Financial Ratio Analysis

This assignment delves into the realm of financial ratio analysis, meticulously evaluating various key performance indicators across multiple periods. The analysis encompasses liquidity ratios (current ratio, acid-test ratio), efficiency ratios (asset turnover ratio, inventory turnover ratio), and solvency ratios (debt-to-equity ratio). Using provided numerical data, the assignment calculates these ratios and interprets their implications for financial health and operational effectiveness.

Dissertation: Topic: To analyse the business and
financial performance of Valeant Group
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Acknowledgement
I wants to show my special thanks and gratitude to all my mentors and team members who
provided insight and expertise to carrying out the investigation in an appropriate manner. I would
like to thank my friends and each and every person who supported and guided me at every point.
Furthermore, special and grateful thanks to my tutor who assisted me on several complex issues and
problems which I faced during the course of research. With the help of all the members, it became
possible for me to conduct the whole study and attain research aims and objectives. In addition to
this, I like to express my gratitude to other members who provided me adequate support in the data
collection process, by which, I became able to resolve the research issue and attain goals.
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Abstract
Every organization carry out their operations in order to gain maximum yield on their
turnover. Therefore, it is essential for the firms to examine and analyse their operational
performance and financial strength on a regular basis. So that, better quality of decisions can be
taken for improving future performance such as profitability, liquidity and solvency position. The
objective of this dissertation is interpreting the financial performance of Valeant Group and
compare it with its rivalry, Glaxosmith Kline. It has been done through the use of ratio analysis
technique, in which, different type of ratios has been calculated and compared to evaluate the
results. From the dissertation, it has been concluded that GSK has performed much well as compare
to Valeant Group as it has larger return, good creditworthiness, higher managerial efficiency and
less investment risk. Therefore, It has been inferred that Valeant Group's managers has to frame
some better strategies and take decisions for bringing significant improvements in the future
performance. So that, it can enhance its competitive strength and assure long run sustainability.
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Table of Contents
CHAPTER 1: INTRODUCTION ........................................................................................................5
1.1 Background of the study ...........................................................................................................5
1.2 Research aims and objectives....................................................................................................5
1.3 Research questions ....................................................................................................................6
1.4 Rationale of the study ...............................................................................................................6
1.5 Significance and scope of the study ..........................................................................................6
1.6 Structure of dissertation ............................................................................................................6
CHAPTER 2: LITERATURE REVIEW..............................................................................................8
2.1 Introduction................................................................................................................................8
2.1 Impact of financial performance on decision making process of investors...............................8
2.2 Different factors considered by stakeholders for the evaluation of monetary risk....................9
2.3 Limitation of ratio analysis......................................................................................................10
2.4 Financial information that supports decision-making for shareholders and investors............12
CHAPTER 3- RESEARCH METHODOLOGY................................................................................13
3.1 Introduction..............................................................................................................................13
3.2 Research philosophy................................................................................................................13
3.3 Research approach...................................................................................................................13
3.4 Research design.......................................................................................................................14
3.6 Collection of data.....................................................................................................................14
3.7 Analysis of data........................................................................................................................15
3.8 Ethical consideration................................................................................................................16
3.9 Limitation of the study.............................................................................................................16
3.10 Time frame.............................................................................................................................16
CHAPTER 4 – DATA ANALYSIS AND FINDINGS........................................................................18
4.1 Introduction..............................................................................................................................18
4.2 Data findings and interpretation..............................................................................................18
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS........................................................29
5.1 Conclusion ..............................................................................................................................29
5.2 Recommendations....................................................................................................................29
REFERENCES...................................................................................................................................31
APPENDIX........................................................................................................................................33
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CHAPTER 1: INTRODUCTION
1.1 Background of the study
Financial performance is the measure which serves information regarding the effectiveness
of business organization in relation to making use monetary resources. By considering such aspect
investors and other stakeholders make assessment of the financial performance of firm with the to
aim to get information regarding its profitability, liquidity and solvency aspect. Through this,
stakeholders are able to make suitable decisions in relation to the investment aspect. Moreover, high
value addition in money is one of the main objectives of investors behind investing money in the
firm's operations (Guogang, 2010). In this regard, ratio analysis is the most effectual tool which
offers opportunity to the investors to make assessment of the financial performance of the firm in
against to the competitors. On the basis of this aspect, by making analysis of financial aspects
investor can decide about the companies in which they need to invest money.
For this dissertation, Valeant Group has been selected which is one of the leading and
multinational pharmaceutical company. It manufactures and offers generic pharmaceutical and over-
the-counter products to the customers. Thus, the present report will shed light on the extent to which
financial performance of Valeant Group is sound in comparison to GlaxoSmithKline. So that,
effective decisions can be taken by the management to enhance the potential performance of the
Valeant Group and reach goals. Further, this dissertation will also shed light on the financial
position of Valeant Group which provides assistance to the stakeholders in making most profitable
decision.
1.2 Research aims and objectives
The main aim of the present study is to analyze the business and financial performance of
Valeant Group with its competitor, GlaxosmithKline (GSK). In order to accomplish this aim, the
study will focus on the following target objectives, mentioned below:
 To provide stakeholders with the valuable financial information which helps them in making
suitable decisions.
 To give suitable information to the investors about the financial performance of Valeant
group.
 To evaluate the financial position of Valeant group in against to its competitor
GlaxoSmithKline.
 To recommend the ways through which Valeant group can enhance or revitalize its financial
performance.
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1.3 Research questions
Q.1 Which factors are considered by stakeholders for the evaluation of monetary risk?
Q.2 Which kind of information is undertaken by investors of Valeant group before making
investments?
Q.3 Which business unit has made optimum use of its financial resources either Valeant group or
GlaxoSmithKline?
1.4 Rationale of the study
The main reasons behind conducting such study to evaluate business and financial
performance of Valeant group. Moreover, earning high income in the form of dividend is one of
the main objectives of investors behind making investment. In the absence of valuable framework
it is highly difficult for the investor in relation to making decision regarding the firm in which they
need to invest money. Thus, to resolve such issue ratio analysis tool will be employed by the scholar
(Healy and Palepu, 2012). Hence, by making comparison of the financial position and performance
of Valeant group in against to GlaxoSmithKline scholar can provide stakeholders with valuable
framework for decision making.
1.5 Significance and scope of the study
The present study and its outcome are highly significant for the scholars who will conduct
study on such topic. By taking assistance of such study another scholars are become able to carry
out their study more effectually. Further, Valeant group can also make use of this study for getting
