GSK Annual Report

2011-2012

1. 0


TABLE OF CONTENT

Introduction to GSK…………………………………………………… ………...1
Mission Statement of GSK………………………………………… .……...1
Vision of the GSK…………………………………………………… ...…..1
Financial Ratio Analysis
Introduction ……………………………………………………………… ……….2
How to analyze business using financial ratios…………………………… ..…..2
What You Should Know Before Getting Started ………………………… ……..3
Purpose of Financial Ratio Analysis……………………………………… ..…...3
Why use Financial Ratio Analysis? ..................................................................3
Balance Sheet of GSK……………………………………………………… ...…..4
Income Statement of GSK…………………………………………………… ..…5
Basic Tools of Financial Analysis
Trend Analysis……………………………………………………………… ....…6
GSK Common Size Analysis Income Statement……………………… .……6
GSK Common Size Analysis of Balance Sheet………………………… .…..7
1. Common Size Analysis………………………………………………… ….…..8
GSK Common Size Analysis Income Statement ……………………… .…...8
GSK Common Size Analysis of Balance Sheet ……………………… …..….9
2. Ratio Analysis
Liquidity Ratios……………………………………………………… .…..10
Operating / Activity Ratios…………………………………………… .….11
Solvency Ratios………………………………………………… .………..12
Investment Ratios………………………………………………… .……...12
Profitability Ratios……………………………………………… .….…….13
References……………………………………………………………… .….……14

2. 1


.
Introduction to GSK
GlaxoSmithKline is a British multinational pharmaceutical, biologics, vaccines, and consumer
Health Company and it is the world fourth world largest company. The company established in
2000 by the merger of Gloxo-Wellcome plc and SmithKline Beecham plc. GSK has products for
major diseases such as asthma, cancer, virus control, infection, mental health, diabetes and
digestive conditions. It also has a large consumer healthcare division that produces oral health
care and nutritional products, drinks and over the counter medicines, including Sensodyne, Boost
and Horlicks.
Mission Statement of GSK
GlaxoSmithKline’s quest is to improve the quality of human life by enabling people to
DO MORE, FEEL BETTER, LIVE LONGER. At GSK, their mission acts as an
underlying principle to whatever they do. They follow a legacy of great science and
innovative healthcare that provides people around the world with healthier and fulfilled
lives, every single day.
Vision of the GSK
At GSK, they perform in unison, by following their value system and ethical guidelines
as a source of guidance and inspiration, which help them to achieve their vision. Every
member of GSK plays a vital role in improving quality of life. GSK’s growth and
development can be attributing to the contribution of the skills, talent and ideas of its
people.

3. 2


Financial Ratio Analysis
Introduction
A sustainable business and mission requires effective planning and financial management. Ratio
analysis is a useful management tool that will improve your understanding of financial results
and trends over time, and provide key indicators of organizational performance. Managers will
use ratio analysis to pinpoint strengths and weaknesses from which strategies and initiatives can
be formed. Funders may use ratio analysis to measure your results against other organizations or
make judgments concerning management effectiveness and mission impact.
How to analyze business using financial ratios
Ratios are use to evaluate the performance of a business and identify potential problems. Each
ratio informs about factors such as the earning power, solvency, efficiency, and debt load of your
business. They are use to measure the relationship between two or more components of the
financial statements and have greater meaning when the results are compare to industry
standards for businesses of similar size and activity.

4. 3


What You Should Know Before Getting Started
• The Purpose of Financial Ratio Analysis
• Why Use Financial Ratio Analysis?
• Basic Tools of Financial Analysis
 Trend Analysis
 Common-Size Analysis
 Component Percentage
 Ratio Analysis
Purpose of Financial Ratio Analysis
A sustainable business and mission requires effective planning and financial management. Ratio
analysis is a useful management tool that will improve your understanding of financial results
and trends over time, and provide key indicators of organizational performance. Managers will
use ratio analysis to pinpoint strengths and weaknesses from which strategies and initiatives can
be form. Funders may use ratio analysis to measure your results against other organizations or
make judgments concerning management effectiveness and mission impact.
Why use Financial Ratio Analysis?
Financial ratio analysis can be use in two different but equally useful ways. You can use them to
examine the current performance of your company in comparison to past periods, from the prior
quarter two years ago. Frequently, this can help you identify problems that need fixing. Even
better, it can direct your attention to potential problems that can be avoided. In addition, you can
use these ratios to compare the performance of your company against that of your competitors or
other members of your industry.

