North South University

Term Report

On

Working Capital Management

Selected Company

Is

GlaxoSmithKline Pharmaceuticals Limited

 Submitted to:
Syed Asif Hossain

Lecturer, Dept. of Finance and Accounting

School of Business and Administration

North South University.

Submitted by:
Name ID
Kamrul Hasan Siddique 1310781630

S.M. Tanvir Rahman 1130187030

Ashfaqe Reza 1320490030

Mir Araf Hossain 1230126030

Syed Atabur Rahman Tuhin 1420296030

Submission Date:

16th August, 2015

 Table of Contain

Topic Page

Introduction 1

Credit Policy 3

Sources of Short term working 3

capital
Marketable securities investment 4

Analysis of Solvency measures 5

Cash Conversion Period 10

Analysis of Liquidity Measures 17

Net Present Value 22

Cash Discount 23

Conclusion 25
 Introduction
With an enviable image and reputation for the past 6 decades GlaxoSmithKline (GSK)
Bangladesh Limited running its operation as a subsidiary of GlaxoSmithKline plc- one of the
worlds leads research-based pharmaceutical and healthcare companies. In 1949 the Company
commenced its journey in Bangladesh with its corporate identity as Glaxo in Chittagong as an
importer. In 1967, the company established its own manufacturing unit at Chittagong. The
facility till date is considered as one of the Centre of Excellence in Global Manufacturing &
Supply Network of the Group. It was incorporated on 25 February 1974 as a public limited
company and is listed with Dhaka Stock Exchange Limited. The global corporate mergers and
acquisitions have seen the evolution of the Companys identity in the past 6 decades. In line with
mergers and acquisitions the identity changed from Glaxo to Glaxo Welcome Bangladesh
Limited following the Burroughs Welcome acquisition in 1995 and finally to GlaxoSmithKline
Bangladesh Limited during 2002 after merger with SmithKline Beecham in December 2000. The
mega merger of the Company enables it to deliver cuffing edge advancements in health care
solutions. The relentless commitment, setting of standards of ethical standards and quality
backed leading edge technology of the Company has built a strong relationship between the
stakeholders and GSK Bangladesh. With the ever committed 822 numbers of personnel all over
the country GSK Bangladesh, which now comprises of both Pharma and Consumer, continually
strive to meet the GlaxoSmithKline mission to improve the quality of human life by ensuring
healthcare products, health drinks and different corporate social responsibility programs.

GSK is committed to developing new and effective healthcare solutions. The values on which the
group was founded have always inspired growth and will continue to do so in times to come.

Now GSK Bangladesh has Its Corporate Head Office in Gulshan, Dhaka and manufacturing Unit
in Fouzdarhat, Chittagong. GSK Bangladesh Serve across Whole Bangladesh Equally with its
Strong Selling and Administrative hierarchy.

Page | 1
 Products:

Now Glaxo Has 3 Types Of Products Run In Bangladesh:

No Name Types
01 Consumer Healthcare Products Horlicks [They Introduce 6 Types Of Horlicks]
Boost
Maltova
Viva
Glaxose [Health Drinks]
Sensodyne [Oral Health]
02 Medicines Respiratory Portfolio
Antibiotics
Dermatologicals
Oncology
03 Vaccines [Hepatitis A & B, Typhoid, Chicken Pox, Measles,
Mumps, Rubella, Meningitis, Pneumonia, Rota
Virus, pre-cancer vaccines]

Credit Policy for Customer

Page | 2
Being an enlarged multinational company, GSK follows different strategies to sell their
pharmaceutical and health care products in the home market and also in the overseas market.
They are prone to customer satisfaction so as a result they look for innovative ways to increase
their product recognition through different means of credit and cash delivery systems. GSK
Doesnt offer credit sells option for the final consumer. Because it distribute goods categorized as
inferior, normal goods. But it offer credit option for its Distributor channels including [Dealers,
wholesaler and Retailer] respectively. In 2014 Gsk receivable was 881,893,000 taka and in 2013
it was 348,316,000 taka. They doesnt have any trade receivables include amount outstanding for
a period exceeding six months.