information about their financial performance in against to the competitor (Kallala and et.al., 2015).
In this way, such study will offer high level of benefits to scholars, company itself and their
competitors.
Further, scope of the present study is very wide in which researcher will make analysis of
the annual statements of both Valeant group and GlaxoSmithKline. Hence, by evaluating the
financial statements of both the companies researcher can fulfil his aims and objectives to the
significant level.
1.6 Structure of dissertation
Chapter 1: Introduction
In the first chapter of dissertation, background, rationale and significance of the study has
been discussed by the scholar. By gaining insight about the topic researcher will frame aims and
objectives for carry out whole study in the right direction.
Chapter 2: Literature review
The main aims of scholar behind doing this chapter is to gain deeper insight about the
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research topic or issue. Thus, for fulfilling such aim in this chapter of dissertation scholar makes
assessment of secondary sources such as books, journals and other scholarly articles. In this way,
such section helps researcher in preparing thesis for further analysis.
Chapter 3: Research methodology
Under this chapter, researcher determines approaches and philosophies which will be
undertaken by him for carry out the study. In this, researcher also assesses the techniques which will
be used by him for data collection and analysis.
Chapter 4: Data analysis and findings
In the fourth chapter of dissertation, researcher will analyze gathered data by taking into
account the suitable tools and techniques according to the type of investigation.
Chapter 5: Conclusion and recommendations
In the last chapter, researcher conclude all the findings in a brief manner. Further, scholar
will also recommend the ways through Valeant group can enhance its financial performance.
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CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
Literature review is the most important chapter of dissertation as it depicts detail information
related to particular topic. This includes information from different sources such as journals, books
and online article. It facilitates researcher to reach at valid outcome in the light of research aim and
objectives. The current investigation on analysing the business and financial performance of Valeant
Group with GlaxoSmithKline, secondary information have been collected on the basis of themes.
These themes are prepared in accordance with research aim and objectives so that researcher gain
deep understanding on topic under investigation. First of all, factors considered by stakeholders for
the evaluation of monetary risk will be analysed which aids to extracting valid outcome of the
study. On the other hand, information searched by investors before making any kind of investment
will be assessed effectively.
2.1 Impact of financial performance on decision making process of investors
Financial performance of any organization plays important role for investors in taking right
decision. According to Altman and Hotchkiss (2010) financial performance of business of provide
basic idea regarding organization that how effective return is generated and how the firm is keeping
pace with changing scenario. This assists investors to get detail information related to quantitative
data. For example, investors will assess the financial statements published by organization in the
publicly available articles. This will be effective to conduct detail analysis of company and
accordingly help in taking right decision. Ongore and Kusa (2013) argued that only financial
information is not sufficient because business is affected by several internal and external aspect
which must be considered by investors. This is because an organization performing good in current
state of time might be in loss in near future. Owing to this, information related to qualitative aspect
is also necessary. He further argued that financial analysis basically covers use of financial
statements where investors follow the logical and consistent accounting procedure for collection of
important information.
Demyanyk and Hasan (2010) stated that income statement and balance sheet are two
important important statement which are used by investors for taking appropriate decision related to
investment in an organization. By using balance sheet investors come to know about total liabilities
and owner' equity which reflects total assets. This in turn investors easily analyse the potential data
which are associated with financial performance of business. Furthermore, income statement shows
profit and loss of firm over a specific period. This tends to extract meaningful information so that
accordingly investment decision can be taken in relatively less time span. It can be critically
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evaluated that, summary of balance sheet just reflects performance of company for current time
span. On the basis of the same, investors can effectively cater requirement of business and
accordingly appropriate decision can be taken for growth and development of business.
2.2 Different factors considered by stakeholders for the evaluation of monetary risk
According to Zhu (2014) there are several factors which must be considered by stakeholders
for evaluating the momentary risk associated with business. For this purpose, different ratios can be
assessed by investor which in turn appropriate decision can be taken for investment. He argued that
major ratios such as liquidity, solvency and profitability as well as efficiency are used to to assess
the performance of an organization for specific time span. Moreover, company can also link that
information with another selected firm so that comparative analysis can be made. In such manner, it
becomes feasible for investors to take appropriate investment decision through higher rate of return
can be obtained. The first ratio is of liquidity under which it is assessed that whether company is
able to pay its short as well as long term obligation or not. At the same time, current ratio is
extracted from current assets and current liabilities through which it is assessed that how capable an
organization is to pay off its debt.
Čihák and Hesse (2010) asserted that generally 1 is considered as ideal current ratio
whereby firm can easily meet its short term obligation and free flow of production can be
maintained with increased rate of return. On the other hand, a ratio greater than 1 indicates that
liability of firm is higher than its assets. It happens because some of the assets or inventory items
cannot not be converted in cash easily. Furthermore, improvement in current ratio is brought with
payment debt. This is ensures good performance of corporation with higher rate of return which in
turn competitive edge if the business can be created. Therefore, current ratio easily help investors to
assess the financial performance of company so that accordingly they take appropriate decision on
right time. Similarly, solvency ratio is another important aspect for assessing the financial situation
of a company. Here, stakeholders or shareholders at first get information related to financial
stability of business under which debt ratio is measured in the light of standard set. However, assets
and equity are focused thereby value of business can be known in an effectual manner.
Mohamad and Saad (2010) reported that a company with higher debt ratio generally has less
flexibility for managing its cash flow. In this regard, difference between total assets. He further
argued that solvency and liquidity ratio provide quantity measures that serves as the basis for
investors or shareholders to analyse the financial performance of business effectively. It contributes
towards increasing overall rate of return and creating competitive edge of the business, in case both
ratios are good. On the other hand, profitability ratio is another important aspect for investors which
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aids to analyse the return available to business. For this purpose, investors take into account gross
profit, net profit and other related ratios. For example, if ratio is calculated for two years then
investors can easily assess whether firm is performing good or bad. It is known by the increase or
decrease in the proportion of profitability. Moreover, efficiency ratio consists of two elements such
as inventory turnover and receivable turnover where high turnover ratio reflects that company is
capable enough to cover its inventory into sales. In the same manner, higher account receivable
turnover ratio is also good for firm which depicts that outstanding credit balances are collected by
business in successful manner. Therefore, ratio analysis is the most effective aspect under which
detail information related to an organizations provided. However, these information is provided
publicly as majority of corporation follow International Financial Reporting Accounting Standard
so in the same manner they are required to publish their financial statements.
The information on different financial statement can be collected by business in accordance
with ratios. Here, annual report of business is referred under which data of sales, profit, tax and
interest can be gathered. This in turn investors can get meaningful outcome by using financial
statements of business. It aids to meet their expectations effectively and fruitful investment decision
can be taken by business.
2.3 Limitation of ratio analysis
The ratio analysis is considered as important tool to assess the financial situation and
performance of business for particular time span. The ratio analysis also determine the link between
different variables of financial position. In order to assess the performance of organization there are
wide range of ratios that can be calculated by company such as, investment, profitability,liquidity,
efficiency and gearing ratio. According to Brynjolfsson, Hitt and Kim (2011) ratio analysis provide
detail quantitative measure for investors to take investment decision. It can be critically evaluated
that, investment decision are taken on the basis of both qualitative and quantitative measures.
Owing to this, business reflects all important information in front of stakeholders so as to maintain
transparency and catering their requirement in an effectual manner (Altman, Sabato and Wilson,
2010). It can be critically evaluated that comparative analysis of business may not be done in right