5. 4

Balance Sheet of GSK
GlaxoSmithKline Pakistan Ltd.
Balance Sheet
Year Ended 2011 & 2012
2012 2011
Non-current assets
Fixed assets 5,784,694 4,771,175
Intangible- goodwill 955,742 955,742
Long term loans to employees 81,959 82,005
Long term deposits 16,761 11,780
6,839,156 5,820,702
Current Assets
Stores and spares 170,501 159,268
Stock in trade 5080220 5,602,526
Trade debt 350,362 343,404
Loan and advances 243,070 163,378
Trade deposit and prepayment 92,542 54,657
interest accrued 12,205 30,372
Refund due to government 40,759 17,104
other receivables 438,674 319,800
Taxation-payment less provisions 660,092 600,742
Investments 198,118 196,706
cash and bank balances 2,117,626 2,128,926
9,404,169 9,616,883
Total Assets 16,243,325 15,437,585

Share Capital and Reserves
Share Capital 2,631,960 2,392,691
Reserves 8,839,631 8,715,881
11,471,591 11,108,572
Non-current Liabilities
Staff retirement benefits 50,381 19,706
Deferred taxation 570,298 428,296
620,679 448,002
Current Liabilities
Trade and other payables 3,950,339 3,663,772
Provisions 200,716 217,239
4,151,055 3,881,011
Total Liabilities 4,771,734 4,329,013
Total Liabilities & Shareholder Equity 16,243,325 15,437,585

6. 5

Income Statement of GSK
GlaxoSmithKline Pakistan Ltd.
Profit & Loss Statement
Year Ended 2011 & 2012
2012 2011
Net Sales

23,149,964

21,750,147
Cost of Sales

17,068,949

15,931,728
Gross Profit

6,081,015

5,818,419
Selling, marketing and distribution Expense

3,046,675

2,790,373
Administrative Expense

771,322

1,022,493
Other operating expense

192,617

194,066
Other operating income

289,207

461,927
operating profit

2,359,608

2,273,414
Financial Charges

47,512

36,526
Profit before taxation

2,312,096

2,236,888
Taxation

992,000

1,095,972
Profit after taxation

1,320,096

1,140,916

Other Comprehensive Income
Fair value gain on available for sale investment
Reversal of deficit on revolution of available for sale investments -

128
Differed taxation -

45

Total Comprehensive income

1,320,096

1,140,999

7. 6


Basic Tools of Financial Analysis
1. TREND ANALYSIS (Horizontal)
Trend analysis is one of the tools for the analysis of the company’s monetary statements for
the investment purposes. Investors use this analysis tool a lot in order to determine the
financial position of the business. In a trend analysis, the financial statements of the company
are comparing with each other for the several years after converting them in the percentage.
GSK Trend Analysis
Trend Percentage


Income Statement Analysis

2012 2011 2010

2012 2011 2010
Trend
%
Trend
%
Trend
%
Net Sales 23,149,964 21,750,147 18,916,191 6.4 15 12.9
Cost of Sales 17,068,949 15,931,728 14,063,242 7.1 13.3 12.4
Gross Profit 6,081,015 5,818,419 4,852,949 4.5 19.9 14.4
Selling, marketing and
distribution Expense
3,046,675 2,790,373 2,301,516 9.2 21.8
18.1
Administrative Expense 771,322 1,022,493 826,236 (24.6) 22.8 (2.9)
Other operating expense 192,617 194,066 171,143 (0.7) 13.4 12.5
Other operating income 289,207 461,927 397,696 (37.4) 16.2 (14.2)
operating profit 2,359,608 2,273,414 1,951,750 3.8 16.5 11.5
Financial Charges 47,512 36,526 20,026 30.1 82.4 (55.6)
Profit before taxation 2,312,096 2,236,888 1,931,724 3.4 15.8 13.2
Taxation 992,000 1,095,972 874,341 (9.5) 25.3 31.4
Profit after taxation 1,320,096 1,140,916 1,057,383 15.7 7.9 1.6


