Financial Analysis of a Company

This assignment examines the financial health of a company, specifically analyzing its increasing outstanding debts over time. The analysis highlights the potential benefits and risks associated with the company's reliance on borrowed funds. It discusses how rising debt levels can indicate both a strong credit rating and an elevated risk of default. The paper emphasizes the importance of understanding the implications of increased borrowing for a company's financial stability.

Running Head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note

1FINANCE
Table of Contents
Stage 1:............................................................................................................................................2
Stage 2:............................................................................................................................................9
Stage 3:..........................................................................................................................................17
References:....................................................................................................................................22

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Stage 1:
In order to compute the weighted average cost of capital of GlaxoSmithKline Plc. it is
essential to have necessary information about the financial structure and associated cost of
different sources which have contributed to the overall financing of the company. Accordingly,
the compiled financial information containing assets, liabilities, revenue, expenditures and cash
flows of the company are provided below on the basis of which the computation of weighted
average cost of capital of the company shall be made.
GLAXOSMITHKLINE PLC ADR (GSK) Balance Sheet
All amounts are
in GBP millions
except per share
data. 2012-12 2013-12 2014-12 2015-12 2016-12
Assets
Current assets
Cash
Cash and cash
equivalents 4,184.00 5,534.00 4,338.00 5,830.00 4,897.00
Short-term
investments 81.00 66.00 69.00 75.00 89.00
Receivables 4,115.00 3,966.00 3,556.00 3,824.00 4,615.00
Inventories 3,969.00 3,900.00 4,231.00 4,716.00 5,102.00
Prepaid expenses 285.00 290.00 289.00 307.00 335.00
Other current
assets 1,058.00 1,471.00 2,195.00 1,835.00 1,673.00
Total current
assets 13,692.00 15,227.00 14,678.00 16,587.00 16,711.00
Non-current
assets
Property, plant and
equipment
Gross property,
plant and
equipment 18,742.00 18,853.00 19,355.00 20,750.00 22,164.00
Accumulated
Depreciation (9,966.00) (9,981.00) (10,303.00) (11,082.00) (11,356.00)

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Net property,
plant and
equipment 8,776.00 8,872.00 9,052.00 9,668.00 10,808.00
Equity and other
investments 1,366.00 1,525.00 1,454.00 1,462.00 1,248.00
Goodwill 4,359.00 4,205.00 3,724.00 5,162.00 5,965.00
Intangible assets 10,161.00 9,283.00 8,320.00 16,672.00 18,776.00
Deferred income
taxes 2,385.00 2,084.00 2,688.00 2,905.00 4,374.00
Prepaid pension
benefit 93.00
Other long-term
assets 736.00 890.00 642.00 990.00 1,199.00
Total non-current
assets 27,783.00 26,859.00 25,973.00 36,859.00 42,370.00
Total assets 41,475.00 42,086.00 40,651.00 53,446.00 59,081.00
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 3,631.00 2,789.00 2,943.00 1,308.00 4,129.00
Accounts payable 2,666.00 2,739.00 2,790.00 3,120.00 3,596.00
Taxes payable 1,374.00 1,452.00 945.00 1,421.00 1,305.00
Accrued liabilities 4,233.00 2,797.00 4,609.00 5,206.00 6,324.00
Deferred revenues 162.00 167.00 62.00 73.00 158.00
Other current
liabilities 1,749.00 3,733.00 1,946.00 2,289.00 3,489.00
Total current
liabilities 13,815.00 13,677.00 13,295.00 13,417.00 19,001.00
Non-current
liabilities
Long-term debt 14,671.00 15,456.00 15,841.00 15,324.00 14,661.00
Deferred taxes
liabilities 1,004.00 693.00 445.00 1,522.00 1,934.00
Deferred revenues 64.00 66.00
Pensions and other
benefits 3,105.00 2,189.00 3,179.00 3,229.00 4,090.00