Sources of Short-Term Working Capital

GlaxoSmithKline Pharmacy has 2,337,516,000 Taka as their short term working capital finance
in 2014. This short term working capital is known as Trades and Others payable. This short term
working capital are divided in:

Trade payable is an amount billed to a company by its suppliers for goods delivered to or
services consumed by the company in the ordinary course of business.
In 2014 Gsk Bangladesh has an amount of 1,132,804,000 Takatrade payables.
They have payable expenses of 1,107,740,000 Taka in 2014.
Other financial expenses payable which includes deposit, tax deducted at source, excise
duty and other payable which is 82,194,000 Taka in 2014.
Unclaimed dividend is 5,286,000 Taka.
Other Capital expenditure amount is 9,492,000 Taka.

Investment In Marketable Securities

Page | 3
Marketable securities are highly liquid, short-term securities that tend to have maturity dates of
less than one year. There are Different Types of marketable securities are introduced in
bangladesh.

Debt Securities
Equity Securities
Mutual Funds
Bonds

Glaxo Smithkline Bangladesh Has no Marketable Securities Investment In Bangladesh. Rather

They have all their investment in the Fixed Assets, Equipment etc.
But Important Thing is GSK Bangladeshs Main Competitors like Square Pharmaceuticals and
Beximco Pharmaceuticals has a high investment in Marketable securities and there gain from
there is also high respectively.

Page | 4
 Analysis of relevant Solvency Measures
Solvency measures concerns about whether assets exceed liabilities of the firm. Here, we are
going to measure the solvency of GlaxoSmithKline Pharmaceutical Ltd. There are 4(four)
traditional measures and by those we are going to see 5(five) years of solvency measures of
GlaxoSmithKline Pharmaceutical Ltd.

The time series years are 2010, 2011, 2012, 2013 & 2014.

The 4(four) Solvency measures are:

1. Net Working Capital (NWC)

2. Working Capital Requirements (WCR)
3. Current Ratio
4. Quick Ratio

Now, lets see the 5(five) years solvency measures of GlaxoSmithKline Pharmaceuticals:

1. Current Ratio
Current ratio indicates the level of coverage provided to short-term creditors with respect to the
level of current assets.Itgives an idea of company's operating efficiency. The higher the current
ratio is, the more capable the company is to pay its obligations.Values exceeding 1 imply that
current assets exceed current liabilities. Here is the formula of Current Ratio:

Current Ratio = Current Assets Current Liabilities

Here is the 5(five) years current ratio of GlaxoSmithKline Pharma.

Years Ratio
2014 1.73
2013 1.69
2012 1.79
2011 2.05
2010 2.59

Page | 5
 In 2010 firms current ratio was 2.59. But from 2011 to 2013 it decreased to 1.69. So, on
this time the company has problems getting paid on its receivable or have long inventory
turnover. But in 2014 it raised into 1.73. Which means they are improving a little bit.
Gsk Pharma should try to increase their current ratio like they had in 2010. Though there
was decrease in years but they have more current assets then current liabilities.

2. Quick Ratio
Quick Ratio shows the least liquid current operating assets.It describes that how fast the assets
that can be quickly converted into cash that are sufficient to cover current liabilities. The
formula is:

Quick ratio = (Current Assets Inventory) Current Liabilities

Here is the 5(five) years quick ratio of Gsk Pharma:

Years Ratio
2014 1.39
2013 1.08
2012 1.05
2011 0.95
2010 1.61

Page | 6
 In the 2010 the quick ratio was 1.61. Which describe they kept too much cash on hand or
had a problem collecting its accounts receivable. Again from 2011 to 2013 quick ratio
decreases because they kept too much on inventory or other assets to pay its short term
obligations. But in 2014 the quick ratio is increased by 1.39 which describes they keep
more cash in hand.
Gsk Pharma should keep more liquid cash then inventory. So that they can pay their short
term liabilities easily.

