Glaxo Smit

Kline

Financial Statement
Analysis
 Glaxo Smit
Kline

Financial Statement Analysis

Saqib Sarwar 18221554-005

M.Umar 18221554-007
Rosheen 18221554-010
Sayyeda Saba 18221554-023
Kinza Arzoo 18221554-045
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 GlaxoSmithKline
•
History
GlaxoSmithKline was founded in 2000 after the merger of Glaxo Welcome plc and
SmithKline Beecham plc, each of which had a history of mergers.

• GlaxoSmithKline Pakistan is a Pakistani pharmaceutical company which is a

subsidiary of British company GlaxoSmithKline. It is the largest pharmaceutical
company in Pakistan.

• The company started its operations in Pakistan as Glaxo Laboratories Pakistan Ltd
and was listed on the Karachi Stock Exchange in 1951. GSK Pakistan equation was
formed when Beecham, Glaxo Welcome and Smith Kline, all having a big name in
the pharmaceutical market and that were separate entities before, merged in 2002.
• In December 2008, GSK Pakistan acquired operations of Bristol Myers Squibb in
Pakistan for approximately US$36.5 million. In December 2010, the company
acquired Stiefel Laboratories operations in Pakistan.
 About GlaxoSmithKline
• One of the most well-known manufacturers in the world, GlaxoSmithKline runs
offices in more than 100 countries around the world. In 2018, it was ranked the
fifth-largest pharmaceutical company in the world based on revenue of about $43
billion.
• GSK global headquarters are located in Brantford, England. GlaxoSmithKline’s
U.S. headquarters is located are North Carolina
 GlaxoSmithKline
Products
Our Consumer Healthcare Products
•Acne Aid.
•Actifed.
•Brevoxyl.
•Duofilm.
•ENO.
•Horlicks.
•Hydrozole.
•Iodex.
 Board of Directors Pakistan

oard of Directors Pakistan

The Board of Directors is responsible for the group's system of corporate governance and is ultimately accountable for
the group's activities, strategy, risk management and financial performance. The Chief Executive Officer is responsible
for the management of thePresentation
Simple PowerPoint business and is assisted by the Corporate Executive Team.
Horizontal Analysis
Horizontal analysis is used in financial statement analysis to compare historical data, such as
ratios, or line items, over a number of accounting periods. Horizontal analysis can either use
absolute comparisons or percentage comparisons, where the numbers in each succeeding period
are expressed as a percentage of the amount in the baseline year, with the baseline amount being
listed as 100%. This is also known as base-year analysis.

 Horizontal analysis is used in the review of a company's financial statements over multiple
periods.

 It is usually depicted as a percentage growth over the same line item in the base year.

 Horizontal analysis allows financial statement users to easily spot trends and growth patterns.

 It can be manipulated to make the current period look better if specific historical periods of
poor performance are chosen as a comparison.
 Vertical Analysis
Vertical analysis is a method of financial statement analysis in which each line item
is listed as a percentage of a base figure within the statement. Thus, line items on
an income statement can be stated as a percentage of gross sales, while line items
on a balance sheet can be stated as a percentage of total assets or liabilities, and
vertical analysis of a cash flow statement shows each cash inflow or outflow as a
percentage of the total cash inflows.
 Vertical analysis makes it easier to understand the correlation between single
items on a balance sheet and the bottom line, expressed in a percentage.