manner as both corporations use different procedures for record keeping. This different record
keeping procedure will be helpful for corporation to create competitive edge in the marketplace.
Mitchell, Holland and Forrest (2014) asserted that ratio analysis only provides quantitative
measures only which does not determine the exact value of business or its environment. It is also
argued by Hu and et.al., (2012) that ratio analysis is of not much use at it fails to provide
information about future business performance. The shareholders and future investors are more
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interested in knowing the future value and performance of company. Since, ratio analysis does not
meet the need of investors and this is its major limitation.
In the words of Minnis and Sutherland (2015) the accounting principles,rules and regulations play a
viable role in preparation of financial documents. Any change in the policies that are adopted will
result into contrasting results leading to change in ratio analysis. It is major limitation of this
financial tool which can lead to wrong business decisions. According to Humphreys, Gary and
Trotman ( 2015) interpretation of ratio is complex task as it fails to determine the best reason for all
types of ratios and their results. Thus, it cannot be concluded that computed ratio is good or bad.
Also,the it is possible that idle ratio may change from one sector to other thereby resulting into
difference and difficulty in interpretation. In this respect, the idle inventory ratio is different for
different sector. Further, it create issue for company as comparison becomes difficult causing
limitation for ratio analysis. Likewise, ratio analysis for the comparison of the firms following
different strategies is very difficult. It has been argued by Kumbirai and Webb, (2013) that
calculation of ratio does not regard the market variables that are beyond the control of organization.
In actuality, the current dynamic business environment there are varied constituents that impact the
business to large extent. Such as, inflation, deflation, exchange rate fluctuations, change in bank
rate etc. Since, ratio analysis does not consider these factors and the market in which business
functions it becomes a limitation for it (Ongore and Kusa, 2013).
The another limitation of ratio analysis is that its consider the computation of few
constituents of balance sheet at historical value on the other hand, few constituents of income
statements are constituted at present value. In this case, ratio analysis fails to render meaningful
and appropriate outcomes. As per the words of Istrate Macovei and Bucur (2015) ratio analysis does
not provide any kind of help to the executives to take strategic long term business decisions. Also,
the prolonged success and sustainability of firm relies upon the efficiency of company to take future
decisions consideration to overall objectives of business. Therefore, there is limitation of ratio
analysis as it does not help in decision making. The another limitation of ratio analysis is seen
during interpretation of accounting ratios that are computed for seasonal business (Altman and
Hotchkiss, 2010). For example, the entity selling winter jackets will maintain high inventory during
winter season and for the other months of the year the inventory level will become 20-25% of that
of seasonal inventory level. In that case, the inventory turnover and liquidity ratio will not give a
true picture. In case the ratios are computed from the accounting information which is not true than
the entire ratios are likely to give false results. Brynjolfsson, Hitt and Kim (2011) has similarly said
that ratio analysis will not give a true picture if they are based on accounting information that is
window dressed. The window dressing is a term that means showcasing the financial statements in
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such a manner that they provide a better position that actually is. In case depreciation is charged at
low at low rate, profits are overstated than in that case financial position of company will be
reflected in balance sheet far better than what it is actually. Thus, the ratios calculated from such
balance sheet are not appropriate for assessing the financial standing of the firm. Thereafter, ratio
analysis must study only those figures having cause and effect relationship else ratios will be
misleading (Zhu, 2014).
2.4 Financial information that supports decision-making for shareholders and investors
Čihák and Hesse (2010) states that financial information is nothing but data such as bank
account number, total expenses and profits of business, account balance and other money related
facts of company that further help it managing diverse range of financial activities. With the help of
financial information company can assess its credit worth, economic position and overall
performance etc. As per the views of Mitchell, Holland and Forrest (2014) the financial information
is provided through wide range of documents prepared in company. Out of which the major
documents are financial statements such as balance sheet, income statements, cash flow, investment
statements etc. Other than this, interim reports prepared in company showcasing interim profit,
period cost etc. also provide important business information. Further, significant financial
information is provided through ratio analysis through computation of liquidity, activity,
profitability and debt coverage ratio. This information is of much use of shareholder who have stake
in the operations of company. As per the definition provided by Minnis and Sutherland (2015)
shareholders are those groups or individual that can either impact of can be impacted the decisions
of company. Therefore, they must have proper information that further help them in taking wise
decision (Brynjolfsson, Hitt and Kim 2011). The financial information is of great importance and
use for shareholders. Such as balance sheet provide information about financial standing of firm and
on the basis of it shareholders decide whether they have to invest in business or not (Ongore and
Kusa, 2013). The shareholders can compare the financial information of two-three companies and
determine in which it should invest, such as firm giving maximum return will be selected by
shareholders. Further, with the help of financial information the credit worthiness of firm can be
assessed. Therefore, it is important for investors particularly lenders as they decide to which
company they should lend the money (Zhu, 2014). The organisation having positive market image,
credit worthiness and low default risk can be selected on the basis of financial information to lend
funds. Therefore, the effectiveness of economic decisions are largely dependent upon the quality
and quantity of information accessible to various groups (Demyanyk and Hasan, 2010).
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CHAPTER 3- RESEARCH METHODOLOGY
3.1 Introduction
Research methodology refers to the process of collecting required quantity of information
and analysing it systematically for achieving research aims and objectives. In this, research use
different type of methods and techniques for carrying out the investigation in an effectual way
(Crossan, 2003). It is considered as most important chapter because the outcome of the research is
greatly based upon the type of methods which have been applied by the researcher to conducting the
entire investigation. By using appropriate and suitable tools and techniques, investigator will be
able to reach their goals, and objectives.
3.2 Research philosophy
Research paradigm is regarded as a way, by which, investigator collects and analyse
sufficient data to fulfil set goals. It helps to develop a conceptual and brief understanding of the
chosen topic. There are two type of research philosophies that are positivism and interpretivism. In
the first paradigm, researcher formulate hypothesis which is being tested by using suitable tools and
techniques like SPSS (Taylor, Bogdan and DeVault, 2015). It is regarded as scientific philosophy in
which scholar generally use observation, interviews and other available information by carry out
their study. However, on the other hand, in the interpretivism theory, researcher does not frame any
hypothesis but helps to carry out an in-depth study of the chosen research title. The current study is
based on examining financial performance of Valeant group henceforth, interpretivism research
paradigm has been taken into consideration. The reason behind this, is in this study, investigator has
not framed any hypothesis and only examined and assessed the performance of the company over
the period. Moreover, researcher has also focused on comparing the business performance with the
competitor, Glaxosmith kline. So that, effective analysis can be done, and decisions can be taken for
bringing significant improvements in the forthcoming period. With the assistance of this,
investigator can conclude the entire study and attain aims and objectives.
3.3 Research approach
Research approach is regarded as a way which demonstrates the applications of various
plans and procedures while carrying out the investigation. There are two main research approaches
that are inductive and inductive. Under the first approach, scholar moves from selected research
issue to the general ideas and concepts. In such type, investigator gather sufficient information to
explore and support the investigation (Mackey and Gass, 2015). Researcher mainly gather
quantifiable data and examine it by formulating number of themes. However, on the contrary to
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this, inductive approach is just an inverse method, in which, scholar frame hypothesis from the
emerging data and moves from general concepts towards specific (Research methodology, 2013).
Current investigation is based on assessing operational result and performance of the Valeant
group henceforth, it is not necessary to create any hypothesis to conduct the study. Therefore,
inductive approach has been applied, in which, scholar studied the financial performance of the
company by interpreting and assessing its annual reports. It has been done by constructing different
themes which are helpful for the attainment of research aims and objectives.
3.4 Research design
It is regarded as blueprint of the research which integrate various elements coherently such
as collection, analysis, measurement etc. Appropriate selection of research design helps investigator
