project of gsk

Government College University, Faisalabad

Striving for Excellence

Chapter 1

INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS, ABOUT PROJECT & COMPANY

The subject of financial statement analysis is based on Generally Accepted

Accounting Principles (GAAP) which is refer to the standard framework of

guidelines for financial accounting used in any given jurisdiction; generally

known as accounting standards. Before preparing the financial statement we

should have to follow the principle of accounting that created by the GAAP. The

GAAP includes the standards, conventions, and rules accountants follow in

recording and summarizing, and in the preparation of financial statements.

Many countries use or are converging on the International Financial

Reporting Standards (IFRS), established and maintained by the International

Accounting Standards Board. In some countries, local accounting principles are

applied for regular companies but listed or large companies must conform to

IFRS, so statutory reporting is comparable internationally, across jurisdictions.

International Accounting Standards (IAS) IAS was issued between 1973

and 2001 by the Board of the International Accounting Standards

Committee (IASC). On April 1, 2001, the new IASB took over from the IASC the

responsibility for setting International Accounting Standards. During its first

meeting the new Board adopted existing IAS and Standing Interpretations

Committee standards (SICs). The IASB has continued to develop standards

calling the new standards International Financial Reporting Standards (IFRS).

The traditional assumptions of the accounting model is based on some

concepts such like as Going concern, Separate entity, Matching concepts,

accounting time period, Monetary unit, Realization and Materiality concepts.

A financial statement (or financial report) is a formal record of the

financial activities of a business, person, or other entity. In British English—

including United Kingdom company law—a financial statement is often referred



to as an account, although the term financial statement is also used, particularly

by accountants.

For a business enterprise, all the relevant financial information, presented

in a structured manner and in a form easy to understand, are called the financial

statements. They typically include four basic financial statements, accompanied

by a management discussion and analysis:

Balance Sheet (Statement of Financial Position)

Income Statement (Statement of Comprehensive

Income)

Statement of Changes in Equity

Statement of cash flows (reports on a company's cash flow

activities)

Elements of Financial Statements (IAS 1 article 10)The financial position of an enterprise is primarily provided in

the Statement of Financial Position. The elements financial statements include:

Asset

Liability

Equity

Revenues

Expenses:

Objective of Financial StatementsA financial statement should reflect true and fair view of the business

affairs of an organization. As statements are used by various constituents of the

society / regulators, they need to reflect true view of the financial position of the

organization. It is very helpful in many purposes such like as followings:

Check the financial position of the business for a specific period.

Current Cost Accounting.



Financial capital maintenance in nominal monetary units.

Financial capital maintenance in units of constant purchasing power.

To use financial statements to evaluate an organisation’s creditability.

To apply analytical tools and techniques to financial statements to obtain

useful information to aid decision making.

After introducing the subject of financial statement analysis, now I want to

explore some thing about this project. The project of financial statement analysis

is complete set of all financial ratios which is explained in detail and practically

by the use of financial statements of GSK. Some important suggestions are also

given in the project while a finance manager can give after the analysis.

In this project all the ratios are discussed practically that are we studied

during the course. In this project I used the financial statements of GSK that is

pharmaceutical multinational company and ascertain the good financial position

in all years. But I selected its 5 years from 2007 to 2011 and apply the all ratios.

Firstly the introduction and history of GSK is mentioned on it and after this all

financial statement analysis is written.

Introduction of Glaxo Smith Kline

Glaxo Smith Kline (GSK) is a British multinational

pharmaceutical, biologics, vaccines and consumer healthcare company

headquartered in London, United Kingdom. It is the world's fourth-largest

pharmaceutical company measured by 2009 prescription drug

sales (after Pfizer, Novartis, and Sanofi).

It was established in 2000 by the merger of Glaxo Welcome plc (formed

from the acquisition of Welcome plc by Glaxo plc) and SmithKline Beecham

plc (formed from the merger of Beecham plc and SmithKline Beckman

Corporation, which was formed by combining the Smith Kline French and

Beckman companies).



GSK has a portfolio of products for major disease areas including asthma,

cancer, virus control, infections, mental health, diabetes, and digestive. It also has

a large consumer healthcare division which produces and markets oral healthcare

and nutritional products and over-the-counter medicines

including Sensodyne, Boost, Horlicks, and Gaviscon. In July 2012, GSK pleaded

guilty to criminal charges and agreed to a $3 billion settlement of the largest

health-care fraud case in the U.S. and the largest payment by a drug company in

the US. The settlement is related to the company's illegal promotion of best-

selling anti-depressants.

GSK has a primary listing on the London Stock Exchange and is a

constituent of the FTSE 100 Index. As of 6 July 2012, it had a market

capitalization of £74.8 billion, the fifth-largest of any company listed on the

London Stock Exchange. It has a secondary listing on the New York Stock

Exchange.

History of GSK

GSK was formed in 2000 by the merger of Glaxo Wellcome plc (formed

from the acquisition of Wellcome plc by Glaxo plc), and SmithKline Beecham

plc (formed from the merger of Beecham plc and SmithKline Beckman

Corporation). Glaxo Wellcome

In 1880, Burroughs Wellcome & Company was founded in London by

the American pharmacists Henry Wellcome and Silas Burroughs. The Wellcome

Tropical Research Laboratories opened in 1902. In 1959, the Wellcome Company

bought Cooper, McDougall & Robertson Inc. to become more active in animal

health.

The Welcome Company production centre was moved from New York

to North Carolina in 1970, and the following year another research centre was

built. Glaxo was founded in Bunnythorpe, New Zealand, in 1904. Originally

Glaxo was a baby food manufacturer processing milk into a baby food of the

same name: the product was sold under the slogan "Glaxo builds bonny babies"

from 1908. Still visible on the main street of Bunnythorpe is a dairy factory



(factory for drying and processing cows' milk into powder) with the original

Glaxo logo clearly visible, it is now a car repair shop.

Glaxo became Glaxo Laboratories, and opened new units in London in

1935. Glaxo Laboratories bought two companies, Joseph Nathan and Allen &

Hanburys, in 1947 and 1958 respectively. After the company bought Meyer

Laboratories in 1978, it started to play an important role in the US market. In

1983 the American arm Glaxo Inc. moved to Research Triangle Park (US

headquarters/research) and Zebulon (US manufacturing) in North Carolina.

Burroughs Wellcome and Glaxo merged in 1995 to form GlaxoWellcome.

In the same year, GlaxoWellcome opened its Medicine Research Centre

in Steven age. Three years later GlaxoWellcome bought Polfa Poznan

Company in Poland.

Glaxo Wellcome and SmithKline Beecham announced their intention to

merge on 17 January 2000. Following receipt of necessary regulatory approvals,

the merger was completed in December 2000, forming GlaxoSmithKline

In 2001, GSK completed the acquisition of New Jersey-based Block

Drug for US$1.24 billion. In July 2002 GSK House, located in Brentford, London,

was officially opened as GSK's new world headquarters by then-Prime

Minister Tony Blair.The building was built at a cost of £300 million and is home

to around 3,000 staff. In October 2006 GSK acquired the US-based consumer

healthcare company CNS Inc., whose products included Breathe Right nasal strips

and FiberChoice dietary fibre supplements, for US$566 million in cash. GSK

opened its first R&D centre in China in May 2007, located in Shanghai and

initially focused on neurodegenerative diseases.

Since 2008, GSK has been running clinical trials of new malaria Vaccine.

The vaccine, which is known as RTS, S, has been in development for more than

25 years, at first for the American military and then with major support from the

Bill and Melinda Gates Foundation. The clinical trial is scheduled to continue



through 2014 and will include tests on more than 15,000 children, starting at

infancy.

In February 2009, GSK head Andrew Witty announced that the company

would cut drug prices by 25% in 50 of the poorest nations, release intellectual

property rights for substances and processes relevant to neglected disease into

a patent poolto encourage new drug development, and invest 20% of profits from

the least developed countries in medical infrastructure for those countries.

The decision has received mixed reactions from medical

charities. Medicines Sans Frontières welcomed the decision, encouraging other

companies to follow suit, but criticized GSK for failing to include HIV patents in

their patent pool, and for not including middle-income countries in the initiative.

In April 2009 GSK agreed to acquire the US-based dermatological

pharmaceuticals company Stiefel Laboratories for US$3.6 billion (£2.5 billion).