 Vertical analysis can become a more potent tool when used in conjunction with
horizontal analysis, which considers the finances of a certain period of time.
asic Concern Liquidity Ratio
What is a Liquidity Ratio?
 A liquidity ratio is a type of financial ratio used to determine a company’s ability to pay
its short-term debt obligations. The metric helps determine if a company can use its
current, or liquid, assets to cover its current liabilities.
 Three liquidity ratios are commonly used – the current ratio, quick ratio, and cash ratio.
In each of the liquidity ratios, the current liabilities amount is placed in the denominator
of the equation, and the liquid assets amount is placed in the numerator.
 A ratio greater than 1 (e.g., 2.0) would imply that a company is able to satisfy its current
bills. In fact, a ratio of 2.0 means that a company can cover its current liabilities two
times over. A ratio of 3.0 would mean they could cover their current liabilities three
times over, and so forth.
pes of Liquidity Ratios
1. Current Ratio
Current Ratio = Current Assets / Current Liabilities
The current ratio is the simplest liquidity ratio to calculate and interpret. Anyone can easily find
the current assets and current liabilities line items on a company’s balance sheet. Divide current
assets by current liabilities, and you will arrive at the current ratio.
2. Quick Ratio
Quick Ratio = (Cash + Accounts Receivables + Marketable Securities) / Current Liabilities
The quick ratio is a stricter test of liquidity than the current ratio. Both are similar in the sense that
current assets is the numerator, and current liabilities is the denominator.
However, the quick ratio only considers certain current assets. It considers more liquid assets such as
cash, accounts receivables, and marketable securities. It leaves out current assets such as inventory
and prepaid expenses because the two are less liquid. So, the quick ratio is more of a true test of a
company’s ability to cover its short-term obligations.
ypes of Liquidity Ratios (cont……)

3. Cash Ratio
Cash Ratio = (Cash + Marketable Securities) / Current Liabilities
The cash ratio takes the test of liquidity even further. This ratio only
considers a company’s most liquid assets – cash and marketable
securities. They are the assets that are most readily available to a
company to pay short-term obligations.
In terms of how strict the tests of liquidity are, you can view the current
ratio, quick ratio, and cash ratio as easy, medium, and hard.
 Current Ratio = Current Assets
Current Liabilities
 Cash Ratio = Cash Equivalence + Marketable Securities
Current Liabilities
 Quick Ratio / Acid Test Ratio = Quick Assets
Current Liabilities
 Working Capital = Current Assets- Current Liabilities
 Average Collection Period = Gross Receivables
Net Sales / 365
 Inventory Turnover = Cost Of Goods Sold
Average Inventory
 Account Receivable Turnover = Net Credit Sales
Average Account Receivables
 Day Sales In Inventory = 365
Inventory Turnover
 2018 2019
 

1. Current Ratio 2.09 2.04

2. Cash Ratio 0.55 0.52

3. Quick Ratio / Acid Test Ratio 0.55 0.52

4. Working Capital 6,303,814 6,407,315
ong-Term Debt-Paying Ability and Debt Ratio Analysis
 For a firm being financially sustainable means being able to carry its debt. Usually,
the debt ratio analysis is being applied to a company by potential creditors to see,
how creditworthy it is and analyze its willingness and ability to pay the debt.
Generally, greater amount of company’s debt means greater financial risk of its
bankruptcy. Long-term debt paying ability of a firm can be viewed as indicated by
the income statement and by the balance sheet.
Times Interest Earned
The indicator of the firm’s long-term debt paying ability from the income statement
view is the times interest earned ratio. Having normal times interest earned ratio
means lesser risk for a firm not to meet its interest obligation. If this ratio is being
relatively high and stable over the years, a company is financially sustainable, while
relatively low and fluctuating ratio would mean potential problems with paying the
long-term obligations
Debt Ratio
The debt ratio is an indicator of firm’s long-term debt-paying ability.
It is a ratio of firm’s total liabilities to its total assets.
 Another ratio helping the creditors understand how well they are
protected in case of firm’s insolvency is the debt to equity ratio.
It’s a ratio that compares the total debt with the total
shareholders’ equity:
 Time Interest Earned = EBIT
Interest Expense (Net)
 Cash Basis Time Interest Earned = EBIT + Depreciation
Interest Expense
 Fixed Charge Coverage = Adjusted Net Income + Interest Portion
Interest Expense + Interest Portion
 Debt Ratio = Total Liabilities
Total Assets
 Debt / Equity Ratio = Total Liabilities
Total Equity
 Total Debt To Tangible Net Worth = Total Liabilities
Share Holder’s Equity – Intangible Assets
 2018 2019
1. Debt/ Equity Ratio 0.44 0.44
2. Total Debt to Tangible Net Worth 0.44 0.44
3. Debt Ratio 0.30 0.30
Profitability Ratio Concern
What Are Profitability Ratios?
Profitability ratios are a class of financial metrics that are used to assess a business's
ability to generate earnings relative to its revenue, operating costs, balance sheet assets,
or shareholders' equity over time, using data from a specific point in time.
 Profitability ratios are metrics that assess a company's ability to generate income
relative to its revenue, operating costs, balance sheet assets, or shareholders' equity.