3. Net Working Capital

Net Working Capital shows the difference in current assets and current liabilities. Positive NWC
indicates the long term funds finance current assets and negative NWC shows the firm finances
long term assets with current liabilities. Here is the formula:

Net Working Capital = Current Assets Current Liabilities

Here is the 5(five) years NWC of GlaxoSmithKline Pharma:

Years Amount in Taka

2014 1,876,912,000
2013 1,391,003,000

Page | 7
 2012 1,132,519,000
2011 1,086,606,000
2010 1,121,082,000

Net Working Capital

2000000

1500000

Amount in taka (000 in taka) 1000000

500000

0
2005 2010 2015

Year

In 2010 Gsk pharma had positive NWC. And every year it is increasing.
As we can see that they have a strong point that is they dont have any negative net
working capital within 2010 to 2014 cycle and it also increases by the year. And their
long term fund is financing their current assets.

4. Working Capital Requirement

Working capital requirement is the difference between current operating assets and current
operating liabilities.This account represents spontaneous source of funds. Increase WCR
indicates that they need additional financing and negative indicates that provides financing for
long term assets. Here is the way to get WCR,

WCR = Accounts Receivable + Inventory Accounts Payable

Here is the 5(five) years WCR of Gsk Pharma.

Years In Taka
2014 780,183,000

Page | 8
 2013 800,136,000
2012 325,645,000
2011 508,238,000
2010 807,988,000

Working Capital Requirment

900000
800000
700000
600000
500000
taka in '000 400000
300000
200000
100000
0
2008 2010 2012 2014 2016

Year

The most Positive point shows that decrease in working capital within 2010 to 2012.
Which describes they have enough long term assets to provide in working capital cycle.
And it positively impact in solvency measure.
Gsk should have negative WCR. Because current positive WCR in 2013 and 2014 means
they need more additional funds to increase their current assets.

The Cash Conversion Period

Gauging working capital efficiency by NWC, WCR, Current ratio and Quick ratio can be
problematic. For this reason The Cash Conversion Period (CCP) provides better efficiency and
effectiveness. CCP represents the time needed to convert $1 of disbursements into $1 of cash
receipts.

Page | 9
To find out CCP we need Days Inventory Held (DIH), Days Sales Outstanding (DSO)and Days
Payable Outstanding (DPO).

1. Days Inventory Held

The Days Inventory Held (DIH) represents the average number of days inventory sits idle.
Which means the delay between acquisition of inventory and selling the item to a customer.
Also, given that Cost of Goods Sold (COGS) represents inventory production costs, the DIH can
be interpreted as the number of days of days of inventory held on a balance sheet at a given point
in time. The formula of Days Inventory Held (DIH) is:

DIH = Inventory (COGS 365 Days)

Here is the 5(five) years DIH of GlaxoSmithKline Pharmaceuticals,

Years Days
2014 70.78
2013 97.97
2012 97.54
2011 122.74
2010 106.19

Days Inventory Held

140
120
100
80
days 60
40
20
0
2009 2010 2011 2012 2013 2014 2015

Year

In 2010 and 2011 DIH was high which the inventory was sitting idle. In 2012 to 2013 it
was almost same 97 days. And in 2014 it become less to 70 days.

Page | 10
 Which means in 2014 Gsk pharmas inventory was sitting idle for 70 days which is much
lower than 2011. And this is good for the company.

Inventory Turnover

Rapid Inventory Turnover indicates the efficiency of using the inventory. Formula of inventory
turnover is,

Inventory Turnover = Cost of Goods Sold Inventory

Here is the 5(five) years inventory turnover of Gsk Pharma,

Years Ratio
2014 5.16
2013 3.73
2012 3.74
2011 2.97
2010 3.44

Inventory Turnover
6

ratio 3

0
2009 2010 2011 2012 2013 2014 2015

year

By using Inventory Turnover we can also find out the Days Inventory Held (DIH) that is,

DIH = 365 days Inventory Turnover

Page | 11
 The inventory turnover was low in 2010 and 2011 because of high DIH. But in 2014
inventory turnover increased to 5.16. Which means inventory sold out and restored 5.16
times in 2014.
High inventory turnover is good. And Gsk pharma has good inventory turnover from past
years.