On 16 November 2009, the US Food and Drug Administration (FDA) announced

that a vaccine for 2009 H1N1 influenza protection (manufactured by GSK's ID

Biomedical Corp. subsidiary) would join the four vaccines approved on 15

September. In June 2010, the company acquired Laboratories Phoenix, an

Argentine pharmaceutical company focused on the development, marketing and

sale of branded generic products, for a cash consideration of approximately

$253m.

2011 to PresentIn February 2011, GSK announced plans to sell some "non-core" brands.

In December 2011, the company agreed to a $660 million deal with Prestige

Brands Holdings, which will take over 17 brands with sales of $210 million,

including BC Powder, Beano, Ecotrin, Fiber Choice, Goody's Powder, Sominex,

and Tagamet. In March 2012 GSK announced plans to invest around £500 million

in manufacturing facilities in Elverson, northern England, designating it as the site



for a previously announced biotech plant. GSK made a US$2.6 billion (£1.6

billion) offer for the United States-based biopharmaceutical company Human

Genome Sciences in April 2012

Mission

Our global quest is to improve the quality of human life by enabling

people to do more, feel better and live longer. We have a challenging and

inspiring mission to improve the quality of human life by enabling people to do

more, feel better and live longer. By focusing our business around our strategic

priorities, we’re confident that we can fulfill this promise.

Vision

At GlaxoSmithKline we have a challenging and inspiring mission to

improve the quality of human life by enabling people to do more, feel better and

live longer. The key behaviors which distinguish our successful people are

innovative thinking, engaging and developing others, leading people and

achieving excellence.

We carry out our business with the enthusiasm of entrepreneurs, excited

by the constant search for innovation. We also have a strong culture of



performance achieved with integrity. We are confident of attaining our set goals

because our people work bring to the workplace an attitude of passion and

positive energy.

Our Spirit

We undertake our quest with the enthusiasm of entrepreneurs, excited by

the constant search for innovation. We value performance achieved with integrity.

We will attain success as a world class global leader with each and every one of

our people contributing with passion and an unmatched sense of urgency.

Chapter 2

ANALYSIS OF FINANCIAL STATEMENT OF GSK

Financial analysis (also referred to as financial statement

analysis or accounting analysis or Analysis of finance) refers to an assessment of

the viability, stability and profitability of a business, sub-business or projects.

Ratio analysis is an analytical technique that typically involves a comparison of

the relationship between two financial items.

It is performed by professionals who prepare reports using ratios that

make use of information taken from financial statements and other reports. These

reports are usually presented to top management as one of their bases in making

business decisions.

We've touched on some of the ratios mentioned here in earlier lessons, but

this lesson will give you a comprehensive look at the most important numbers to

key in on. Some ratios can be useful by themselves. Others are completely useless

when considered without context. Typically, financial ratios provide the most

benefit when they are compared with other identical ratios.

A company's ratios are used comparatively in two main fashions: over

time and against other companies. Comparing the same ratios for a firm over time

is a great way to identify a company's trends. If certain ratios are steadily



improving, it may suggest an improvement in a company's operations or financial

situation; conversely, if certain ratios seem to be getting worse, it may highlight

some troubling prospects about the firm.

Financial ratio analysis involves calculating and analysing ratios that use

data from one, two or more financial statements. Ratio analysis also expresses

relationships between different financial statements. Financial Ratios can be

classified into six main categories:

Trend Analysis

Liquidity or Short-Term Solvency ratios

Leverage Analysis

Profitability Analysis

Activity or Asset Management Ratios

Cash Flow Analysis

Objectives of Ratio Analysis

The calculations of financial ratios have some following

objectives:

• Standardize financial information for comparisons

• Evaluate current operations

• Compare performance with past performance

• Compare performance against other firms or industry standards

• Study the efficiency of operations



• Ratio analysis begins with the calculation of a set of financial ratios

designed to show the relative strengths and weaknesses of a company.

• Ratio analysis helps to show whether the firm’s position has been

improving or deteriorating

• Ratio analysis can also help plan for the future

• The study of percentage changes in financial statement over a time period.

• Trend analysis provides a simple forecasting method.

Uses and Limitations of Ratio Analysis:

Financial ratios are very helpful to analyze the fiscal position of an

organization but it has some limitation. Ratio analysis is widely used in practice in

business. Teams of investment analysts pour over the historical and forecast

financial information of quoted companies using ratio analysis as part of their

toolkit of methods for assessing financial performance.

Venture capitalists and banker use the ratios featured here and others when

they consider investing in, or loaning to businesses. The main strength of ratio

analysis is that it encourages a systematic approach to analyzing performance.

• Comparison with industry averages is difficult if the firm operates many

different divisions.

• “Average” performance not necessarily good.

• Seasonal factors can distort ratios.

• “Window dressing” techniques can make statements and ratios look better.

• Different operating and accounting practices distort comparisons.

• Sometimes hard to tell if a ratio is “good” or “bad.”



• Difficult to tell whether company is, on balance, in strong or weak

position.

• A firm’s industry category is often difficult to identify

• Published industry averages are only guidelines

• Sometimes difficult to interpret deviations in ratios.

• Relative size is ignored (e.g., both large & small firms can be compared)

• It is assumed that all numbers used are correct (consider both possible

errors and earnings management)

• If the numbers are not reliable, ratios are not particularly useful

• Effects of Inflation

Income Statement of Glaxo Smith Kline

For the Year Ended 31st December 2007, 2008, 2009, 2010 & 2011

Particulars 2007

£m2008 £m

2009 £m

2010 £m

2011 £m

Turnover 22,716 24,352 28,36828,39

2 27,387Cost of sales 5,317 6,415 7,380 7,592 7,332

Gross profit 17,399 17,937 20,98820,80

0 20,055

Selling, general and administration 6,954 7,656 9,59213,05

3 8,826Research and development 3,327 3,681 4,106 4,457 4,009Other operating income 475 541 1,135 493 587Operating profit 7,593 7,141 8,425 3,783 7,807Finance income 262 313 70 116 90Finance costs 453 843 783 831 799Profit on disposal of interest in associate 0 0 115 8 585Share of after tax profits of associates 50 48 64 81 15Profit before taxation 7,452 6,659 7,891 3,157 7,698Taxation 2,142 1,947 2,222 1,304 2,240



Profit after taxation for the year 5,310 4,712 5,669 1,853 5,458In the following figure, the financial performance of GSK’s five year is

presented. This figure is showing it sale, gross profit, operating profit and net

profit in Millions of Pounds.

2007 2008 2009 2010 20110

5,000

10,000

15,000

20,000

25,000

30,000INCOME STATEMENT OF GSK

Turnover Gross profit Operating profit Profit before taxation Profit after taxation for the yearYears

Am

ou

nts

in

£M

In the figure I take the years at X-Axis and values at Y-Axis. First bar is

showing turnover / net sales that is increase year by year. Second bar is showing

gross profit of GSK which is going upward. Third bar is representing the

Operating profit. Fifth bar is shoeing Profit before taxation and the last sixth bar

that is showing Profit after taxation for the year.

Balance Sheet of Glaxo Smith Kline

For the Year Ended 31st December 2007, 2008, 2009, 2010 & 2011

Particulars 2007 £m

2008 £m

2009 £m

2010 £m

2011 £m

ASSETS

Non-current assets

Property, plant and equipment 7,821 9,678 9,374 9,045 8,748

Goodwill 1,370 2,101 3,361 3,606 3,754Other intangible assets 4,456 5,869 8,183 8,532 7,802Investments in associates and joint ventures 329 552 895 1,081 560Other investments 517 478 454 711 590Deferred tax assets 2,196 2,760 2,374 2,566 2,849Derivative financial instruments 1 107 68 97 85



Other non-current assets 687 579 583 556 525

Total Non-Current Assets 17,377 22,124 25,292 26,194 24,913

Current Assets

Inventories 3,062 4,056 4,064 3,837 3,873Current tax recoverable 58 76 58 56 85Trade and other receivables 5,495 6,265 6,492 5,793 5,576Derivative financial instruments 475 856 129 93 70Liquid investments 1,153 391 268 184 184Cash and cash equivalents 3,379 5,623 6,545 6,057 5,714Assets held for sale 4 2 14 16 665

Total Current Assets 13,626 17,269 17,570 16,036 16,167

Total Assets 31,003 39,393 42,862 42,230 41,080

LIABILITIES

Current liabilities Short-term borrowings 3,504 956 1,471 291 2,698Trade and other payables 4,861 6,075 6,772 6,888 7,359Derivative financial instruments 262 752 168 188 175Current tax payable 826 780 1,451 1,047 1,643Short-term provisions 892 1,454 2,256 4,380 3,135

Total current liabilities 10,345 10,017 12,118 12,794 15,010

Non-current liabilities Long-term borrowings 7,067 15,231 14,786 14,809 12,203Deferred tax liabilities 887 714 645 707 822Pensions and other post benefits 1,383 3,039 2,981 2,672 3,091Other provisions 1,035 1,645 985 904 499Derivative financial instruments 8 2 0 5 2Other non-current liabilities 368 427 605 594 626

Total non-current liabilities 10,748 21,058 20,002 19,691 17,243

Total liabilities 21,093 31,075 32,120 32,485 32,253

Net assets 9,910 8,318 10,742 9,745 8,827

EQUITY Share capital 1,503 1,415 1,416 1,418 1,387Share premium account 1,266 1,326 1,368 1,428 1,673Retained earnings 6,475 4,622 6,321 4,779 3,370Other reserves 359 568 900 1,262 1,602

Shareholders’ equity 9,603 7,931 10,005 8,887 8,032Minority interests 307 387 737 858 795



Total equity 9,910 8,318 10,742 9,745 8,827Balance sheet of the GSK is exploring the financial position of all five

financial years. Before jumping on the analysis we should take a look on the

financial performance and position of GSK. The following figure is presenting the

financial position of GSK.