to address selected issue or problem effectively. There are different types of it such as exploratory,
descriptive, case study, experimental, analytical etc. In this, exploratory design refers to an initial
investigation in order to develop a basic brief understanding of the chosen title. It is mainly used by
those scholar who have no idea about the topic. While, descriptive design is used for in-depth
describing the research issue by taking into account various concepts, models and theories (Crossan,
2003). On the other side, experimental approach consists of various process and procedure which
are use to carry out an experiment and then find out the outcome. It is mainly used in the scientific
researches. Whereas, analytical design consists of evaluation of the available facts and figures for
finding an effective solution. On the contrary to this, in the case study, scholar evaluates the
research issue by practising the theories and models on a established organization or group
(Research methodology, 2013).
As the current research topic is regards to assessment of financial performance of Valeant
Group and its comparative evaluation with GSK, researcher used case study analysis. In this, he
examined and interpreted business profitability, liquidity, solvency and financial strength as well.
With the help of this, researcher became able to identify current trends and conditions pertaining to
the industry. It assist investigator to frame better strategies and decisions for the future success.
3.6 Collection of data
The success of the entire investigation is greatly based on the quantity of data collected from
different sources. It is very important for the researcher to gather information in required amount so
that chosen research issue can be addressed, examined and analysed more effectively. There are
mainly two type of sources available to generate data, that are primary and secondary. In this, data
which is collected by the scholar for the first time is called primary data collection. Information
generated by this source is raw or fresh in nature as it not has been collected by any other scholar
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previously (Hox and Boeije, 2005). This study mainly consists of data gathering through interview,
surveys, questionnaire, observation, focus group etc. It is mainly used by scholar to address certain
specific issue, but still, it takes long time and require more money in the data collection process.
However, on the other side, secondary sources are regarded as already available information
which can be gathered from both published as well as unpublished sources. In this, data is generally
obtained from online articles, books, magazines, newspapers, library source, trade journals, industry
records, economic reports etc (Sullivan-Bolyai, Bova and Singh, 2012). Moreover, web technology
is also of huge importance as it provide required information to the investigator for conducting the
study.
With regards to the chosen subject, it is a secondary investigation, in which, scholar gathered
necessary data from Valeant group and Glaxosmith Kline's annual financial reports. Moreover,
information is collected from the original or credible website to maintain reliability and authenticity
of the data. Moreover, online articles and web sources have been used to examine concepts of ratio
analysis technique. So that, research became able to study, assess and compare the financial strength
and performance of the Valeant Group with its rivalry, GSK. By this, better strategies and decisions
can be recommended to the management for improving future performance and reach success.
3.7 Analysis of data
Data analysis is also an important aspect as in this, investigator inspect, interpret and
examine the gathered information. Data examining can be referred as data modelling which is done
by the scholar to discover useful information from a given data set. After gathering sufficient
quantum of information, it is essential for the researcher to interpret it so that, suitable outcome can
be achieved. Correct interpretation of the data help investigator to find out an effective solution of
the chosen research topic whilst misleading interpretation can lead to take wrongful decision
(Holden and Lynch, 2004).
There are several tools and techniques available to the scholar to examine gathered data. The
selection of the analytical technique is based on the type of research either quantitative or
qualitative. Data analysis is necessary as it helps to summarize large quantity of information into
meaningful set for empirical findings. For instance, quantitative set of data are generally analysed
and interpreted by the helps of MS Excel and SPSS (Statistical Package for Social Science) etc.
Contrary to this, qualitative data can be examined and studied by formulating themes (Sapsford and
Jupp, 2006).
Referring the present investigation, it is quantitative study, in which, both Valeant and GSK's
business performance have been compared. Henceforth, information will be analysed by theme
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creation technique. However, literature review has been taken into account as a basis for designing
themes. By this, it becomes easier for the investigator to conduct an in-depth study and comparison
of both the companies financial strength and achievements in the competitive market.
3.8 Ethical consideration
It is essential for every researcher to maintain authenticity of the investigation by taking into
account ethical aspects. It will enable scholar to generate authentic and reliable information and
thereby develop suitable outcome. As said earlier, that present study is based on secondary
investigation hence, following are several ethical issues which have been taken into account by the
researcher, outlined below:
 All the information has been gathered from authentic, original and credible sites which are
copyrighted.
 Sufficient quantum of data has been collected to conduct investigation more effectively and
efficiently.
 Confidentiality also has been maintained to prevent unauthorised use of the data (Palinkas
and et.al., 2015).
 Written permission of the authority have been taken for the data gathering.
 Honesty of the researcher helps to eliminate the possibility of data manipulation, which in
turn, provide assistance to find out suitable outcome.
 Integrity, objectivity and carefulness etc. have been taken into consideration for the ethical
compliance.
3.9 Limitation of the study
In the secondary investigation, lack of content specific information is the most important
limitation which can bring difficulties for the investigator to reach their aims and objectives.
Moreover, reliability and validity of the data is also an important aspect which a researcher has to
taken into account while conducting any investigation (Limitations of secondary research, 2014).
Furthermore, researcher may face difficulties in case of limited availability of time and financial
sources for data gathering and analysis. Therefore, in order to overcome these limitation, scholar
has maintained proper reliability and validity of the data by collecting it from the authentic source
and high confidentiality.
3.10 Time frame
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Activity/Required duration
(In weeks)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Develop a brief understanding
of the dissertation topic
Formulating aims and
objectives of the investigation
Conducting literature review
Preparing research
methodology
Secondary data gathering
Analysis of data
Concluding the findings
Give recommendations
Submission to tutor
Required modification
Final Submission of the report
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CHAPTER 4 – DATA ANALYSIS AND FINDINGS
4.1 Introduction
Data analysis is the process of summarizing wide range of information into meaningful or
useful data to reach outcome. In other words, applying various tools and techniques for interpreting
data to find out the best solution of the research issue, is called data analysis. This chapter of the
dissertation unfolds the major findings regards to the selected research topic to reach their target
aims and objectives. It is a secondary investigation therefore, researcher has applied thematic
approach, in which, Valeant Group's financial performance will be evaluated by different themes.
By this, scholar can assess that how company is performing into the market by delivering services
to the customers. Along with this, it is also very important for the firm to enhance its competitive
strength so that it can compete effectively with the competitors. Therefore, under this chapter,
Valeant's comparative performance will be examined and evaluated with the GSK's business
performance. This findings enable researcher to take better decisions for improving potential
performance and reach success.
4.2 Data findings and interpretation
Theme 1: Financial indicators are helpful in comparative analysis of both the organizations
It has been explained by Istrate Macovei and Bucur (2015) that accounting ratios are
important and useful indicators that showcase performance of company along with its current
financial standing. The accounting ratios determine various aspects of a business and are core
components of the financial statements analysis. Overall, it can be stated that ratios are very
important for calculating financial health of company. With the help of financial indicators the
entrepreneur can assure that proper and timely decisions are taken in company along with
appropriate business planning (Healy and Palepu, 2012). Further , there are various ratios that can
be computed to assess the performance of company such investor, profitability, liquidity, gearing
and efficiency. Since its inception that financial indicators are used to compare the effectiveness of
both the business GlaxoSmithKline and Valent group. Therefore, profitability ratio can be
calculated which will focus on finding gross revenue and net revenue of company. In this respect
the gross revenue margin will indicate the proficiency of business and outline control that must be
asserted on pricing policies and cost of goods sold s (Demyanyk and Hasan, 2010).
The company having high profitability ratio is suitable option for making investment by
shareholders. Thereafter, quick ratio and current ratio determine the capacity of Valent group and
GlaxoSmithKline to discharge their short term obligations. Therefore, comparison of these ratio
must be done to know the liquidity of entity. The company having good liquidity must be preferred
18