Other Comprehensive Income


Fair value gain on available for
sale investment
3,544 _ _

Reversal of deficit on
revaluation of available for sale
investments
- 128

_ _

Differed taxation - 45 1,240 _ -96 (77)


Total Comprehensive income 1,320,096 1,140,999 1,059,687 16 8 0.8


Earnings per share 5.02 4.33 4.42 16 -2 (2.6)

Interpretation and Recommendation on Trend Analysis of Income Statement:

8. 7

As per the trend analysis by comparing the trend percentage between 2012 and 201, the GSK net
income increased by twice of the last year, which shows the firm, is in the best position as per its
profitability.
Trend Percentage
Balance sheet analysis

2012 2011 2010

2012 2011 2010
Trend
%
Trend
%
Trend
%
Non-current assets


Fixed assets 5,784,694 4,771,175 4,189,996 21 14 9.4
Intangible- goodwill 955,742 955,742 955,742 0 0 (0.03)
Long term loans to employees 81,959 82,005 73,590 (0) 11 20
Long term deposits 16,761 11,780 11,871 42 -1 (3.4)
6,839,156 5,820,702 5,231,199 17.5 11.3 4.0
Current Assets


Stores and spares 170,501 159,268 150,632 7 6 6
Stock in trade 5,080,220 5,602,526 4,312,535 -9 30 (5)
Trade debt 350,362 343,404 295,762 2 16 (77)
Loan and advances 243,070 163,378 144,267 49 13 52.1
Trade deposit and prepayment 92,542 54,657 96,234 69 (43.2) (9.4)
interest accrued 12,205 30,372 19,443 (60) 56 (13.6)
Refund due to government 40,759 17,104 17,534 1.38 (2) 4.8
other receivables 438,674 319,800 290,056 37 10 1.6
Taxation-payment less
provisions
660,092 600,742 623,410 10 (4)
76.6
investments 198,118 196,706 901,955 1 (78) 39.7
cash and bank balances 2,117,626 2,128,926 2,808,772 (1) (24) 36.8
9,404,169 9,616,883 9,660,600 (2.2) (0.5) 2.7
Total Assets 16,243,325 15,437,585 14,891,799 5.2 3.6 3.1



Share Capital and Reserves


Share Capital 2,631,960 2,392,691 1,964,118 10 22 15
Reserves 8,839,631 8,715,881 8,835,696 1 (1) (0.5)
11,471,591 11,108,572 10,799,814 3.3 2.9 1.9
Non-current Liabilities


Staff retirement benefits 50,381 19,706 115,240 156 (83) 58.1
Deferred taxation 570,298 428,296 416,452 33 3 (0.2)
620,679 448,002 531,692 38.5 (15.7) 8.3
Current Liabilities


Trade and other payables 3,950,339 3,663,772 3,429,292 8 7 10.5
Provisions 200,716 217,239 131,001 (8) 66 Nil
4,151,055 3,881,011 3,560,293 7 9 6.3
Contingencies and _ _ _

9. 8

Commitments
Total Liabilities 4,771,734 4,329,013 4,091,985 10.2 6 6.6
Total Liabilities & SHE 16,243,325 15,437,585 14,891,799 5.2 3.7 3.2
Interpretation and Recommendation on Trend Analysis of Balance Sheet:
GSK balance sheet trend analysis indicates the increase of 1% in the accounting equation, which
shows quite good position of the company the company.
2. Common Size Analysis
Common Size Analysis is a company financial statement that displays all items as percentages of
a common base figure. This type of financial statement allows for easy analysis between
companies or between time periods of a company. Formatting financial statements in this way
reduces the bias that can occur when analyzing companies of differing sizes. It also allows for
the analysis of a company over various time periods, revealing, for example, what percentage of
sales is cost of goods sold and how that value has changed over time.
Common Size Balance Sheet: A common size balance sheet expresses each item on the balance
sheet as a percentage of total assets.
Common Size Income Statement: A common size income statement expresses each income
statement category as a percentage of total sales revenues.