2007 2008 2009 2010 20110

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

31,003

39,39342,862 42,230 41,080

21,093

31,075 32,120 32,485 32,253

9,910 8,31810,742 9,745 8,827

BALANCE SHEET OF GSK

Total Assets Total liabilities Total equityYEARS

Amou

nts i

n £M

I take the five years at X-axis and values at Y-axis. In this figure the first bar is showing the total assets, second bar is showing total liabilities and the third bar is showing total equity of five years of GSK.

Chapter 3

TREND ANALYSIS ( Vertical & Horizontal ) OF FINANCIAL

SATETEMENTS OF GSK

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 compared with each other for the

several years after converting them in the percentage. In the trend analysis, the

sales of each year from the 2008 to 2011 will be converted into percentage form

in order to compare them with each other.



The trend analysis is also called a common-sized analysis of financial

statements that shows the each item is expressed as a percentage of a major

financial statement component. Common size ratios are used to compare financial

statements of different-size companies or of the same company over different

periods. By expressing the items in proportion to some size-related measure,

standardized financial statements can be created, revealing trends and providing

insight into how the different companies compare.

There are two types of trend analysis that are useable to analysis the

financial statements of a company and helpable for financial manager to take a

suitable decision for a good future. Types of trend analysis are following as:

Horizontal Analysis

Vertical Analysis

The trend analysis of financial statements can be used to some basic

purposes such like the following reason:

• Identify key structural changes in a company’s financial data over a period of time.

• Compare the financial data of firms that vary significantly in size.

• Compare a company’s financial data to industry norms.

1) Horizontal Analysis of Financial Statements Horizontal analysis of financial statements involves comparison of a

financial ratio, a benchmark, or a line item over a number of accounting periods.

This method of analysis is also known as trend analysis. Horizontal analysis

allows the assessment of relative changes in different items over time. It also

indicates the behavior of revenues, expenses, and other line items of financial

statements over the course of time.



A horizontal analysis is used to comparative financial statements to

calculate dollar or percentage changes in a financial statement item from one

period to the next financial period.

Horizontal Analysis of Income Statement

Technique: In this horizontal analysis every item (sales, CGS and profits) of a

year of income statement is divided by its previous year and multiply by 100. All

percentages of 2007 is 100% because it has no bases year that why it’s all items

contain 100% whole year. The base of all years is its proceeding year.

Particulars 2007 %age

2008 %age

2009 %age

2010 %age

2011 %age

Turnover 100% 107% 116% 100% 96%Cost of Sales 100 121 115 103 97

Gross profit 100 103 117 99 96

Selling, general and administration 100 110 125 136 68

Research and development 100 111 112 109 90

Other operating income 100 114 210 43 119

Operating profit 100 94 118 45 206

Finance income 100 119 22 166 78

Finance costs 100 186 93 106 96

Profit on disposal of interest 0 0 0 7 7,313

Share of after tax profits 100 96 133 127 19

Profit before taxation 100 89 119 40 244

Taxation 100 91 114 59 172

Profit after taxation for the year 100 89 120 33 295

Comments & Suggestions of Horizontal Analysis ofIncome Statement

Turnover / Sales

The turnover is a net sale of GSK which is at high point of 100% in 2007.

In 2008 it increase to 107% that is good sign for company. In 2009 the sales also

increase from 107% to 116 % that is good condition and the company should



carry on. But in 2010 the sales decrease from 116% to 100% that is shoeing a

poor performance in this year so that company should improve the condition.

In 2011 the sale decrease again and reach at 96% from 100% as compared

to previous year that shows a poor performance in this year. The sale of five year

presented at one point by the following graph.

2007 2008 2009 2010 20110

20

40

60

80

100

120 100107

116

100 96

Turnover

The above graph of turnover is showing the increases and decreases in five

years. At the X-Axis five years are mentioned and at the other Y-Axis contains

the percentage variation in sale of GSK. This graph is presenting q quick view of

five year’s performance.

Cost of Sales The cost of sale is an expense for the company so that it should be less in

every year. In 2007 the cost was 100% that is neutral condition for company. In

2008 the cost increase from 100% to 121% that is poor condition for company

and company should control on its cost of manufacturing.



In 2009 the cost increases from 121% to 115% that is a good sign for GSK

so that the company should carry on their operation by adopting current policies.

In 2010 the cost decrease from 115% to 103 as compared to last year and this is

good thing for GSK. In 2011 the cost decrease again from 6% that is good sign

for GSK and company should follow the same rules.

2007 2008 2009 2010 20110

20

40

60

80

100

120

140

100

121115

10397

Cost of sales





Gross Profit

The gross profit of GSK is that profit in which some expenses are

included. In 2007 the gross profit was 100% and when compares it with next year



in which the gross profit was 103%. This is improvement for GSK and it should

carry on.

In 2009 the company increase it GP from 103% to 117% that is good sign

for GSK and it should carry on. In 2010 the GP decrease from 18% that is poor

performance of this year and company should improve it performance. In 2011

the GP is 96% and decrease it as compare with last year from 3% which is not

good for GSK and GSK should improve it bad conditions to get more profit.

2007 2008 2009 2010 20110

20

40

60

80

100

120

Gross profit





Selling, General and Administration



Those expenses that are incurred for the selling purposes, general

expenses and administration of GSK. In 2007 the expenses was normal and in

2008 the expenses increased from 100% to 110% that is bad sign for GSK and it

should control it all type of expenses. In 2009 the expenses increase again from

110% to 125% and present poor performance and GSK should maintain its

expenses.

In 2010 company in the expenses reach at highest point of 136% that is

very bad position for GSK it should strictly control its expenses. In 2011 the GSK

improve it condition and reduce it expenses from 136% to 68% that is good thing

for GSK and it should maintain its condition

2007 2008 2009 2010 20110

20

40

60

80

100

120

140

Selling, general and administration







Research and Development Those expenses that are incurred in research and development department

in 2007 are 100% and in 2008 the expenses increased from 100% to 111% that is

bad sign for GSK and it should control it all type of expenses. In 2009 the

expenses increase again from 111% to 112% and present poor performance and

GSK should maintain its expenses.

In 2010 company in the expenses reach at the point of 109% that is good

position for GSK it should maintain it strategies. In 2011 the GSK improve it

condition and reduce it expenses from 109% to 90% that is good thing for GSK

and it should maintain its condition

2007 2008 2009 2010 20110

20

40

60

80

100

120

Research and development







Other Operating Income

The company gain another operating in 2007 is 100% that is good sign for

company and it should carry on. In 2008 GSK gained more income as compare to

last year is 114% that is good sign for company and it should carry on. In 2009

GSK gained more income as compare to it last year 210% that is good sign for

company and it should carry on.

In 2010 GSK gained less income as its last year 43% that is showing the

poor performance in this year so that company should improve its condition. In

2011 GSK increase it income to 119% that is good thing for company now than it

should maintain it condition.

2007 2008 2009 2010 20110

50

100

150

200

250

Other operating income







Operating Profit

Operating profit is operational income of GSK which is in 2007 it 100%

but in 2008 it decrease from 6% and become 94% that is poor sign for GSK so

company should improve it operations. In 2009 GSK increase its profit from 94%

to 117% that is good performance and it should maintain it.

