis
Gross profit
margin73.98% 73.26% 73.22%
GlaxoSmithKline PLC's gross profit margin deteriorated from 2009 to
2010 and slightly from 2010 to 2011.
Operating profit
margin29.69% 13.32% 28.50% 20.11%
GlaxoSmithKline PLC's operating profit margin deteriorated from 2009 to 2010 but then improved from 2010
to 2011 not reaching 2009 level.
Net profit margin 19.98% 6.52% 19.90% 14.83%
GlaxoSmithKline PLC's net profit margin deteriorated from 2009 to
2010 but then improved from 2010 to 2011 not reaching 2009 level.
Return on equity (ROE)
52.74% 19.01% 61.83% 18.11%
GlaxoSmithKline PLC's ROE deteriorated from 2009 to 2010 but then improved from 2010 to 2011
exceeding 2009 level.
Return on assets (ROA)
13.2% 4.38% 10.28% 8.46%
GlaxoSmithKline PLC's ROA deteriorated from 2009 to 2010 but
then improved from 2010 to 2011 not reaching 2009 level.
Net Profit Margin = Net Income/Sales
The GSK Net Profit Margin decreased from 19.98 to 6.52 in 2010 that shows the net profit out of each dollar of sales has become smaller. But in 2011 it increased again to 19.90 that show the net profit out of each dollar of sales has become larger while industry average is not showing a good picture that is at 14.83.
2011,
=5458/27387 (USD $ in millions)
=0.1990 => 19.90%
Return on Common Equity = Net Income/Common Equity
GSK Term Report
2011,=5458/8827 (USD $ in millions)
=0.6183 => 61.83%
Return on Assets = Net Income/Total Assets
The gsk return on assets ratio decreased greatly in 2010 to 4.38 from 13.20 that decreasing Return on Total Assets (ROI) shows gsk has been less able to use the investments in the company (the Total Assets) to generated income (Net Earnings) back to the company. But it improved in 2011 to 10.28 this increasing Return on Total Assets (ROI) shows that gsk has been more able to use the investments in the company (the Total Assets) to generated income (Net Earnings) back to the company. While industry average is not showing a good picture that is at 8.46 and gsk is at better place as compare to industry.
2011,=5458/41080 (USD $ in millions)
=0.1028 => 10.28%
Gross profit margin = gross profit / sales
The gsk gross profit margin is decreasing slightly from the preceding years and it considered as unchanged that shows the ablility of the gsk to control its costs while generating sales has remained the same.
2011,= 20,055 / 27,387 (USD $ in millions)
=73.22%
Operating profit margin = Operating profit / sales
The GSK decreasing Operating Profit Margin from 2009 to 2010 that is 29.69 to 13.62 that indicates gsk has been less efficient in its day-to-day operations. But it increased in 2011 to 28.50 this increasing Operating Profit Margin indicates the gsk has been more efficient in its day-to-day operations. Moreover, the gsk is showing a good picture that it is better than the industry average is at 20.11 respectively.
2011= 7,807 / 27,387 (USD $ in millions)
=28.50%
GSK Term Report
Gross profit margin
Operating profit margin
Net profit margin
Return on equity (ROE)
Return on assets (ROA)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
31-Dec-0931-Dec-1031-Dec-11Industry Average 2011
GSK Term Report