as it showcase effective economic performance as compare to one having low liquidity. With the
help of such comparison, lenders can determine that they must select company having good
liquidity as it ensure that its money is in safe hands and will be repaid on time (Brynjolfsson, Hitt
and Kim 2011). Furthermore, solvency ratio can be computed so as to know the capacity of
company to pay off its long term obligations. It further consider the calculation of ratios like, debt-
equity and time to interest ratio. With the help of debt-equity ratio the efficiency of business to pay
of its long term borrowers or debenture holders can be accessed through it. In case the ratio
particular company is high than investors can determine to purchase the debenture of the same after
comparison of two firms (Demyanyk and Hasan, 2010).
Furthermore,the investors ratio such as, price to earning ratio, earning before interest and tax
etc can be calculated to ascertain the opportunity for future business growth. The higher the results
of these ratio the more feasible is company to make investment. In addition to this aspect interest
coverage is computed to assess the efficiency of company to meet its interest commitments out of
revenue and that are associated to the debt equity ratio. Similarly, return on investment provide
details of the probable return that investors are likely to get on their investments. The organization
having maximum return is best option for money making for the investors and shareholders (Minnis
and Sutherland, 2015).
Theme 2: Profitability performance of Glaxosmith Kline (GSK) is sound as compare to Valeant
Group
Profitability is of great indicator as it helps to examine and assess the performance of the
company, which in turn, enable firms to take viable and strategic decisions. Herein, operational
result of Valeant Group with its competitor, GSK is done below:
Profitability
ratios Formula
Valeant (In USD
million)
GlaxosmithKline (In GBP
million)
2014 2015 2014 2015
Gross profit Sales – Cost of goods sold 6009 7862 15683 15070
Net profit Total revenue – total profit 914 -292 2756 8422
Revenues 8264 10447 23006 23923
GP ratio Gross profit / revenues *100 72.71% 75.26% 68.17% 62.99%
NP ratio Net profit / revenues *100 11.06% -2.80% 11.98% 35.20%
19