2. Days Sales Outstanding

Days Sales Outstanding (DSO) represents the average number of days it takes for a supplier to
collect on credit sales. Itshows the efficiency of the credit and collections department. DSO is
also referred to as the average collection period and it is common to compare the DSO to the
trade credit terms offered by suppliers. The Formula is,

DSO = Account Receivable (Sales 365 days)

Here is the 5(five) years DSO of GlaxoSmithKline Pharma,

Year Days
2014 53.07
2013 27.26
2012 32.03
2011 16.29
2010 46.52

Page | 12
 Days Sales Outstanding
60

50

40

In days 30

20

10

0
2009 2010 2011 2012 2013 2014 2015

years

Here we can see there is increase and decrease in DSO. In 2010, DSO decreased than
2011. That defines their supplier take less time to pay the money so this is good for them.
In 2012 to 2013 defines their supplier take less time to pay the money so this is good for
them. Again In 2013 to 2014 defines that their supplier takes more time to pay the money
so this is bad for them. Because if we can get early so we can invest in another sources.

3. Days Payable Outstanding

Days Payable Outstanding (DPO) is the elapsed time between receipt of inputs and when
payments are made to suppliers. Formula to find out DPO is,

DPO = Accounts Payable (COGS 365 days)

Here is the DPO of Gsk Pharma. Of 5(five) years,

Years Days
2014 92.37
2013 74.45
2012 112.43
2011 90.74
2010 53.48

Page | 13
 Days P ayable Outstanding
120

100

80

Days 60

40

20

0
2009 2010 2011 2012 2013 2014 2015

year

In 2010 to 2012 the DPO was increased which is good. It fall in 2013 but again it
increased in 2014.
Here we can see the increase and decrease in DPO. If they pay early the advantage is
sometimes they can get discount but if they pay late at last day of the credit period they
can invest the money in the another sources.

Operating Cycle

Operating Cycle (OC) represents the normal flow of funds throughout the various current asset
accounts for non-service providers. It means the order is received until the payment is received.
OC is the equal of DIH and DSO.

OC = DIH + DSO

Here is the 5(five) years Operating Cycle of GlaxoSmithKline Pharma.

Years Days
2014 123.85
2013 125.24

Page | 14
 2012 129.57
2011 139.03
2010 152.71

Operating Cycle
180
160
140
120
100
in days 80
60
40
20
0
2009 2010 2011 2012 2013 2014 2015

years

As we can see that there are decrease in OC. This means, they have to wait less days for
the placement and getting the money. So this is good to them because they can build a
good relation with their customers.

Cash Conversion Period

The CCP represents the length of time over which management must arrange for non-
spontaneous financing. Longer CCPs require increased financial resources, reducing firm
liquidity. CCP is calculated subtracting DPO from OC. Here is the formula,

CCP = OC DPO

Here is the 5(five) years Cash Conversion Period of GlaxoSmithKline Pharmaceuticals,

Years Days
2014 31.48
2013 50.79
2012 17.14

Page | 15
 2011 48.29
2010 99.23

Cash Conversion P eriod

120

100

80

Days 60

40

20

0
2009 2010 2011 2012 2013 2014 2015

year

Here we can see that the negative means less CCP implies that supplier provide financing
for the firm working capital cycle. So in 2014 the CCP was 31.48 % this is a great
improvement from their previous year 2013 is 50.79%. This means that they can operate
their working capital cycle with their supplier. That indicates that they have good
relationship with their suppliers where their supplier send money early they can invest
this money in new profitable factors.

Analysis of Relevant Liquidity Measures

This section presents financial measures that gauge corporate liquidity from a cash perspective.
Quantifying the cash position is important given the clear links between firm value and cash. The
measures cover both stock and flow based aspect of corporate liquidity. Main measures are,

1. Cash Conversion Efficiency (CCF)

2. Cash Ratio
3. Cash Burn Rate (CBR)
4. Net Liquide Balance (NLB)

Page | 16
Here, we are going to measure the liquidity of GlaxoSmithKline Pharmaceutical Ltd. Using
those measures we are going to measure 5(five) years liquidity of Gsk Pharma. Those 5(five)
years are 2010, 2011, 2012, 2013 and 2014.