In 2010 GSK decrease it profit from 117% to 44% and it is poor thing for

company, it should improve its profitability. In 2011 GSK improve its profit from

44% to 206% that is good thing for company and now maintain it.

2007 2008 2009 2010 20110

50

100

150

200

250

100 94

118

45

206

Operating profit







Finance Income

In 2007 the finance income of GSK was 100% and increase in 2008 from

100% to 119% that is shoeing good performance of this year so GSK wants to

keep doing. In 2009 GSK decrease its performance from 119% to 22% that is bed

sign for company and GSK should improve its condition.

In 2010 GSK increase its profit percentage from 22% to 166% that is good

sign for GSK and company want to keep doing. In 2011the GSK again decrease

its performance from 166% to 78% that is poor performance of GSK, it should

improve its position.

Finance Costs In 2007 the finance cost of GSK was 100% and increase in 2008 from

100% to 186% that is showing poor performance of this year so GSK wants some

improvements. In 2009 GSK decrease its cost from 186% to 93% that is good

sign for company and GSK should keep its condition.

In 2010 GSK increase its cost percentage from 93% to 106% that is poor

sign for GSK and company wants to improve it condition. In 2011the GSK again

decrease its cost from 106% to 96% that is good performance of GSK, it should

keep its position.

Profit on Disposal of Interest In the 2007, 2008 & 2009 GSK earned no profit but in 20010 the profit on

deposal of interest of GSK was 7% and increase in 2011 from 7% to 7313% that

is showing good performance of this year so GSK wants to keep doing.

Share of after Tax Profits In 2007 the share of after tax profits of GSK was 100% and decrease in

2008 from 100% to 96% that is showing bad performance of this year so GSK



wants to improve. In 2009 GSK increase its performance from 96% to 133% that

is good sign for company and GSK should keep its.

In 2010 GSK decrease its profit percentage from 133% to 127% that is

poor sign for GSK and company want to improve. In 2011the GSK again decrease

its performance from 127% to 19% that is poor performance of GSK, it should

improve its position.

Profit before Taxation In 2007 profit before tax of GSK was 100% and decrease in 2008 from

100% to 89% that is showing poor performance of this year so GSK wants to

improve it. In 2009 GSK increase its performance from 89% to 119% that is good

sign for company and GSK should keep its condition.

In 2010 GSK decrease its profit percentage from 199% to 40% that is poor

sign for GSK and company wants some improvements. In 2011the GSK increase

its performance from 40% to 244% that is good performance of GSK, it should

keep its position.



2007 2008 2009 2010 20110

50

100

150

200

250

10089

119

40

244

Profit before taxation





Taxation

In 2007 GSK was paid 100% tax and decrease in 2008 from 100% to 91%

that due to less profit this year. In 2009 GSK increase its profit, that why it paid

tax from 91% to 114% that is good sign for company and GSK should keep its

condition. In 2010 GSK decrease its profit percentage from 114% to 59% that is

poor sign for GSK and company want some improvements.



In 2011the GSK increase its performance so that it paid big amount of tax

that is from 59% to 172% that is good performance of GSK, it should keep its

position.

2007 2008 2009 2010 20110

20

40

60

80

100

120

140

160

180

10091

114

59

172

Taxation





Profit after Taxation for The Year

In 2007 the net income of GSK was 100% and decrease in 2008 from

100% to 89% that is showing poor performance of this year so GSK wants some

big improvements. In 2009 GSK increase its performance from 89% to 120% that

is excellent sign for company and GSK should maintain its condition. In 2010



GSK decrease its profit percentage from 120% to 33% that is bad sign for GSK

and company want some improvements. In 2011the GSK again increase its

performance from 33% to 295% that is good performance of GSK, it should

maintain its position.

2007 2008 2009 2010 20110

50

100

150

200

250

300

10089

120

33

295

Profit after taxation for the year





Horizontal Analysis of Balance Sheet Technique: In this horizontal analysis of balance sheet, every item (sales,

CGS and profits) of a year is divided by its previous year’s item and multiply by

100. All percentages of 2007 is 100% because it has no bases year that why its all

items contain 100% whole year. The base of all years is its proceeding year.



Particulars 2007

%age

2008

%age

2009

%age

2010

%age

2011

%age

ASSETS

Non-current assets

Property, plant and equipment 100% 124% 97% 96% 97%

Goodwill 100 153 160 107 104

Other intangible assets 100 132 139 104 91

Investments in associates and joint

ventures 100 168 162 121 52

Other investments 100 92 95 157 83

Deferred tax assets 100 126 86 108 111

Derivative financial instruments 100 10,700 64 143 88

Other non-current assets 100 84 101 95 94

Total Non-Current Assets 100 127 114 104 95

Current Assets

Inventories 100 132 100 94 101

Current tax recoverable 100 131 76 97 152

Trade and other receivables 100 114 104 89 96

Derivative financial instruments 100 180 15 72 75

Liquid investments 100 34 69 69 100

Cash and cash equivalents 100 166 116 93 94

Assets held for sale 100 50 700 114 4,156

Total Current Assets 100 127 102 91 101

Total Assets 100 127 109 99 97

LIABILITIES

Current liabilities

Short-term borrowings 100 27 154 20 927

Trade and other payables 100 125 111 102 107


Current tax payable 100 94 186 72 157



Short-term provisions 100 163 155 194 72

Total current liabilities 100 97 121 106 117

Non-current liabilities

Long-term borrowings 100 216 97 100 82

Deferred tax liabilities 100 80 90 110 116

Pensions and other post benefits 100 220 98 90 116

Other provisions 100 159 60 92 55


Other non-current liabilities 100 116 142 98 105

Total non-current liabilities 100 196 95 98 88

Total liabilities 100 147 103 101 99

Net assets 100 84 129 91 91

EQUITY

Share capital 100 94 100 100 98

Share premium account 100 105 103 104 117

Retained earnings 100 71 137 76 71

Other reserves 100 158 158 140 127

Shareholders’ equity 100 83 126 89 90

Minority interests 100 126 190 116 93

Total equity 100 84 129 91 91

That was the horizontal analysis of balance sheet. Now the following

graph is presenting the asset side of GSK that contains current assets, noncurrent

assets and total assets of GSK.



2007 2008 2009 2010 20110

20

40

60

80

100

120

140

100

127

114104

95100

127

10291

101100

127

10999 97

ASSETS SIDE

Total Non-Current Assets Total Current Assets Total AssetsYears

%ag

es

In this graph the percentage ratio of horizontal analysis is explain at Y-

Axis and the five years are stated at X-Axis. In 2007 all assets (Current, Non-Current &

Total Assets) are 100% because of there was no any base year before the 2007. In 2008

the ratio of all assets are increasing that was a good point for GSK but as the 2009 ended

the GSK decrease its all assets and at that point it is not good position of GSK to pay its

debts.

In 2010 the assets aging decrease but in 2011 current assets of GSK

increases by some little bit percentage. That was not good condition for GSK because

increase should be in all assets not in one type or two type assets



2007

2008

2009

2010

2011

0 50 100 150 200 250100

97

121

106

117

100

196

95

98

88

100

147

103

101

99LIABILITIES SIDE

Total liabilities Total non-current liabilities Total current liabilities%ages

Yea

rs

At the below a graph horizontal analysis of liabilities is presented that is

showing the liability side of GSK. The following graph contains current, non-current

and total liabilities analysis of horizontal. In this graph the percentage ratio of horizontal

analysis of balance sheet is made at X-Axis and the five years are stated at Y-Axis.

2007 2008 2009 2010 20110

20

40

60

80

100

120

140

100

84

129

91 91

Total equity

Years

%a

ge

s

Now at the last and important item of balance sheet, total equity is

presented by graph at below. This graph is showing the five years ups and down in



owner’s equity of GSK. At the point of X-Axis the five years are mentioned and a

second Y-Axis percentage of analysis is presented.

2) Vertical Analysis of Financial Statements

Vertical analysis of financial statements is a technique in which the

relationship between items in the same financial statement is identified by

expressing all amounts as a percentage a total amount. This method compares

different items to a single item in the same accounting period. The financial

statements prepared by using this technique are known as common size financial

statements.

A vertical analysis is used for a single financial statement in which each

item is expressed as a percentage of a significant total, e.g., all income statement

items are expressed as a percentage of sales.

Vertical Analysis of Income Statement Technique: In this vertical analysis of income statement the Net Sale/Revenue

is used as a base and all items are divided by net sale and multiply by 100. So that

the percentage of sale every year would be 100% and other item different.