GSK Common Size Analysis
COMMON SIZE



Income Statement Analysis



2012 2011
Net %
2012
Net
%
2011
Net
%
2010
Net Sales 23,149,964 21,750,147 100 100 100
Cost of Sales 17,068,949 15,931,728 73.7 73 74.3
Gross Profit 6,081,015 5,818,419 26.3 27 25.7
Selling, marketing and distribution
Expense 3,046,675 2,790,373 13.2

13
12.2
Administrative Expense 771,322 1,022,493 3.3 5 4.4
Other operating expense 192,617 194,066 0.8 1 0.9
Other operating income 289,207 461,927 1.2 2 2.1
operating profit 2,359,608 2,273,414 10.2 10 10.3
Financial Charges 47,512 36,526 0.2 0 0.1
Profit before taxation 2,312,096 2,236,888 10 10 10.2
Taxation 992,000 1,095,972 4.3 5 4.6
Profit after taxation 1,320,096 1,140,916 5.7 5 5.6

Other Comprehensive Income
Fair value gain on available for
sale investment



Reversal of deficit on revolution of
available for sale investments - 128

-

Differed taxation - 45 -

10. 9


Total Comprehensive income 1320096 1140999 6 5

Interpretation and Recommendation on Common-Size Income Statement Analysis:
The net income of GSK is increase by 1% as per common size financial analysis by decrease in
1% of gross profit and some changes in expenses including decrease in administrative expense
and taxation, which is beneficial for the firm.
COMMON SIZE
Balance sheet analysis
2012 2011 Net % 2012 Net % 2011 Net % 2010
Non-current assets
Fixed assets 5,784,694 4,771,175 36 31 80
Intangible- goodwill 955,742 955,742 6 6 18.2
Long term loans to employees 81,959 82,005 1 1 1.4
Long term deposits 16,761 11,780 0 0 0.2
6,839,156 5,820,702 42.1 38 35.1
Current Assets
Stores and spares 170,501 159,268 1 1 1.5
Stock in trade 5080220 5,602,526 31 36 44.6
Trade debt 350,362 343,404 2 2 3
Loan and advances 243,070 163,378 1 1 1.4
Trade deposit and prepayment 92,542 54,657 1 0 0.9
interest accrued 12,205 30,372 0 0 0.2
Refund due to government 40,759 17,104 0 0 0.1
other receivables 438,674 319,800 3 2 3
Taxation-payment less
provisions
660,092 600,742 4 4 6.4
investments 198,118 196,706 1 1 9.3
cash and bank balances 2,117,626 2,128,926 13 14 29
9,404,169 9,616,883 58 62 64.9
Total Assets 16,243,325 15,437,585 100 100 100

Share Capital and Reserves
Share Capital 2,631,960 2,392,691 16 15 18.1
Reserves 8,839,631 8,715,881 54 56 81.9
11,471,591 11,108,572 70.6 72 72.5
Non-current Liabilities
Staff retirement benefits 50,381 19,706 0 0 21.6
Deferred taxation 570,298 428,296 4 3 78.3
620,679 448,002 4 3 3.6
Current Liabilities

11. 10

Trade and other payables 3,950,339 3,663,772 24 24 96.3
Provisions 200,716 217,239 1 1 3.7
4,151,055 3,881,011 26 25 23.9
Total Liabilities 4,771,734 4,329,013 29 28 27.4
Total Liabilities & Shareholder
Equity
16,243,325 15,437,585 100 100 100


Interpretation and Recommendation on Common-Size Income Statement Analysis:
As per common size of the year 2012 with the comparison of the year 2011 the current assets
increased up to 4% from 38% to 42% and liabilities also increased from 28% to 29% . The
change in assets is 4 times more than liabilities so GSK is in position.