Findings and analysis: As per the presented table, it can be seen that Valeant's gross margin
has been increased from 72.71% to 75.26%. It indicates that in 2015, company generated greater
profit return on its total turnover. High percentage increase in revenues from 8264m to 10447m by
26.42% as compare to % increase in cost of goods sold (COGS) from 2255m to 2585m by 14.63%
20
2014 2015
0
5000
10000
15000
20000
25000
30000
8264
10447
23006 23923
Revenues
Valeanta
GSK
2014 2015
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
6009
7862
15683 15070
Gross profit
Valeanta
GSK

is the main reason behind the improved performance. In this year, turnover can be increased due to
larger market demand, increasing customers, expansion and effective control over direct cost. As a
result, its total GP has been inclined from 6009m to 7862m by 30.82%. However, on the other hand,
in GSK, TR got increased from 23006m to 23923m by 3.98% whereas increase in COGS is higher
to 20.89%. Due to this, company's total GP turned from 15683m to 15070m, decreased by 3.91%,
which is not good. Ineffective control over direct expenses, high supplier charges, less customer
demand etc. may be the reason behind this adverse results. This in turn, GSK's GP ratio moved
down from 68.17% to 62.99% in 2015 which is a negative sign of its performance.
Contrary to this, Valeant's NP got decreased from 914m to -292m which shows that in 2015,
business unit earned loss through its daily operations. Huge increase in research and development
(R&D) cost from 246m to 334m by 35.77%, sales, general and administration (S,G&A) cost from
2026m to 2700m by 33.27% and other operational expenses from 1315m to 2938m by 123.42% are
the reason behind negative results. Due to such increase, its total NP ratio turned down from
11.06% to -2.80% which interpreted that Valeant borne loss in this year due to excessive spending.
However, on the comparative analysis, its rivarly GSK's NP ratio indicates favourable movement as
it improved from 11.98% to 35.20% which is more than twice. Although, its turnover not shows an
impressive result, but still, effective control over cost is the main reason behind good profitability
margin. In 2015, GSK's R&D cost improved from 3450m to 3560m by 3.19% whereas percentage
increase in S,G&A expenditure is 11.96%. Furthermore, excessive increase in other operational
income from 3597m to 10322m by 186.96% resulted high return in 2015. On the basis of above
21
2014 2015
-1000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
914
-292
2756
8422
Net profit
Valeanta
GSK