1. Cash Conversion Efficiency

Generating revenues is important, but converting revenues into operating cash flow (OCF) is
essential to maximizing shareholder wealth. Hence, the proportion of sales that yield operating
cash flow, dubbed cash conversion efficiency (CCE), is critical for firms long-term viability.
Adequate CCE involves monitoring the financial supply chain, including managing costs and
operating working capital. The formula is,

CCE = Operating Cash Flow Revenues

Here is the 5(five) years CCE of GlaxoSmithKline Pharma.

Years Ratio in %
2014 18.63
2013 14.62
2012 9.50
2011 10.96
2010 16.94

Page | 17
 Cash Conversion Efficiency
20
18
16
14
12
ratio in % 10
8
6
4
2
0
2009 2010 2011 2012 2013 2014 2015

year

So here we can see they maintain at least 10% and above CCE. But within 2010 to 2012
cycle they fail to increase but decreased to 9.50%. A very good improvement in 2013 to
2014 to 18.64% that is higher than 2010.
Gsk pharma has very good CCE in recent years. So, they can easily continue like this
because it is maximizing the shareholders profit.

2. Cash Ratio
Cash ratio is known as the stock of cash held on the balance sheet scaled by total assets. The cash
ratio provides the proportion of assets held in cash, this metric is a key measure used to assess
corporate liquidity. Here is the formula to calculate cash ratio

Cash Ratio = Cash Total Assets

Here is the 5(five) years cash ratio of GlaxoSmithKline Pharma.

Years Ratio in %
2014 50.45
2013 42.04
2012 33.27
2011 29.62
2010 30.08

Page | 18
 Cash Ratio
60

50

40

Ratio in % 30
20

10

0
2009 2010 2011 2012 2013 2014 2015

year

A tremendous improvement in Cash holding within 2012 to 2014 cycle. The average
improvement is 8.59% that was good to them. But also recessionary period is 2010 and
2011.
Gsk pharma has good increasing avg. in cash ratio. So they can continue like this.
Because they have very good amount cash in total assets. Like currently it is 50.45% in
2014.

3. Cash Burn Ratio

Cash holdings scaled by average daily cost of goods sold. This metric provides the number of
days of COGS that the firm can fund with cash without receiving additional cash inflows or
external financing. Increased burn rates imply a reduced likelihood of illiquidity. Here is the way
to get cash burn ratio,

Cash Burn Ratio = Cash (COGS 365 days)

Here is the 5(five) years cash burn ratio of Gsk Pharma.

Page | 19
 Years In Days
2014 206.87
2013 134.48
2012 93.85
2011 83.05
2010 101.73

Cash B urn Ratio

250

200

150
Ratio in Days
100

50

0
2008 2010 2012 2014 2016

year

More improvement within 2011 to 2014 and the average improvement is 41.27%. The
highest improvement is in 2014 which is 72.39% where they had enough cash in hand
without generating additional external financing.
Gsk pharma can continue their daily COGS almost 208 days without using external
financing sources and it is good.

4. Net Liquide Balance

Net liquid balance is the sum of cash and short-term investments minus current nonspontaneous
financial liabilities such as notes payable and current maturing debt. The NLB is the interaction
between sales growth and operating cycle. A negative NLB depends on outside financing and
suggests the minimum capacity needed for the credit line but it does not mean that the firm will
face default obligation, it implies reduce liquidity. The NLB equation is,

NLB = Cash Notes Payable

Page | 20
Gsk pharma does not have any notes payable. There will be only the cash because notes payable
is 0 taka. Here is the NLB of Gsk Pharma of 5(five) years.

Years NLB in Taka

2014 2,537,032,000
2013 1,680,699,000
2012 1,019,434,000
2011 770,584,000
2010 666,043,000

Net Liquide Balance

3000000
2500000
2000000

in taka (000) 1500000

1000000
500000
0
2008 2010 2012 2014 2016
year

As we can see there isnt any impacts in seasonality. They have a tremendous source of
liquidity available within 2010 to 2014 to 2,537,032,000 Taka and that increases
continuously.
Gsk does not have any notes payable so their cash is shown as NLB.