3. Ratio Analysis
Types of Ratio
There are four main types of ratios, which use to analyze financial performance of a company.
1. Liquidity Ratio
2. Efficiency Ratio/ Operating Ratio
3. Solvency Ratio
4. Profitability Ratio
GSK Ratio Analysis
FORMULA CALCULATION RATIO RECOMMENDATION
Liquidity Ratios
1.
Current
Ratio
Current
Assets /
Current
Liabilities

9,404,169 /
4,151,055
2.3
Current Ratio shows the financial
strength of the company. It measures
the short-term debt paying ability.
There are 2.3 in current assets to pay
Rs. 1 in current liabilities, which are
good enough.
2. L Quick Ratio
Quick Assets/
Current
Liabilities

*Quick
Assets= C.A-
Inventories
4,153,448 /
4,151,055


*Q.A= 9,404,169-
(170,501+
5,080,220)
1
The quick ratio tests whether a
business can meet its obligations even
if adverse conditions occur. There is 1
in current assets to pay Rs. 1 in current
liabilities; quick ratios between 0.5
and 1 are consider satisfactory.
3. Cash Ratio
Cash / Current
Liabilities
2,117,626 /
4,151,055
0.50
Cash ratio measure the immediate
amount of cash available to satisfy
short-term liabilities. In general 0.5:1
or higher is preferred so cash ratio i.e.
0.5 is not bad in firm but firm have to
improve its cash ratio.

12. 11

13. 12

Activity/ Operating Ratios
4.
Working
Capital
Turnover
Net Sales /
Working
Capital
23,149,964 /
5,253,000
4.4
W.C ratio is a measurement
comparing the depletion of
working capital to the
generation of sales over a
period. Working capital 4.4
shows the company effectively
using its working capital to
generate sales.
5.
Inventory
Turnover
COGS /
Average
Inventory
17,068,949 /
5,506,257.5
3.1
Inventory turnover 3.1 indicates
that how quickly inventory
sells.
6.
No. of
days to
sell
Inventory
365 /
Inventory
Turnover
365 / 3.1 118
It indicates that in 118 days
inventory sells.
7.
Receivabl
e
Turnover
Sales /
Average
Receivable

23149964/
350362
66.07

8.
No. of
days in
Receivabl
e
365 /
Receivable
Turnover
365/66.07 5

9.
Payable
Turnover
Purchases /
Average
Payable
17068949/
1388309
12.29

10.
No. of
days in
Payable
365 /
Payable
Turnover
365/12.29 29

11.
Cash
Conversio
n Cycle
No. of days in
receivable +
No. of days in
Inventory –
No. of days in
Payable
118+5-29 94

12.
Fixed
Asset
Turnover
Net Sales /
Avrg. Fixed
Assets
23149964 /
5784694

4
It measures a company’s ability
to generate net sales from fixed-
asset investment. Fixed asset
turnover 4 shows that company
has been more effective in using
the investment in fixed-assets to
generate revenues.