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Minority interest 937.00 815.00 673.00 3,764.00 3,839.00
Other long-term
liabilities 2,133.00 2,259.00 2,955.00 11,012.00 14,366.00
Total non-current
liabilities 21,850.00 21,412.00 23,093.00 34,915.00 38,956.00
Total liabilities 35,665.00 35,089.00 36,388.00 48,332.00 57,957.00
Stockholders'
equity
Common stock 1,349.00 1,336.00 1,339.00 1,340.00 1,342.00
Additional paid-in
capital 2,022.00 2,595.00 2,759.00 2,831.00 2,954.00
Retained earnings 652.00 913.00 (2,074.00) (1,397.00) (5,392.00)
Accumulated other
comprehensive
income 1,787.00 2,153.00 2,239.00 2,340.00 2,220.00
Total
stockholders'
equity 5,810.00 6,997.00 4,263.00 5,114.00 1,124.00
Total liabilities
and stockholders'
equity 41,475.00 42,086.00 40,651.00 53,446.00 59,081.00
All amounts are in GBP millions except
per share data. 2012-12 2013-12 2014-12 2015-12 2016-12
Revenue 26,431.00 26,505.00 23,006.00 23,923.00 27,889.00
Less: Cost of revenue 7,894.00 8,585.00 7,323.00 8,853.00 9,290.00
Gross profit 18,537.00 17,920.00 15,683.00 15,070.00 18,599.00
Operating expenses
Research and development 3,968.00 3,923.00 3,450.00 3,560.00 3,628.00
Sales, General and administrative 8,739.00 8,480.00 8,246.00 9,232.00 9,366.00
Other operating expenses (1,562.00) (1,511.00) 390.00 (8,044.00) 3,007.00
Total operating expenses 11,145.00 10,892.00 12,086.00 4,748.00 16,001.00

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Operating income 7,392.00 7,028.00 3,597.00 10,322.00 2,598.00
Add: Other income 108.00 345.00 59.00 923.00 42.00
Earnings Before Interest and Tax (EBIT) 7,500.00 7,373.00 3,656.00 11,245.00 2,640.00
Less: Interest Expense 808.00 726.00 688.00 719.00 701.00
Earnings Before Tax (EBT) 6,692.00 6,647.00 2,968.00 10,526.00 1,939.00
Provision for income taxes 1,948.00 1,019.00 137.00 2,154.00 877.00
Net profit from continuing operations 4,744.00 5,628.00 2,831.00 8,372.00 1,062.00
Other (179.00) (192.00) (75.00) 50.00 (150.00)
Net income available to common
shareholders 4,565.00 5,436.00 2,756.00 8,422.00 912.00
Earnings per share
Basic 1.86 2.25 1.14 3.49 0.38
Diluted 1.83 2.21 1.13 3.45 0.37
Weighted average shares outstanding
Basic 2,456.00 2,416.00 2,404.00 2,416.00 2,430.00
Diluted 2,494.00 2,460.00 2,432.00 2,444.00 2,454.00
EBITDA 8,945.00 8,787.00 5,140.00 12,875.00 4,414.00
(Alin-Eliodor 2014)
The operating revenue of the company with each passing year has reduced which is a
very concerning fact for any organization. Especially for a firm in pharmaceutical industry
decrease in amount of revenue is a very serious issue because of the ever increasing
pharmaceutical market around the globe. The revenue from business of the company has shown
little turn of fortune with increase in the year 2016 is a positive on which the management should