findings, it can be interpreted that GSK performed much well as compare to Valeant by gaining
larger profit percentage on their turnover. Henceforth, its operational performance is much sound
comparatively than Valeant.
Theme 3: Liquidity performance of GSK is much well as compare to Valeant Group
Liquidity is an another important indicator as it helps to examine the overall ability of the
corporation to pay timely to its near time liabilities such as suppliers and overdraft etc.
Liquidity ratios Formula
Valeant (In USD
million)
GlaxosmithKline (In
GBP million)
2014 2015 2014 2015
Current assets 4193 5507 14678 16587
Current liabilities 2731 5313 13295 13417
Inventory 951 1257 4231 4716
Current ratio
Current assets/Current
liabilities 1.54 1.04 1.10 1.24
Acid test ratio
Current assets –
inventory/current liabilities 1.19 0.80 0.79 0.88
22
2014 2015
0
1000
2000
3000
4000
5000
6000
4193
5507
2731
5313
Valeanta Group's CA and CL
Current assets
Current liabilities
2014 2015
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
14678
16587
13295 13417
GSK's CA and CL
Current assets
Current liabilities

Findings and analysis: Taking into account the above table, it can be seen that current ratio
(CR) of Valeant has been declined from 1.54:1 to 1.04:1 in 2015. It is because its total current assets
(CA) enhanced from 4193m to 5507m by 31.34% whereas % increase in current liabilities is
94.54% as it got increased from 2731m to 5313m. Increase in receivables from 2076m to 2687m,
inventory from 951 to 1257, cash and its equivalent from 323m to 597m are the reason for high CA
whilst high short-term debt from 7m to 839m and payables from 398m to 434m etc. are the reason
for rise in CL. Less CR is a sign of declined credit worthiness which indicates that Valeant is not
23
2014 2015
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
1.54
1.04
1.1
1.24
Current ratio
Valeanta
GSK
2014 2015
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.19
0.80.79
0.88
Quick ratio (Acid test ratio)
Valeanta
GSK

able to pay timely to their current obligations like suppliers. However, its competitor, GSK's CR
enhanced from 1.10:1 to 1.24:1, which is good. It is a favourable sign which implies that
management are more able to pay their deferral payments to the creditors on right time. Moreover,
it is more near to the idle industrial ratio of 2:1 comparatively than that of Valeant Group.
An another liquidity ratio is acid test ratio which measure short-term payment ability
without taking into account the closing inventory. In Valeant, Quick Ratio (QR) has been fallen
from 1.19:1 to 0.80:1 whereas GSK's QR enhanced from 0.79:1 to 0.88:1. Fluctuating in the closing
stock from 951m to 1257m and 4231m to 4716m in both the firms are the reason for changes in
credit worthiness. 1:1 is considered standard acid test ratio which shows that GSK's QR is less far to
the idle ratio henceforth, it is comparatively more able to pay their credit payments on time to their
suppliers. Therefore, from the overall results, it can be interpreted that GSK's liquidity position is
more sound and effective compare to Valeant Group.
Theme: 3 Glaxosmith Kline's managers are using assets more efficiently compare to Valeant
Group
It is important for the firm managers to use business assets more effectively and efficiently
to generate high revenue. In such respect, managerial efficiency can be examined and evaluated
with the help of efficiency ratios, which are done hereunder:
Efficiency ratios Formula
Valeant (In USD
million)
GlaxosmithKline (In GBP
million)
2014 2015 2014 2015
Begining total assets 27971 26353 42086 40651
Closing assets 26353 48965 40651 53446
Average assets 27162 37659 41368.5 47048.5
Net sales 8264 10447 23006 23923
Assets turnover ratio
Net sales/Average
total assets 0.30 times 0.28 times 0.56 times 0.51 times
Opening inventory 883 951 3900 4231
Closing inventory 951 1257 4231 4716
Average inventory 917 1104 4065.5 4473.5
Cost of goods sold 2255 2585 7323 8853
Inventory turnover
ratio
Cost of goods sold
/Average inventory
2.46
times 2.34 times 1.80 times 1.98 times
24

Findings and analysis: Presented table reflects Valeant's assets turnover ratio moved down
from 0.30 to 0.28 times, which is an adverse sign of managerial assets utilizing efficiency.
Similarly, in GSK, ratio has been fallen from 0.56 to 0.51 times. But still, comparative examination
reveals that ratio is still higher in GSK which implies that this company's managers are using assets
more effectively so as to generate high revenue and profitability as well. An another ratio is
inventory turnover ratio which shows the movement of stock to generate revenues from operations.
25
2014 2015
0
0.1
0.2
0.3
0.4
0.5
0.6
0.3 0.28
0.56
0.51
Assets turnover ratio
Valeanta
GSK
2014 2015
0
0.5
1
1.5
2
2.5
3
2.46 2.34
1.8
1.98
Inventory turnover ratio
Valeanta
GSK

In this, Valeant Groups's ITR moved down from 2.46 to 2.34 by 4.78% which shows slower rate of
goods movement into sales as compare to the PY 2014. On the other side, GSK's ratio enhanced
from 1.80 to 1.98 times by 9.87% in this year which is a positive sign as it shows faster movement
of closing inventory to generate better turnover and reach success. Both the ratios interpreted and
examined that GSK's managers are more efficient and utilizing assets more efficiently for acquiring
greater turnover and yield as well.
Theme 4: Solvency position is comparatively well maintained in GSK than Valeant Group
Investors often analyse debt-equity ratio to assess solvency position of the firm so that
effective investment decisions can be carried out to gain better return.
Solvency ratio Formula
Valeant Group (In
USD million) GSK (In GBP Million)
2014 2015 2014 2015
Long term debt 15254 30265 15841 15324
Shareholder's
equity 5312 5911 4263 5114
Debt to equity
ratio
Long term debt/Total
shareholders equity 2.87 5.12 3.72 3.00
26
2014 2015
0
5000
10000
15000
20000
25000
30000
35000
15254
30265
5312 5911
Valeanta's capital structure
Long term debt
Shareholder's equity

Findings and analysis: Above table reflects that Valeant Group's D/E ratio increased from
2.87:1 to 5.12:1 which is just twice time greater than that of PY. Changes in the composition of both
long-term debt and equity is the main reason behind high D/E ratio. With regards to Valeant,
excessive use of debt fund as it has been enhanced from 15254m to 30265m by 98.41%
comparatively than the use of shareholder's equity fund from 5312m to 5911m is the reason behind
higher ratio. It indicates high investment risk because of more fixed financial burden due to large
quantity of debt capital. On the contrary to this, GSK's ratio moved down from 3.72 to 3 which is
27
2014 2015
0
1
2
3
4
5
6
2.87
5.12
3.72
3
Debt/equity ratio
Valeanta
GSK
2014 2015
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
GSK's Capital structure
Long term debt
Shareholder's equity

good. Repayment to long-term debts worth 517m and generating additional capital through share
issue is the reason behind this. It is a favourable sign which shows that there is less investment risk
as compare to PY 2014. Furthermore, 0.5:1 is considered as an idle industrial ratio and Valeant
Group's ratio is very greater from this standard. Therefore, it can be interpreted that GSK's
managers are going in right direction as they decided to decrease the use of debt fund and increase
equity capital to maintain their solvency position. By this, they can maintain their financial risk and
will be able to generate additional fund to meet long-term financial need such as investment in new
technology, research and development, business expansion etc.
28

