A. GlaxoSmithKline at a glance.
“GlaxoSmithKline (GSK) is a global healthcare company specialized in the discovery, development, manufacturing and marketing pharmaceutical and consumer health-related products. GSK has operations in about 114 countries, with products being sold in over 150 countries”.
A. Evaluation of profitability ratios.
For the evaluation of the profitability ratio over five-year period we will analyse the financial data from the annual reports of two companies: GlaxoSmithKline and Astra Zeneca. First of all, we would like to present the product revenue information of both companies as percentage from total revenues of each company from 2005 to 2009 period.
As we can see from the Figure 1.0, more than 20% of total revenues are the sales of respiratory drugs for 5 years, and the dynamics of sales of these drugs were on the same level. GSK is more concentrated on manufacturing and selling drugs of respiratory, anti-virals and vaccines. As for AstraZeneca, it is more concentrated on the sale of drugs for diseases of the cardiovascular and nervous system, cancers and gastrointestinal.
The gross profit margin has declined from 2005 to 2009 for GSK as a result of some combination of price increases. AstraZeneca has higher gross profit margin at 8,42% in 2009 and 5,46 % in 2008, because the gross sales of AstraZeneca is higher at 15% than GSK in 2009 and cost of goods sold is lower at 28% in 2009
There was an increase in operating profit of AstraZeneca at 6,25 % from 2008 to 2009, while the gross profit margin has increased only 3,27% for the same period, and the operating expenses were lower comparing with the sales revenue in 2009 than they had been in 2007
In GSK the pretax margin was slightly down from 31,08 % in 2005 to 27,82 % in 2009, while in AstraZeneca the pretax margin was increasing from 27.47% in 2008 to 33% in 2009, which is primarily due to the reduce of the cost of research and development
GSK`s return on total capital decreased from 2005 to 2009 by 5%, the same as competitor’s
It is interesting to note that GSK has experienced the decrease in operating profit margin from 2005 to 2009 (32% to 27% respectively). However, AstraZeneca could make improvements in controlling operating costs, such as administrative overheads. GSK has experienced the increase in the selling and administrative expences in the amount of 9, 5 billion £ in 2009 and 7,6 billion £ in 2008, which is a deteriorations of control over the operating costs, compared with the competitor. The net profit margin of GSK is below of one of AstraZeneca by 3% in 2009, but near the industry average, which is 19%
At this stage, it is safe to say that the GSK is behind its competitors for those profitability ratios that have been analyzed at this point. If we will look at the return on equity (ROE), the GSK` s ROE is higher than its competitor around by 14% in 2008 and by 22% in 2009. It means that GSK`s management uses investors money more effectively than competitor
B. Evaluation of liquidity and efficiency ratios.
If we look at current ratio of the GlaxoSmithKline, which shows the general ability of a company to pay its short-term obligations its meaning during all the period was more than 1, in average – 1,48, which is positive, which means that company is able to pay its short-term debts In year 2007 the meaning of the current ratio fell to 1,32, mostly due to the large increase in short-term borrowings In 2008 ratio rapidly went up, because company has generated 0,8 billions of £ by sales of H1N1 vaccine, accumulated more inventories and increased trade receivables comparing to 2007, what can probably mean that during crisis GSK has sold a lot by trade credits Average meaning of current liquidity ratio of the AstraZeneca in years 2008-2009 is 1,28, while GSK – 1,59 which proves that GSK is more...