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build its momentum to improve the operating performance in the future. The operating income is
a directly measuring factor that is used to determine the operating efficiency of an organization.
The fact that Earnings before Interests and Taxes (EBIT) as well as Earnings before Taxes (EBT)
both have reduced substantially over the last five year including 2016 is an alarming sign for the
company. A clear indication that the company has been unable to perform in the last few years
the way it did in the past (Bonaimé et al. 2014)).
Weighted Average Cost of Capital:
On the basis current
year figures
Associated
costs Funds
Proportion of
funds
% of
cost
Weighted
cost
Borrowed funds 701.00
14,661.0
0 92.88 4.78 4.44
Equity funds 912.00 1,124.00 7.12 81.14 5.78
1,613.00
15,785.0
0 100.00 10.22
On the basis of last five
year's average
Associated
costs Funds
Proportion of
funds
% of
cost
Weighted
cost
Borrowed funds 728.40
15,190.6
0 76.52 4.80 3.67
Equity funds 4,418.20 4,661.60 23.48 94.78 22.26
19,852.2
0 25.92
On the basis of the
interest and dividend
paid in the current year
Cash flow Funds
Proportion of
funds
% of
cost
Weighted
cost
Borrowed funds 919.00
14,661.0
74.14
6.27
4.65

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0
Equity funds 4,850.00 5,114.00 25.86 94.84 24.53
19,775.0
0 29.17
As can be seen in the table above that weighted average cost of capital of the company has been
computed using three methods of calculation. The weighted average costs of capital using three
different methods are all different from one another. This makes it clear that on the judgment of
the management and underlying assumptions the weighted average cost of capital would depend.
On current year associated costs with different sources of financing:
The company has mainly used borrowed and equity funds to finance its business
activities. Accordingly, the associated costs in relation to borrowed funds, i.e. interests in the
current year ending on December, 2016 and net income attributable to equity shareholders for
the same period have been used to ascertain the weighted average cost of capital of the company
in this method. Based on this method the weighted average cost of capital of the company is
10.22%. The funds outstanding in these two sources as on 31st December, 2016 have been used
to compute the weights that have been used to ascertain the weighted average cost of capital of
the company (DiMasi et al. 2016).
On the basis of last five year’s average costs:
In this method instead of using the current year’s interests and net profit attributable to
equity shareholders of the company the average of last five years’ interest expenses and net
profit attributable to shareholders have been used. Similarly, the average outstanding borrowed
funds and equity shareholders’’ funds of the last five years have been used to ascertain the

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weightage in this case. The weighted average cost of capital using average associated costs
instead of current costs of 25.92% is a huge change from 10.22% calculated using interests and
net profit attributable to equity shareholders of the current year (Brotherson ey al. 2015).
On the basis of cash outflow in respect of dividend and interest of 2016:
The payment of dividend and debt repayment in the year 2016 have been used in this
method to compute the weighted average cost of capital of the company. The equity
shareholders’ funds as on 31st December, 2015 and outstanding amount of debt as on 31st
December, 2016 have been used to ascertain the proportion of weightage attached for
computation of cost of capital. 29.17% is the ascertained weighted average cost of capital of the
company under this method.
Neither the net profit attributable to equity shareholders of current year or average of last
five years seems correct to ascertain the cost of equity fund however, the interests in case of debt
is the only way to ascertain the cost of borrowed funds and is also correct. Thus, the better
approach it seems the use of payment of dividend to equity shareholders and interests on
borrowed funds to ascertain the appropriate weighted average cost of capital of a company. Thus,
using the dividend paid to equity shareholders and interest to lenders the weighted average cost
of capital of the company would be as following:
On the basic of dividend
and interest payment
Cash
flow Funds
Proportion of
funds % of cost
Weighted
cost
Borrowed funds 701.00 14,661.00 74.14 4.78 3.54
Equity funds 4,850.00 5,114.00 25.86 94.84 24.53
19,775.00 28.07