Particulars 2007 %age

2008 %age

2009 %age

2010 %age

2011 %age

Turnover 100% 100% 100% 100% 100%

Cost of sales 23 26 26 27 27

Gross profit 77 74 74 73 73

Selling, general and administration 31 31 34 46 32

Research and development 15 15 14 16 15

Other operating income 2.091 2.221 4.009 1.736 2.143

Operating profit 33 29 30 13 29

Finance income 1.153 1.285 0.246 0.408 0.328

Finance costs 1.994 3.461 2.760 2.926 2.917

Profit on disposal of interest 0 0 0.405 0.028 2.136

Share of after tax profits 0.220 0.197 0.225 0.285 0.054

http://www.readyratios.com/reference/accounting/financial_statement.html



Profit before taxation 33 27 28 11 28

Taxation 9 8 8 5 8

Profit after taxation for the year 23 19 20 7 20

Comments & Suggestions of Vertical Analysis ofIncome Statement

Turnover According to vertical analysis, the percentages of all five years are 100%

because sale is base for all items so that sale is divided by sale and multiply by

100 and become it 100%

2007 2008 2009 2010 20110

102030405060708090

100

100 100 100 100 100

Turnover

Axis Title

Axis

Title

Cost of sales In 2007 the cost of sale is very less part of sale 23% that is good edge for

GSK and GSK wants to maintain the cost. In 2008 the cost of sale increases and

become 26% of sale and GSK should control the cost. In 2009 the GSK maintain

the expenses as like previous year. In 2010 and 2011the cost increased by I %.



2007 2008 2009 2010 201121

22

23

24

25

26

27

23

2626

27 27

Cost of sales

Gross Profit

After subtracting the cost from sale, the gross profit of GSK in 2007 was

77% that is decreases in 2008 and become 74% which is not good for company

and GSK should work hard to increases it. In 2009 the gross profit was 74% of its

sale and decreases in 2010 and 2011 by 1% so that GSK should improve its

condition.

2007 2008 2009 2010 201171

72

73

74

75

76

77 77

7474

73 73

Gross profit

Operating Profit



The operating profit of GSK in 2007 was 33% portion of its sale and

decreases in 2008 and become 29% of its sale. In 2009 profit increases and

become 30% part of its sale but profit decrease in 2010 and reach at the point of

13% portion of its net sales that is not good for GSK so GSK want some

improvement to increases the ratio of profit.

2007 2008 2009 2010 20110

5

10

15

20

25

30

3533

29 30

13

29

Operating profit

Profit Before Taxation

In 2007 the profit before taxation is 33% of its sale that is decreases in

2008 27% part of sale that is not good sign for GSK. In 2009 company gave good

performance and profit increased by 1 % but it lose its profit in 2010 and become

11% part of sale.

2007 2008 2009 2010 20110

5

10

15

20

25

30

3533

27 28

11

28

Profit before taxation



Profit after Taxation for the Year At the last the net profit of GSK in 2007 was 23% of its sale that decreases

in 2008 to 19% but it increases in 2009 to 20% of its sales. In 2010 GSK earn 7%

net profit of its net sale that is very poor sign for GSK but it improve its position

and reach at the point of 20% in 2011.

2007 2008 2009 2010 20110

5

10

15

20

2523

19 20

7

20

Profit after taxation for the year

Vertical Analysis of Balance Sheet

Technique: In this vertical analysis of income statement the Net Sale/Revenue

is used as a base and all items are divided by net sale and multiply by 100. So that

the percentage of sale every year would be 100% and other item different.

Particulars 2007

%age

2008

%age

2009

%age

2010

%age

2011

%age

ASSETS

Non-current assets

Property, plant and equipment 25.2 24.5 21.8 21.4 21.2

Goodwill 4.41 5.333 7.84 8.53 9.13

Other intangible assets 14.3 14.89 19.01 20.2 18.9

Investments in associates 1.06 1.401 2.08 2.55 1.36

Other investments 1.66 1.213 1.05 1.68 1.43

Deferred tax assets 7.08 7.0063 5.53 6.076 6.93



Derivative financial instruments 0.0032 0.271 0.15 0.229 0.206

Other non-current assets 2.21 1.469 1.36 1.316 1.27

Total Non-Current Assets 56.04 56.16 59.007 62.02 60.6

Current Assets

Inventories 9.87 10.29 9.48 9.085 9.42

Current tax recoverable 0.18 0.192 0.135 0.132 0.206

Trade and other receivables 17.7 15.90 15.14 13.7 13.5


Liquid investments 3.71 0.992 0.625 0.43 0.447

Cash and cash equivalents 10.8 14.27 15.2 14.3 13.9

Assets held for sale 0.012 0.005 0.032 0.037 1.61

Total Current Assets 43.9 43.8 40.9 37.9 39.3

Total Assets 100 100 100 100 100

LIABILITIES

Current liabilities

Short-term borrowings 11.3 2.42 3.43 0.68 6.56

Trade and other payables 15.6 15.4 15.7 16.3 17.9


Current tax payable 2.66 1.98 3.38 2.47 3.99

Short-term provisions 2.87 3.69 5.263 10.3 7.63

Total current liabilities 33.3 25.4 28.2 30.2 36.5

Non-current liabilities

Long-term borrowings 22.7 38.6 34.4 35.06 29.7

Deferred tax liabilities 2.86 1.81 1.50 1.674 2.0009

Pensions and other post benefits 4.45 7.71 6.95 6.327 7.52

Other provisions 3.33 4.17 2.29 2.140 1.21

Derivative financial instruments 0.025 0.0050 0 0.011 0.0048

Other non-current liabilities 1.186 1.08 1.41 1.40 1.52



Total non-current liabilities 34.6 53.4 46.6 46.6 41.9

Total liabilities 68.03 78.8 74.9 76.9 78.5

Net assets 31.9 21.1 25.01 23.07 21.4

EQUITY

Share capital 4.84 3.59 3.303 3.35 3.37

Share premium account 4.08 3.36 3.191 3.38 4.07

Retained earnings 20.8 11.7 14.74 11.3 8.20

Other reserves 1.157 1.44 2.096 2.98 3.89

Shareholders’ equity 30.97 20.1 23.34 21.04 19.5

Minority interests 0.990 0.98 1.719 2.03 1.93

Total equity 31.91 21.1 25.06 23.07 21.4

In the below vertical analysis of balance sheet’s assets side is presented in

form of graph that is showing the percentages of total non-current assets, total

current assets and total assets. This graph is short and brief view of the asset’s

condition of GSK.



2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

56.0494145727831 56.1622623308714 59.0079790957022 62.0269950272319 60.6450827653359

43.9505854272162 43.837737669129 40.9920209042975 37.9730049727681 39.3549172346639

100 100 100 100 100

ASSETS SIDE

Total Non-Current Assets Total Current Assets Total Assets

In the graph of assets side years are presented at X-Axis and the

percentages of all assets is presented on Y-Axis. In vertical analysis total asset is

base that why in all five years all assets would be 100%. But increases and

decrease in non-current assets and current assets is clearly mentioned in graph.

Non-current assets and current assets portion is cleared by graph and the

total assets is also cleared. The asset side of GSK is going well but it should

maintain this position because any uncertainty can decreases its assets and GSK

want to increases it current assets because if any shortage of hard cash occurred

then current assets cover it.

In the below vertical analysis of balance sheet’s liability side is presented

in form of graph that is showing the percentages of total current liability, total



non-current liabilities and total liabilities. This graph is short and brief view of the

liabilities’ condition of GSK.

2007 2008 2009 2010 20110

20

40

60

80

100

120

140

160

180

33.367738605941425.4283755997257 28.2721291586953 30.2959981056121 36.5384615384615

34.667612811663453.4561978016399 46.666044514955 46.6279895808664 41.9741966893863

68.0353514176041

78.884573401365874.9381736736503 76.9239876864788 78.5126582278481

LIABILITIES SIDE

Total current liabilities Total non-current liabilities Total liabilities

In the graph of liability side years are presented at X-Axis and the

percentages of all assets is presented on Y-Axis. This graph is a combination

graph of current liabilities, non-current liabilities and total liabilities. The

variations in all type of liabilities is clearly presented by a combined graph that is

showing how many long and short term debts are payable by GSK.

GSK should decrease its long term debts because in 2008 they increase

and reach at very high and in other years they are also at high point. The payable

is better but the GSK should maintain its positions.