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion
From the above dissertation, it has been concluded that financial performance is the most
effectual measures which help investors in making suitable decisions. Moreover, getting high level
of return is one of the main objectives of investors behind investing money. Hence, for offering
valuable decision making framework to the investors ratio analysis has been conducted by the
scholar for fulfilling the first objectives. It has been revealed from the report that profitability
aspects of GlaxosmithKline is sound in comparison to Valeant Group. On the basis of this aspect,
investors can make suitable decision regarding the firm in which they need to invest money.
Moreover, net profit is one of the main factors which have high level of influence on the dividend
aspect of the firm. In this way, profitability ratios offer more valuable framework for decision
making.
Along with this, it can be inferred that Valeant Group is highly capable in relation to meeting
its financial obligation in comparison to GlaxosmithKline. Hence, current and quick ratios also
provide deeper insight to the investors about the investors about the financial capability of the firm
in relation to meeting the obligations. In this way, capability of the firm in relation to making
payment of current obligations can easily be assessed by the investors the investors through the
means of current ratio. Further, it has been articulated that human resources of GlaxosmithKline had
made optimum use of current assets while manufacturing the products as compared to Valeant
Group. Through this, stakeholders can also assess the skills, abilities and potential level of the
personnel of both the pharmaceutical firms more effectually.
Growth and success of the firm also influenced by the abilities of the personnel in relation to
the making use of resources. Moreover, this aspect closely impacts the cost level of the firm either
in positive or negative manner. Further, solvency aspect of both the firms exceeded ideal ratio of
0.5:1. However, by taking into account the solvency position of both the firms it can be said that
GlaxosmithKline had taken more support of debt instruments rather than issuing shares. On the
basis of this aspect, GlaxosmithKline suffered from high financial burden in comparison to Valeant
Group. Hence, by considering all such ratios stakeholders or investors become able to take suitable
decision which aid in their profit margin. Beside this, it can be stated that profitability and
efficiency aspect of GlaxosmithKline is sound. On the other hand, solvency and liquidity aspect of
Valeant Group is sound in against to its rival firm.
5.2 Recommendations
 On the basis of the basis of the outcome of ratio analysis it is recommended to Valeant
29

Group that they need to make investment in R&D activity for enhancing the quality of
product. Moreover, products which are offered by pharma group are highly associated with
the health aspect of people. In this, company can enhance its sales revenue by positioned
itself on the basis of quality aspect.
 Further, Valeant Group is required to exert control on indirect expenses such as electricity,
salaries etc. Moreover, indirect expenses closely influence the profit and thereby dividend
policy of it. The rationale behind this is company distribute dividend from the profit
remaining after paying taxation. In this way, by framing competent strategic and policy
framework Valeant Group can enhance profit margin and attract shareholders by reducing
the level of expenditure.
 Valeant Group should also make control on its financial activities and functions for making
improvement in current ratio. Moreover, stakeholders such as investors, banking institution
and suppliers make assessment of the firm's ability in relation to fulfilling the current
obligations before investing money. Along with this, business enterprise needs to invest
quick current assets such as cash, prepaid amount, debtors etc. in other productive
activities. This in turn helps business unit in achieving success through the maximization of
profit.
 In addition to this, Valeant Group also needs to reduce its dependency on debt instrument
for fulfilling the financial requirements. Moreover, debt instruments closely influences the
profitability aspect of the firm in terms of interest expenses. Thus, company needs to make
changes in its existing policy framework in accordance with the ideal ratio which is 0.5:1.
By this, it can maintain its investment risk and will be able to gather sufficient quantum of
funds from both the fixed cost and variable cost instruments.
 Along with this, company also need to encourage their human resources to make their best
efforts while performing the business activities and functions. Besides this, Valeant Group
should also conduct training session for upgrading the skills of personnel. Hence, by
developing abilities personnel would become able to make optimum use of assets while
carry out the manufacturing activities. This in turn, maximum utilization of business assets
assist Valeant Group to generate high turnover and thereby maximize their net earnings and
profitability. By this, company can enhance their competitive strength and strategic
capability to compete effectively with the rivalries.
30

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32

APPENDIX
Calculation of ratios
Profitability
ratios Formula Valeanta GlaxosmithKline
2014 2015 2014 2015
Gross profit Sales – Cost of goods sold 6009 7862 15683 15070
Net profit Total revenue – total profit 914 -292 2756 8422
Revenues 8264 10447 23006 23923
GP ratio Gross profit / revenues *100 72.71% 75.26% 68.17% 62.99%
NP ratio Net profit / revenues *100 11.06% -2.80% 11.98% 35.20%
Current assets 4193 5507 14678 16587
Current liabilities 2731 5313 13295 13417
Inventory 951 1257 4231 4716
Current ratio Current assets/Current liabilities 1.54 1.04 1.10 1.24
Acid test ratio
Current assets – inventory/current
liabilities 1.19 0.80 0.79 0.88
Efficiency ratio
Begining total
assets 27971 26353 42086 40651
Closing assets 26353 48965 40651 53446
Average assets 27162 37659 41368.5 47048.5
Assets turnover
ratio Net sales/Average total assets 0.30 0.28 0.56 0.51
Opening inventory 883 951 3900 4231
Closing inventory 951 1257 4231 4716
Average inventory 917 1104 4065.5 4473.5
Cost of goods sold 2255 2585 7323 8853
Inventory turnover
ratio
Cost of goods sold /Average
inventory 2.46 2.34 1.80 1.98
Solvency ratio
Long term debt 15254 30265 15841 15324
Shareholder's
equity 5312 5911 4263 5114
Debt to equity ratio
Long term debt/Total shareholders
equity 2.87 5.12 3.72 3.00
33