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On the basis of the above it can be said that the best judgment for the weighted average cost of
capital of the company is 28.07%. It is to be membered that since the dividend paid in the year
2016 represent the dividend of 2015 hence, the equity shareholders’ funds as on 31st of
December, 2015 has been used along with the outstanding amount of debt funds as on 31st
December, 2016 to calculate the relevant weightage for ascertainment of weighted average cost
of capital of the company.
The calculation weighted average cost of capital under the three different methods are all
on the basis of certain assumptions and facts. Thus, since the future is uncertain there is always a
possibility of assumptions not materializing in real facts. In such case as the assumption changes
so will the weighted average cost of capital will change. Facts leave no room for speculation and
doubts whereas assumptions are merely estimates made by the management on the basis of their
experiences of doing business. Thus, there are certainly enough room for speculation and doubts
when certain assumptions are made. Hence, the three methods which were used to calculate the
weighted average cost of capital of the company are not completely safe and thus, there could be
substantial change in the weighted average cost of capital of the company in case the underlying
assumptions change. However, the best judgment of weighted average cost of capital of the
company of 28.07% is without any error since the associated costs as well as the attached
weights have been taken in accordance with the relevant figures provided in financial statements
of the company.

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Stage 2:
Financial analysis of an organization involves the analysis of financial statements of the
organization. The financial position of an organization as on a particular date can be ascertained
on the basis of its assets and liabilities as on that date from the Balance sheet of the organization.
The operating result of the organization will be assessed from the income statement of the
organization which is an integral part of the financial statements of an organization. Apart from
that financial statements include the cash flow statement which will help us to assess the
liquidity position of the organization and its ability of generate cash flow from operating,
investing and financial activities. In the case GSK, firstly; the complete set of financial
statements will have to be presented along with ratio analysis, profitability ration, liquidity ratios
and solvency ratios of the company to analyze the company’s financial position and operating
results.
The financial statements of the company, income statements, balance sheet, have already
been provided at the beginning to ascertain the weighted average cost of capital of the company.
Let us now have the cash flow statement and ratio analysis of the company to conduct an in-
depth analysis of the financial position of the company.
GLAXOSMITHKLINE PLC ADR (GSK) Cash Flow Statement
All amounts are in GBP
millions except per share
data. 2012-12 2013-12 2014-12 2015-12 2016-12
Cash Flows From
Operating Activities
Net income 4,744.00 5,628.00 2,831.00 8,372.00 1,062.00
Depreciation &
amortization 1,445.00 1,414.00 1,484.00 1,630.00 1,774.00

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Investment/asset
impairment charges 654.00 928.00 205.00 822.00 226.00
Investments losses (gains) (16.00) (318.00) (149.00)
(1,185.00
) (254.00)
Deferred income taxes
(1,673.00
) 877.00
Stock based compensation 220.00 319.00 332.00 368.00 319.00
Accounts receivable 183.00 16.00 347.00 98.00 (188.00)
Inventory 37.00 (95.00) (529.00) (111.00) 70.00
Accounts payable 177.00 125.00 91.00 40.00 96.00
Other working capital
(2,826.00
) 10.00 752.00 1,648.00 3,672.00
Other non-cash items 1,430.00 (805.00) (188.00)
(9,113.00
)
(1,157.00
)
Net cash from operating
activities 4,375.00 7,222.00 5,176.00 2,569.00 6,497.00
Cash Flows From
Investing Activities
Investments in property,
plant, and equipment
(1,051.00
)
(1,188.00
)
(1,188.00
)
(1,380.00
)
(1,543.00
)
Property, plant, and
equipment reductions 68.00 46.00 39.00 72.00 98.00
Acquisitions, net
(2,235.00
) 1,604.00 121.00 6,705.00 89.00
Purchases of investments (328.00) (141.00) (92.00) (98.00) (107.00)
Sales/Maturities of
investments 28.00 503.00 207.00 921.00 683.00
Purchases of intangibles (469.00) (513.00) (563.00) (521.00) (809.00)
Sales of intangibles 1,056.00 136.00 330.00 236.00 283.00
Other investing activities 300.00 77.00 68.00 102.00 37.00