In the below vertical analysis of balance sheet’s owner’s equity is

presented in form of graph that is showing the percentages of total equity. This

graph is short and brief view of the equity condition of GSK.

2007 2008 2009 2010 2011

31.9646485823951

21.1154265986343

25.061826326349723.0760123135211

21.4873417721518

Total Equity

The graph of total equity is showing the vertical analysis percentages of

five years in which the years are presented at X-Axis and percentages at Y-Axis.

In the five years only 2007 is that year in which the equity financing is very high

but it decreases by minor differences after the year of 2007.

Chapter 4

LIQUIDITY ANALYSIS OF STATEMENTS OF GSK



( An Analysis of Short Term Assets )

A liquid asset is one that can be easily converted into cash at a fair market

value. So that liquidity analysis is a class of financial metrics that is used to

determine a company's ability to pay off its short-terms debts obligations.

The liquidity ratios are a result of dividing cash and other liquid assets by

the short term borrowings and current liabilities. They show the number of times

the short term debt obligations are covered by the cash and liquid assets. If the

value is greater than 1, it means the short term obligations are fully covered.

Generally the higher value of the ratio, the larger the margin of

safety that the company possesses to cover short-term debts. A company's

liquidity is its ability to meet its near-term obligations, and it is a major measure

of financial health.

A company must possess the ability to release cash from cash cycle to

meet its financial obligations when the creditors seek payment. In other words, a

company should posses the ability to translate its short term assets into cash. The

liquidity ratios attempt to measure this ability of a company.

Liquidity analysis has many ratios to analysis the financial position of

business but four ratios are very common that are following as:

Current Ratio

Quick Ratio/Acid Test

Cash Ratio.

Working Capital.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term

obligations. The current ratio is the most basic liquidity test. It signifies a

http://www.readyratios.com/reference/accounting/current_liabilities.html



company's ability to meet its short-term liabilities with its short-term assets. A

current ratio greater than or equal to one indicates that current assets should be

able to satisfy near-term obligations. A current ratio of less than one may mean

the firm has liquidity issues.

Purpose: Measures a firm’s ability to pay its current liabilities from

its current assets.

Current Ratio = Current assets / Current liabilities

Particulars 2007 2008 2009 2010 2011Current Ratio 1.31716 1.72397 1.44991 1.2534 1.07708

In 2007, the company having 1.31716 as total current assets to pay its 1Rs.

total current liabilities. It is good condition because assets are more then 1









2007 2008 2009 2010 20110

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

1.31716

1.72396999999998

1.44990999999999

1.25339999999999

1.07708

Current Ratio

Quick Ratio/Acid Test



The quick ratio is a tougher test of liquidity than the current ratio. It

eliminates certain current assets such as inventory and prepaid expenses that may

be more difficult to convert to cash. Like the current ratio, having a quick ratio

above one means a company should have little problem with liquidity. The higher

the ratio, the more liquid it is, and the better able the company will be to ride out

any downturn in its business.

Purpose: Measures a firm’s ability to pay its current liabilities without

relying on the sale of its inventory.

Current assets - Inventories / Current liabilitiesParticulars 2007 2008 2009 2010 2011

Quick or Acid Ratio 1 1.31 1.11 0.95 0.81 In 2007, the GSK have 1Rs as quick assets to pay its 1Rs liabilities. That

is good liquidity position of GSK.

In 2008, the GSK have 1.31Rs as quick assets to pay its 1Rs liabilities.

That is good liquidity position of GSK.


That is good liquidity position of GSK.

In 2010, the GSK have 0.95 Rs as quick assets to pay its 1Rs liabilities.

That is poor liquidity position of GSK.


That is poor liquidity position of GSK.

2007 2008 2009 2010 20110

0.2

0.4

0.6

0.8

1

1.2

1.4

1

1.31

1.11

0.950000000000001

0.81

Quick or Acid Ratio



Cash Ratio.

The cash ratio is the most conservative liquidity ratio of all. It only

measures the ability of a firm's cash, along with investments that are easily

converted into cash, to pay its short-term obligations. Along with the quick ratio,

a higher cash ratio generally means the company is in better financial shape.

Purpose: Measures a firm’s ability to pay its current liabilities with

hard cash or with those which are equal to cash.

Cash Ratio = Cash or Equal to Cash / (Current Liabilities)

Particulars 2007 2008 2009 2010 2011Cash Ratio 0.32663 0.56135 0.54011 0.47343 0.38068

In 2007, the GSK have 0.32663 Rs as hard cash to pay its 1Rs liabilities.







2007 2008 2009 2010 20110

0.1

0.2

0.3

0.4

0.5

0.6

0.32663

0.561350.54011

0.47343

0.380680000000003

Cash Ratio

Working Capital.

Working capital (abbreviated WC) is a financial metric which

represents operating liquidity available to a business, organization or other entity

including governmental entity. Along with fixed assets such as plant and

equipment, working capital is considered a part of operating capital. Net working

capital is calculated as current assets minus current liabilities.

It is a derivation of working capital that is commonly used in valuation

techniques such as DCFs (Discounted cash flows). If current assets are less than

current liabilities, an entity has a working capital deficiency, also called a working

capital deficit.

Purpose: Measures a firm’s ability to pay its operating liabilities.

Working Capital= Current assets - Current liabilitiesParticulars 2007 2008 2009 2010 2011

Working Capital Ratio

3,281 7,252 5,452 3,242 1,157

In 2007, the GSK have 3281 as working capital to meet daily expenses.







2007 2008 2009 2010 20110

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

3,281

7,252

5,452

3,242

1,157

Working Capital Ratio

Chapter 5

LEVERAGE ANALYSIS OF STATEMENT OF GSK

( An Analysis of Long Term )

It is long term financially check that how much debt is using to in business

and to checking the long term debt paying ability A company's leverage relates to

how much debt it has on its balance sheet, and it is another measure of financial

health. Generally, the more debt a company has, the riskier its stock is, since debt

holders have first claim to a company's assets. This is important because, in

extreme cases, if a company becomes bankrupt, there may be nothing left over for

its stockholders after the company has satisfied its debt holders.

The most important leverage ratio is the debt to equity ratio that gives you

an idea about the debt one company is in and the equity it has at its disposal.

Leverage ratios also determine the company’s cost mix and its effects on

http://www.readyratios.com/reference/debt/equity_ratio.html



the operating income. Companies with high fixed cost earn more income because

after the breakeven point, with the increase in output the income increases as the

cost has already been incurred. On the other hand a company with higher variable

cost seems to earn little operating income because with the increase in output the

variable cost increases too.

There are three types of leverage ratio as followings:

Debt / Equity Ratio

Debt / Total Asset Ratio

Interest Coverage Ratio

Debt / Equity Ratio

The debt/equity ratio measures how much of the company is financed by

its debt holders compared with its owners. A company with a ton of debt will

have a very high debt/equity ratio, while one with little debt will have a low

debt/equity ratio.

Assuming everything else is identical, companies with lower debt/equity

ratios are less risky than those with higher such ratios.

Purpose:

– Measures a firm’s financial leverage.

– Measures percentage of capital being financed through borrowings

– Too high a number means increased risk of bankruptcy

http://www.readyratios.com/reference/accounting/operating_income.html



Debt/Equity = (Short-Term Debt + Long-Term Debt) / Total Equity

Particulars 2007 2008 2009 2010 2011

Debt/ Equity Ratio212.84

6 373.587299.01

3 333.35 365.39

In 2007, the GSK is using 212.84 % debt of its equity.




In 2011, the GSK is using 365.39% debt of its equity.

2007 2008 2009 2010 20110

50

100

150

200

250

300

350

400

212.846

373.586999999998

299.013

333.35365.39

Debt/ Equity Ratio

Debt / Total Asset Ratio

Debt Ratio is a financial ratio that indicates the percentage of a

company's assets that are provided via debt. It is the ratio of total debt (the sum

of current liabilities and long-term liabilities) and total assets (the sum of current

assets, fixed assets, and other assets such as 'goodwill').

Purpose: Measures a firm’s financial leverage.

– Measures percentage of assets being financed through borrowings

– Too high a number means increased risk of bankruptcy



Debts/Assets= Total Debts / Total Assets

Particulars 2007 2008 2009 2010 2011Debt to Total Assets Ratio

68.0354 78.8846 74.9382 76.924 78.5127

In 2007, the all assets of GSK are financed by 68.0354% of debts.