 Profitability ratios show how efficiently a company generates profit and value for
shareholders.

 Higher ratio results are often more favorable, but ratios provide much more
information when compared to results of similar companies, the company's own
historical performance, or the industry average.
What are the Different Types of Profitability Ratios?
There are various profitability ratios that are used by companies to provide useful insights into the financial
well-being and performance of the business.
All of these ratios can be generalized into two categories, as follows:
A. Margin Ratios
Margin ratios represent the company’s ability to convert sales into profits at various degrees of measurement.
Examples are gross profit margin, operating profit margin, net profit margin, cash flow
margin, EBIT, EBITDA, EBITDAR, NOPAT, operating expense ratio, and overhead ratio.
B. Return Ratios
Return ratios represent the company’s ability to generate returns to its shareholders.
Examples include return on assets, return on equity, cash return on assets, return on
debt, return on retained earnings, return on revenue, risk-adjusted return, return on
invested capital, and return on capital employed.
Six of the most frequently used profitability ratios are:
#1 Gross Profit Margin
 Gross profit margin – compares gross profit to sales revenue. This shows how much a
business is earning, taking into account the needed costs to produce its goods and services. A
high gross profit margin ratio reflects a higher efficiency of core operations, meaning it can
still cover operating expenses, fixed costs, dividends, and depreciation, while also providing
net earnings to the business. On the other hand, a low profit margin indicates a high cost of
goods sold, which can be attributed to adverse purchasing policies, low selling prices, low
sales, stiff market competition, or wrong sales promotion policies.
#2 Net Profit Margin
 Net profit margin is the bottom line. It looks at a company’s net income and divides it into
total revenue. It provides the final picture of how profitable a company is after all expenses,
including interest and taxes, have been taken into account. A reason to use the net profit
margin as a measure of profitability is that it takes everything into account. A drawback of
this metric is that it includes a lot of “noise” such as one-time expenses and gains, which
 Net Profit Margin = EBITA
Net Sales
 Return On Assets = EBITA
Average Total Assets
 Total Assets Turnover = Total Sales
Average Total Assets
 Return On Common Equity = EBIT- Proffered Dividend
Common Equity
 Return On Investment = EBIT + Interest Expense X 1 – Tax Rate
Long Term Liabilities + Equity
 Sales To Fixed Assets = Net Sales
Average Net Fixed Assets
 Gross Profit Margin = Gross Profit
Net Sales
 2018 2019
1. Net Profit Margin 0.13 0.12
2. Return On Assets 0.206 0.202
3. Total Assets Turnover 1.49 1.61
4. Sales To Fixed Assets 3.28 3.52
5. Gross Profit 0.24 0.21
What are Investor Ratios?

Investor ratios are the financial ratios that the investors use in order to evaluate
the company’s ability to generate the return for their investment. In general,
investors usually want to know which one is a good company to invest their
money in, in accordance with their risk appetites. In this case, investor ratios can
provide the information which shows the company’s health and its ability to
provide the return to investors for the risks involved in their investment.

 Investor ratios are usually used in comparing to the prior period or other
company in the same industry in order to evaluate the company’s ability and
its performance in generating the return back to investors.

 The commonly seen investor ratios include earnings per share (EPS), price-
earnings ratio (P/E ratio), dividend cover and dividend yield.
(CASH FLOW STATEMENT)

 The cash flow statement is one of the three financial statements a business owner uses in cash
flow analysis. Businesses rely on the statement of cash flows to determine their financial
strength. Cash flow is the driving force behind the operations of a business.
 A cash flow analysis uses ratios that focus on the company's cash flow. It consists most
commonly of the price to cash flow ratio, cash flow coverage ratio, and cash flow margin
ratio.
 Operating Cash Flow/Current Maturities of Long-Term = Operating Cash Flow
Debt and Current Notes Payable Current Maturities of Long-Term Debt and Current
Notes Payable

 Operating Cash Flow/Total Debt = Operating Cash Flow

Total Debt

 Operating Cash Flow per Share =Operating cash flow – Preferred Dividend
Diluted Weighted Average Common Shares Outstanding

 Operating Cash Flow/Cash Dividends = Operating Cash Flow

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