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Net cash used for
investing activities
(2,631.00
) 524.00
(1,078.00
) 6,037.00
(1,269.00
)
Cash Flows From
Financing Activities
Debt issued 6,173.00 1,913.00 1,960.00 1,067.00
Debt repayment
(2,594.00
)
(1,872.00
)
(1,732.00
)
(2,437.00
) (919.00)
Common stock issued 414.00 585.00 167.00 73.00 89.00
Common stock
repurchased
(2,530.00
)
(1,549.00
) (333.00) (99.00) (74.00)
Dividend paid
(3,814.00
)
(3,680.00
)
(3,843.00
)
(3,874.00
)
(4,850.00
)
Other financing activities
(1,000.00
)
(1,670.00
)
(1,604.00
) (766.00)
(1,705.00
)
Net cash provided by
(used for) financing
activities
(3,351.00
)
(6,273.00
)
(5,385.00
)
(7,103.00
)
(6,392.00
)
Effect of exchange rate
changes (92.00) (148.00) 84.00 (45.00) 283.00
Net cash provided / (used)
(1,699.00
) 1,325.00
(1,203.00
) 1,458.00 (881.00)
Cash at beginning of
period 5,605.00 3,906.00 5,231.00 4,028.00 5,486.00
Cash at end of period 3,906.00 5,231.00 4,028.00 5,486.00 4,605.00
GLAXOSMITHKLINE PLC ADR (GSK) Ratio Analysis
All amounts are in GBP
millions except per share
data.
2012-
12
2013-
12
2014-
12
2015-
12
2016-
12
Revenue GBP Mil 26,431 26,505 23,006 23,923 27,889
Gross Margin %
70.133
6
67.609
9
68.169
2
62.993
8
66.689
4

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Operating Income GBP Mil 7,300 7,028 3,597 10,322 2,598
Operating Margin %
27.967
2
26.515
8
15.635
1
43.146
8 9.3155
Net profit GBP Mil 4,565 5,436 2,756 8,422 912
Net profit ratio 17 21 12 35 3
Earnings Per Share GBP 1.8 2.21 1.13 3.45 0.37
Dividends GBP 1.47 1.56 1.6 1.57 1.55
Shares Mil 2,495 2,460 2,433 2,444 2,455
Book Value Per Share *
GBP 3.83 4.06 2.93 3.3 0.07
Piece earnings ratio
2.1277
8 1.8371
2.5929
2
0.9565
2
0.1891
9
Market Capitalization
9555.8
5 9987.6
7128.6
9 8065.2 171.85
Return on Equity % 65.96 84.89 48.95 179.63 29.24
Return on Invested Capital
% 21.6 24.32 13.87 39.81 6.8
Interest Coverage 9.28 10.16 5.31 15.64 3.77
Current Ratio 0.9911
1.1133
3
1.1040
2
1.2362
7
0.8794
8
Quick Ratio 0.70 0.83 0.79 0.88 0.61
Debt/Equity
2.5251
3
2.2089
5
3.7159
3
2.9964
8
13.043
6
The specific purpose of the financial analysis of GSK is to ascertain the financial position
and operating performance of the company over the last five years. The balance sheet and
income statement of the company have already been provided at the beginning will help us to
analyze the financial position and operating results of the company over the last five years.
However, along with these figures in order to provide solidarity to the financial analysis process
of the company cash flow statement and ratio analysis have also been provided in this part of the
document. Compare to normal figures contained in the balance sheet and income statement of a
company the ratio analysis helps us to identify the abnormal fluctuations in operating results as
well as in financial position of the company thus, ration analysis can be very effective in the
overall financial analysis of an organization (Young and Loomis 2014).