14. 13

13.
Total
Asset
Turnover
Net Sales /
Average Total
Assets
23,149,964 /
15,840,455
1.46
It measures a company’s ability
to generate net sales from asset
investment. 1.46 shows that
company has been use its assets
to quite efficiently generate sale
Solvency Ratios
14.
Financial
Leverage
Ratio or
Debt to
equity
Ratio
Total Debt /
S.H.E
4,771,734/
11,471,591
0.415
It indicates the proportion of
equity and debt the company is
using to finance its assets.
15.
Equity
Ratio
Total S.H.E /
Total Assets
11,471,591/
16,243,325
0.706
It measure how much
shareholders would receive in
the event of company-wide
liquidation. 0.706 indicates the
average position of ratio
shareholder may receive.
16.
Debt
Ratio
Total
Liabilities /
Total Assets
4,771,734 /
16,243,325
0.293
It indicates the proportion of
debt a company has relative to
its assets. Debt ratio is less than
1 i.e. 0.293 shows company has
more assets than debt.
17.
Interest
Coverage
Ratio
Operating
Income /
Interest
Charges
2,359,608 / 47,512 49.7
Interest Coverage Ratio is the
indicator of company’s ability
to meet its interest payment
obligations. GSK is effectively
able to meet its interest payment
obligation by the ratio of 49.7
Investment Ratios
18.
Earnings
Per Share
(E.P.S.)
Net income/
Number of
shares
outstanding
1320096/
263196
5.02
The portion of a company’s
profit allocated to each
outstanding share of common
stock. GSK has Rs. E.P.S.
19.
Price –
Earnings
Ratio
Market price
per share /
E.P.S
73.3 / 5 14.66
Price earnings ratio is the
measure of investo r’s
expectations about the
company’s future prospects.
GSK p/e ratio explain that an
investor is willing to pay
Rs.14.66 for Rs.1 of current
earnings.

15. 14

20.
Price to
book ratio
Common
S.H.E/
No. of shares
outstanding
2,631,960 /
500,000,000
0.0
Book value per share is the
recorded value of net assets
underlying each share of
common stock.
21.
Dividend
Yield
Dividend per
share / Market
price per
share
4 / 73.3 0.054
Dividend expressed as a rate of
return on the market price of the
stock i.e. 0.054.


Profitability Ratios
22.
Return on
asset
EBIT /
(Avrg. Total
Assets)*100
(2,359,608 /
15,840,455)*100
14.89
ROA indicates that how
profitable company’s assets are
generating profit. GSK 14.89%
get return from its assets.
23.
Return on
equity or
Return on
net worth
(Net Income /
Avrg.
S.H.E.)*100
(1,320,096 /
11,290,081.5)*100
11.6
ROE indicates company’s
profitability by measuring how
much profit generated with the
money invested by common
stock owners. GSK generated
about 11.6% of profit as per
S.H.E.
24.
Return on
sales or
Net profit
margin
(Net Income /
Net
Sales)*100
(1,320,096 /
23,149,964)*100
5.7
The indicator of management’s
ability to control cost. GSK has
5.7% profit margin and that is
good enough.
25.
Gross
Margin
(Gross Profit /
Net
Sales)*100
(6,081,015 /
23,149,964)*100
26.3
It shows the measure of the
profitability of the company’s
product.
26.
Operating
Margin
(Operating
Income / Net
Sales)*100
(2,359,608 / 23,
149,964)*100
10.19
It indicates the measure of the
profitability from operating
profit, which is 10.19% of
GSK.
27.
EBIT
Ratio
(EBIT / Net
Sales)*100
(2,359,608 / 23,
149,964)*100
10.19
EBIT ratio shows the
profitability of the company
before paying interest and tax,
which is good for GSK i.e.
10.19%.
28.
Earnings
Pre Tax
(Pre Tax
Profit / Net
Sales)*100
(2,312,096 /
23,149,964)*100
10

16. 15



References:
 GSK_Annual_Report_2012.
 Books:
 Accounting The Basis for Business Decisions by Meigs & Meigs 9
th
Edition
 Accounting The Basis for Business Decisions by Meigs Williams Haka Bettner 11
th

Edition
 Financial Reporting & Analysis by Charles H. Gibson 12
th
Edition
 Analysis and use of Financial Statements by G.I.White, A.C.Sondhi, Dov Fried 3
rd

Edition
 https://www.zionsbank.com/pdfs/biz_resources_book-6.pdf
 http://www.investopedia.com/terms/c/commonsizefinancialstatement.asp
 http://www.readyratios.com/reference/analysis/trend_analysis.html
 http://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/financial-
statement-analysis/trend-analysis