2007 2008 2009 2010 201162.00%

64.00%

66.00%

68.00%

70.00%

72.00%

74.00%

76.00%

78.00%

80.00%

68.04%

78.88%

74.94%

76.92%

78.51%

Debt to Total Assets Ratio


If a company borrows money in the form of debt, it most likely incurs

interest charges on it. (Money isn't free, after all!) The interest coverage ratio

measures a company's ability to meet its interest obligations with income earned

from the firm's primary source of business. Again, higher interest coverage ratios

are typically better, and interest coverage close to or less than one means the

company has some serious difficulty paying its interest.

Purpose: Indicates the number of times that a firm’s interest expense

is covered by earnings.



– Measure the extent to which operating income can decline before

the firm is unable to meet its annual interest costs

Interest Coverage = (Operating Income) / (Interest Expense)

Particulars 2007 2008 2009 2010 2011Interest

Coverage Ratio17.34 8.84 10.84 4.69 9.88

In 2007, the EBIT of GSK is 17.34 Times greater than interest expenses.





2007 2008 2009 2010 20110

2

4

6

8

10

12

14

16

18

20

17.34

8.84

10.84

4.69

9.88


Chapter 6

PROFITABILITY ANALYSIS OF STATEMENTS

How good is a company at running its business? Does its performance

seem to be getting better or worse? Is it making any money? How profitable is it

compared with its competitors? All of these very important questions can be

answered by analyzing profitability ratios. It is ability to earn income and

maintain growth in both the short and long-term time periods. A company's

degree of profitability is usually based on the income statement, which reports on



the company's results of operations. There are some following analyses are used

to calculate the profit abilities:

Some background knowledge of the nature of business of a company is

necessary when analyzing profitability ratios. For example sales of some

businesses are seasonal and they experience seasonality in their operations. The

retail industry is example of such businesses. The revenues of retail industry are

usually very high in the fourth quarter due to Christmas. Therefore, it will not be

useful to compare the profitability ratios of this quarter with the profitability ratios

of earlier quarters. For meaningful conclusions, the profitability ratios of this

quarter should be compared to the profitability ratios of similar quarters in the

previous years.

Gross Profit Ratio

Earnings Before Interest & Taxes Ratio (EBIT)

Earnings Before Taxes Ratio (EBT)

Net Profit Ratio

Return on Investment

Return on Equity

Return on Assets

Gross Profit Ratio

You'll recall from our earlier discussion of the income statement that gross

profit is simply the difference between a company's sales of goods or services and

how much it must pay to provide those goods or services. Gross margin is simply

the amount of each dollar of sales that a company keeps in the form of gross

profit, and it is usually stated in percentage terms. The higher the gross margin,

the more of a premium a company charges for its goods or services. Keep in mind

that companies in different industries may have vastly different gross margins.



Purpose: To measure the gross profit of a company.

G.P Ratio = (Gross Profit) / (Sales)

Particulars 2007 2008 2009 2010 2011

G.P Ratio 76.593673.657

2 73.984873.260

1 73.2282

In 2007, the GSK is earned 76.5936% gross profit of its net sales.





2007 2008 2009 2010 201171

72

73

74

75

76

77

76.5935904208488

73.657194480946673.9847715736034

73.2600732600733 73.2281739511447

G.P Ratio

Earnings Before Interest & Taxes Ratio (EBIT)

In accounting and finance, earnings before interest and taxes (EBIT), also

called operating profit or operating income is a measure of a firm's profit that

excludes interest and income tax expenses. It is the difference between operating

revenues and operating expenses. When a firm does not have non-operating

income, then operating income is sometimes used as a synonym for

EBIT and operating profit.



Purpose: To measure the earnings before interest and taxes of a company.

EBIT = EBIT / Net Sales

Particulars 2007 2008 2009 2010 2011EBIT Ratio 34.5792 30.6094 29.9457 13.7327 28.8348

In 2007, the GSK is earned 34.5792% EBIT of its net sales.





2007 2008 2009 2010 20110

5

10

15

20

25

30

35

40

EBIT Ratio

Earnings Before Taxes Ratio (EBT)

Earnings before taxes (EBT) can be defined as the money retained by a

company before deducting the money due to be paid as taxes. The Earnings

before Tax quantifies the operating and non-operating profits of a company before

taxes are considered. It is similar to profits before taxes. Moreover,



this performance indicator provides a level measure to compare companies in

distinctive tax jurisdictions.

Purpose: To measure the earning before taxes of a company.

EBT = EBT / Net SalesParticulars 2007 2008 2009 2010 2011EBT Ratio 32.8051 27.3448 27.8166 11.1193 28.1082

In 2007, the GSK is earned 32.8051% EBT of its net sales.





2007 2008 2009 2010 20110

5

10

15

20

25

30

35

EBT Ratio

Net Profit Ratio

Net margin considers how much of the company's revenue it keeps when

all expenses or other forms of income have been considered, regardless of their

nature. While net margin is important to take note of, net income often contains



quite a bit of "noise," both good and bad, which does not really have much to do

with a company's core business.

Purpose: Indicates the percentage of each sale that contributes to net income.

– Relates net income available to common stockholders to sales

Net Margin = (Net Income or Loss) / Sales

Particulars 2007 2008 2009 2010 2011Net Profit

Ratio23.3756 19.3495 19.9838 6.52649 19.9292

In 2007, the GSK is earned 23.3756% net profit of its net sales.





2007 2008 2009 2010 20110

5

10

15

20

25

Net Profit Ratio


Return on investment (ROI) is performance measure used to evaluate the

efficiency of investment. It compares the magnitude and timing of gains from



investment directly to the magnitude and timing of investment costs. It is one of

most commonly used approaches for evaluating the financial consequences of

business investments, decisions, or actions.

If an investment has a positive ROI and there are no other opportunities

with a higher ROI, then the investment should be undertaken. A higher ROI

means that investment gains compare favorably to investment costs.

Purpose: To measure the efficiency of investment.

Return on Investment = EBIT / Total Debt + Total EquityParticulars 2007 2008 2009 2010 2011


25 19 20 9 19

In 2007, the GSK gained EBIT is 25% of its investment.

In 2008, the GSK gained EBIT is 19% of its investment



In 2011, the GSK gained EBIT is 19% of its investment

2007 2008 2009 2010 20110

5

10

15

20

25

30


Return on Equity



Return on equity is a straightforward ratio that measures a company's

return on its investment by shareholders. Like all of the profitability ratios we've

discussed, it is usually stated in percentage terms, and higher are better.

Purpose: To measure the shareholders, measuring the profits earned

for each dollar invested in the firm's stock.

Return on Equity = (Net Income) / (Shareholders' Equity)

Particulars 2007 2008 2009 2010 2011Return on

Equity53.5822 56.6482 52.7742 19.0149 61.833






2007 2008 2009 2010 20110

10

20

30

40

50

60

70

Rerurn on Equity

Return on Assets



Return on assets measures a company's ability to turn assets into profit.

(This may sound similar to the total assets turnover ratio discussed earlier, but

total assets turnover measures how effectively a company's assets generate

revenue.)

Purpose: To measure of how effectively the firm’s assets are being

used to generate the profit.

Return on Assets = (Net Income) / (Total Assets)

Particulars 2007 2008 2009 2010 2011Return on

Assets17 12 13 4 13






2007 2008 2009 2010 20110

2

4

6

8

10

12

14

16

18

17

1213

4

13

Return on Assets



Chapter 7ACTIVITY / EFFECIENCY ANALYSIS

OR ASSETS MANAGEMENT RATIO

Asset management ratio measures how effectively the firm is

managing/using its assets. No matter what kind of business a company is in, it

must invest in assets to perform its operations. Efficiency ratios measure how

effectively the company utilizes these assets, as well as how well it manages its

liabilities. Asset management ratios are computed for different assets.

Common examples of asset turnover ratios include fixed asset turnover,

inventory turnover, accounts payable turnover ratio, accounts receivable, and cash

conversion cycle. These ratios provide important insights into different financial

areas of the company and its highlights its strengths and weaknesses.

Asset management ratios are computed for different assets. Common

examples of asset turnover ratios include fixed asset turnover, inventory

turnover, accounts payable turnover ratio, accounts receivable, and cash

conversion cycle. These ratios provide important insights into different financial

areas of the company and its highlights its strengths and weaknesses.

High asset turnover ratios are desirable because they mean that the

company is utilizing its assets efficiently to produce sales. The higher the asset

turnover ratios, the more sales the company is generating from its assets.