Net Present Value

NPV or Net Present Value is the difference between the present value of the future cash flows
from an investment and added amount of investment. If NPV is positive, that means that the
value of the revenues (cash inflows) is greater than the costs (cash outflows). When revenues are
greater than costs, the investor makes a profit. The opposite is true when the NPV is negative.
When the NPV is 0, there is no gain or loss.

Page | 21
Here is the NPV of GlaxoSmithKline Pharmaceuticals in 2014.

Given,

COGS = 4,476,255 TakaSales = 7,187,225 Taka

DSO = 53.06518441 DaysDPO = 92.3704 DaysDIH = 70.78435768 Days

Now,

COGS Sales
NPVDaily = 1+(( i ) DPO) + 1+(
i
( DIH + DSO))
365 365

4,476,255 7,187,225
= 1+( .10 92.37) + 1+(
.10
( 70.78+53.07 ) )
365 365

= - 4,365,771.09 + 6,951,330.89

= 2,585,559.8 Taka (in 000)

Again,

NPV
NPVperp = i
365

2,585,559.8
= .10
365

= 9,437,293,270 Taka (In 000)

Since Gsk Pharma has a positive NPV value so we can estimate that it had a good financial
position in the recent year. In this year of 2014 Gsk pharmaceuticals provide the highest value to

Page | 22
shareholders in terms of its stock price and other trade credit decisions. Hence the change in
trade credit policy can be assumed for the next couple of financial years in order to make the
project more successful and more profitable.

Cash Discount

As their business policy GlaxoSmithKline Pharmaceuticals is not offering any kind of cash
discount rather then they use their existing policy. But there are some hidden potential
excellences if they execute cash discount policy.

So here we recommend some of the benefits which will get from the discount policy.

Attract Customers

Discount serves to attract more buyers to buy the product. If you mention the limited time line
there will be more rush because the buyers want the cash discount. More traffic will be engaged
and need to monitor the process.

Increase Sales

Discounts attract more people, you have more potential buyers for other items, as most people
will look around to see what you offer before making a purchase and the sell will increase.

Reputation

A business that offers discounts to certain groups of people such as the top 10 buyers, may
improve its reputation. When a business gives discounts to people who are in difficult situations
or who may have financial troubles from a lack of income, that business shows it is making an
effort to help people. Many people regard businesses as money-hungry, so any deviation from
that perception can improve reputation.

Meet Goals

Page | 23
Many businesses have weekly, monthly, quarterly or yearly sales goals. Offering discounts can
help the business meet and surpass planned sales figures.

Save Money

In addition to more sales, discounts may help your business save money if the discount involves
payment methods. Credit and debit cards result in additional fees to process, meaning that you
lose money in comparison to cash transactions. By offering a small discount to customers who
pay with cash instead of credit or debit, you help both the customer and your business.

Conclusion

GlaxoSmithKline Pharmacy is one of the well-known company in Pharmaceutical industry in

Bangladesh. In this whole report we discussed about companys Short term working capital
management.

From Introduction we learned that Gsk pharma is a foreign company but it has land, property and
factories in Bangladesh. It does not give any credit to it consumers. It also doesnt have any
market securities wher other competitors have.

Page | 24
From solvency measurements we know company has a good solvency rate. Current ratio, quick
ratio, NWC and WCR are improving by years.

Cash conversion period is also improving from past years and giving good outcome in recent
years.

Liquidity measures are showing that Gsk Pharma has quite a good liquid in their hand which can
avoid unnecessary problems.

Net present value is well also. Which means the company has a good and strong financial
position which shows the improvement in share price and wealth maximization of shareholders.

Company recently doesnt have any cash discount offers. But they can offer it for get more sales
and also more.

In the end we can say that GlaxoSmithKline Pharmaceutical Ltd. Is growing and performing
better than their past years and they should keep up with their improving performance.

The End

Page | 25