Business Studies, Chapter 16 – 20 Mark Questions.
1. Based Solely on the data provided in table 16.3 discuss the relative efficiency of GlaxoSmithKline and AstraZeneca in terms of their Profitability.
Over time, GSK and AZ have both increased their current asset ratio along with their acid test ratio from the years 2003 to 2004. The acid test ratio shows whether a firm has enough short terms assets to cover its long-term liabilities without having to sell its stock. The Current Asset Ratio shows that ability for a firm to pay its short-term obligations. With both of these having an increase, this is a good thing for each firm in terms of being in a good position to be able to make the profit or have the ability to make a profit.
GSK have a relatively high ROCE and would then have to pay out a lot of money to shareholder, cutting out from their profit in costs. This would make them less likely to be able to make a profit as their costs are higher but AZ have good level of ROCE as it is enough to satisfy the shareholders with a large pay out which is likely to balance out the fact that they have a low ROCE. This may then in fact mean that GSK and AZ have approximately the same outflows to shareholders
Profit margins for both companies are above 20%, which is good although you want this figure to be as high as possible. GSK are making the most amount of progress with this as they have had 30%+ on both years, which is a high profit margin considering the amount of Shareholders they have to pay with a reasonably high rate.
GSK have a moderate gearing ratio but this is likely to coincide with the ROCE, as the gearing ratio tends to be slightly higher than their ROCE on both years. Meaning a lot of the money invested into the company has come from the owners themselves. This will not cut into the businesses profits a lot but will affect the owner in terms of the amount of profit and return that he will gain. With AZ their ROCE is higher than what...
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