Although higher asset turnover ratios are preferable, but what is

considered to be high for one industry, may be low for another. Therefore it is not

useful to compare asset turnover ratios of different industries. Different industries

have different requirements with regard to assets. It would be unwise to compare

an ecommerce store which requires little assets to a manufacturing organization

which requires large manufacturing facilities, plant and equipment.

Accounts Receivable Turnover

Accounts Payable Turnover

http://www.readyratios.com/reference/asset/cash_conversion_cycle.html

http://www.readyratios.com/reference/asset/cash_conversion_cycle.html

http://www.readyratios.com/reference/asset/accounts_payable_turnover_ratio.html



Inventory Turnover

Accounts Receivable Turnover The receivable turnover ratio (debtor’s turnover ratio, accounts receivable

turnover ratio) indicates the velocity of a company's debt collection, the number

of times average receivables are turned over during a year. This ratio determines

how quickly a company collects outstanding cash balances from its customers

during an accounting period. It is an important indicator of a company's financial

and operational performance and can be used to determine if a company is having

difficulties collecting sales made on credit.

Purpose: To Indicates the length of time normally required to collect a

receivable resulting from a credit sale.

Accounts Receivable Turnover = Revenue / (Accounts Receivable)In Days = 365 / Accounts Receivable Turnover

Particulars 2007 2008 2009 2010 2011A/R Turnover 4.13394 3.88699 4.36969 4.90109 4.91159In Days 88.2935 93.903 83.53 74.4733 74.3141

In 2007, the GSK have 4.13394 Times its A/R turnover and GSK is

converting account receivables into cash within 88 days.



In 2009, the GSK have 4.36969 Times its A/R turnover and it is




In 2011, the GSK have 4.91159 Times its A/R turnover and GSK is converting account receivables into cash within 74 days.



2007 2008 2009 2010 20110

102030405060708090

10088.2934935728121

93.90296484888383.5300338409476

74.473267117497674.3140906269398

A/R Turnover

Accounts Payable Turnover

Accounts payable turnover ratio is an accounting liquidity metric that

evaluates how fast a company pays off its creditors (suppliers). The ratio shows

how many times in a given period (typically 1 year) a company pays its average

accounts payable. An accounts payable turnover ratio measures the number of

times a company pays its suppliers during a specific accounting period.

Purpose: To measure of how effectively the firm’s assets are being

used to generate the profit.

Accounts Payable Turnover = (Purchases) / (Accounts Payable)

In Days = 365 / Accounts Payables TurnoverParticulars 2007 2008 2009 2010 2011A/P Turnover 0 1.03885 0.94846 1.03847 1.03655

In Days 0 351.351 384.833 351.478 352.128

Purchases 0 7,409 7,388 7,365 7,368

In 2008, the GSK have 1.03885 Times its A/P turnover and GSK is paying

account payables within 351 days.









2007 2008 2009 2010 20110

50

100

150

200

250

300

350

400

0

299.281279524902334.566865186789341.360488798371

364.554153094463

A/P Turnover

Inventory Turnover

Inventory turnover is a measure of the number of times inventory is sold

or used in a given time period such as one year. It is a good indicator of inventory

quality (whether the inventory is obsolete or not), efficient buying practices, and

inventory management. This ratio is important because gross profit is earned each

time inventory is turned over. It is also called stock turnover.

Purpose: Indicates the number of times that a firm sells its inventory

each year.

Inventory Turnover = (Cost of Sales) / (Inventory)

In Days = 365 / Inventory Turnover

Particulars 2007 2008 2009 2010 2011Inventory Ratio 1.73645 1.58161 1.81594 1.97863 1.89311

In Days 210.199 230.778 200.997 184.471 192.805

In 2007, the GSK have 1.73645 Times its inventory turnover and GSK is

converting raw material into finish goods within 210 days.











2007 2008 2009 2010 20110

50

100

150

200

250 210.199360541658230.777864380358

200.997289972901184.471153846154192.804828150573

Inventory Ratio

Chapter 8 CASH FLOW ANALYSIS

The cash flow ratio is an indicator of the ability of a company to pay

interest and principal amounts when they become due. This ratio tells the number

of times the financial obligations of a company are covered by its earnings. A

ratio equal to one or more than one means that the company is in good financial

health and it can meet its financial obligations through the cash generated by

operating activities.

A ratio of less than one is an indicator of bankruptcy of the company

within two years if it fails to improve its financial position. It is an important

indicator of the liquidity position of a company. This ratio is often used by the

banks to decide whether to make or refinance any loan.

Operating Activity

Operating Activity of Long Term

Cash Flow Margin



Operating Activity

The amount of cash flows arising from operating activities is a key

indicator of the extent to which the operations of the entity have generated

sufficient cash flows to repay loans, maintain the operating capability of the

entity, pay dividends and make new investments without recourse to external

sources of financing. Information about the specific components of historical

operating cash flows is useful, in conjunction with other information, in

forecasting future operating cash flows.

Operating Activity = Net Operating Cash / Current LiabilitiesParticulars 2007 2008 2009 2010 2011

Operating Activity 0.595553

0.7192

8 0.6471 0.53126 0.41639

In 2007: The company liquidity condition is weak







2007 2008 2009 2010 20110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.595553407443209

0.719277228711191

0.647053969301865

0.531264655307176

0.416389073950703

Operating Activity

Operating Activity of Long Term

The cash flow coverage ratio is an indicator of the ability of a company to

pay interest and principal amounts when they become due. This ratio tells the

number of times the financial obligations of a company are covered by its

earnings. A ratio equal to one or more than one means that the company is in

good financial health and it can meet its financial obligations through the cash

generated by operating activities. A ratio of less than one is an indicator of

bankruptcy of the company within two years if it fails to improve its financial

position.

It is an important indicator of the liquidity position of a company. This

ratio is often used by the banks to decide whether to make or refinance any loan.

Operating Activity of Long Term = Net Operating / Total Liabilities

Particulars 2007 2008 2009 2010 2011Operating Activity

for Long Term0.292087 0.23186 0.2441 0.20924 0.19378

2007: The company liquidity condition is weak







2007 2008 2009 2010 20110

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.292087422367612

0.231858407079646

0.244115815691158

0.209235031553026 0.19378042352649

5

Operating Activity for Long Term

Cash Flow Margin

This ratio compares the operating cash flows a company to its sales

revenue. This ratio gives the analysts and investors indications about the ability of

a company to generate cash from its sales. In other words, it shows the ability of a

company to turn its sales into cash. It is expressed as a percentage.

Ideally there should be a parallel increase in operating cash flows with the

increase in sales. It will be worrisome if the changes in cash flows are not parallel

to the changes in sales revenue. If the cash flows do not increase with the increase

in sales it may indicate the following two factors:

Cash Flow Margin = Net Operating Cash Flow / Net Sale × 100

Particulars 2007 2008 2009 2010 2011Cash Flow Margin 27.12185 29.5869 27.64 23.9398 22.821

2007: The company generating cash flow 27.12% of its net sale

2008: The company generating cash flow 29.58% of its net sale so company

position is good


position is not good




position is good

2001: The company generating cash flow 22.821% of its net sale and company

position is not good

2007 2008 2009 2010 20110

5

10

15

20

25

30

35

27.121852438809829.5868922470433

27.64029892837

23.9398422090729 22.8210464819075

Cash Flow Margin

METHODOLOGY OF PROJECT

Firstly make one file of Micro Soft Word and one of

Micro Soft Excel.

Collect the financial statement of company from

GSK web site www.gsk.com.

Copy the income statement, balance sheet & cash

flow statement from the PDF file of annual report

of company.

Then past the income statement into sheet 1 and

balance sheet into sheet 2 and cash flow

statement into sheet 3 of Micro Soft Excel.



Calculate the trend analysis of income statement

and balance sheet below the statement by using

the formulas.

Calculate the all ratios into sheet 2 and make the

graphs into sheet 4.

In the file of word insert the page number &

header and then place the logo of GCUF into

header.

Then write the all topics and collect the some

theory of ratios from internet.

Then copy all the ratio from excel sheets and past

them on Micro Soft Word.

In the segment of bibliography open the PDF file of

annual report and use the tool of snapshoot to

take the snap of financial statements, then copy

the statement and past into Micro Soft Word.

Bibliography



COMMENTS OF SUPERVISORS

Signature of Supervisor Signature Supervisor

Mr. Ahmad Gillani Mr. Asif SaeedMS & M.Com (Finance) MS & MBA (Finance)



Signature Supervisor Signature Supervisor

Mr. Amar Abid Mr. Jahanzaib SultanJAIBP (Banking) & M.Com MS & MBA (Finance)