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This analysis will help different stakeholders of the company, i.e. the shareholders,
management, customers, employees, Govt. authorities, society at a large all will be able gather
enough information to assess the actual financial position of the company as well as its operating
results over the last five years to take important decisions affecting their interests in the
company. Shareholders are mainly concerned about the return on their funds and the solvency
position of the company, thus, EPS, return on equity, current ratio and debt to equity ratio are the
matters that interest them and accordingly, they will be mainly concerned with these figures.
Employee on the other hand will be concerned about the liquidity position of the company and
the profitability of it as these will show the ability of the company to make payments to the
workers on correct time. Taxation authorities on the other hand will be mainly concerned with
different taxes that they will collect from the company thus, apart from profitability of the
company the behavior of the company to fulfill the necessary rules and regulations while
conducting the day to day affairs of the company is essential to the financial analysis. Creditors
and suppliers of the company will take a look at the liquidity position of the company along with
ability of the company to earn profit as these will suggest whether the company will be able to
make payments to the creditors and suppliers on time (Pinto et al. 2015).
In this part of the document the whole effort has been to provide the relevant information
to the stakeholders of the company to take important decision affecting their interests. Gross
profit margin, operating margin both have reduced substantially over the last five year period
suggest that the company has not been able to improve its performance in the recent years from
its performances in the past. Current as well as quick ratio of the company has also declined over
the last five year is a clear indication of the company’s ever deteriorating liquidity and financial
position. The market capitalization of the company, calculated after multiplying the book value

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of each share with number of shares outstanding, clearly shows the deterioration market position
the company. In-fact the market capitalization of the company in the year 2016 with 171.85
Million pound is by far the lowest market value of the company over a decade (Young and Loomis
2014).
The reasons for the company not doing well are to be assessed and mentioned to the
management to help them deal with the current decline in financial position and operating results
of the company. It is only by reversing the declining profitability trend that the company can
expect to improve its operating results and subsequently financial position to infuse confidence
amongst the stakeholders. A strategic review would be helpful to understand the current scenario
of the company.
Core competencies: The core competencies of the company include patient focus, providing
medicines of highest quality to the patients, integrity and transparency. Over the years the
company has built substantial goodwill in the market with core competencies. However, in the
recent past there have been fair share of controversies too with respect to few medicines and their
prices. These controversies have certainly tarnished the image of the company to an extent and
subsequently the financial position and operational performance of the company have been
influenced.
Market context: The ever increasing competition in the market has made it very difficult for any
organization in the pharmaceutical industry and it has certainly influenced the ability of GSK to
continue on the path of sustainable growth. Competitors like Pfizer, Merck & Co; Amgen, and
Lundbeck have all made substantial fortune in the pharmaceutical market by providing quality
medicines at affordable prices. The revenues of the company over the last five years clearly
suggest that despite a huge increase in the overall sale of medicines around the globe the market

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share of the company have not increased. In-fact except in the current year the revenue figures of
the company suggest that the company has failed to keep its own market share in-tact as the
revenues have decreased substantially in the last five year barring the current year (Vogel 2014).
All amounts are in GBP millions
except per share data. 2012-12 2013-12 2014-12 2015-12 2016-12
Revenue 26,431.00 26,505.00 23,006.00 23,923.00 27,889.00
As is clear from the above data that where the company managed to earn 26431.00 Million
pound revenue in the year 2012; it felt to 23006.00 million pound in the year 2014 however, in
the year 2016 it has shown an increase with 27889.00 million pound. The inflation factor has
been completely ignored in determining the actual revenue in terms of time value of money of
2012 (Pinto et al. 2015).
Strategic and financial issues:
As a result of increased amount of competition the operating results of the company has
suffered. Not only the company has failed to increase its sales substantially over the last five
years but the expenditures, i.e. the cost of operation, has also increased significantly. Thus, the
gross profit ratio, operating profit ratio and net profit ratio of the company all have deteriorated
over the last five years and what worse the market capitalization has reached its lowest in the
year 2016 shows the lackluster performance of the company in last five years specifically 2016.
The operating results of the company over the last five years have deteriorated which
subsequently have influenced the financial position of the company negatively (Péres et al. 2017).
Accounting information are provided in the Annual Reports of the company over the
years in the form of financial statements which include Balance sheet, income statement, cash

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flow statement and notes to accounts. The company has followed double entry system of
accounting to record the financial transactions and have also adhere to the mandatory accounting
standards to prepare and present the financial statements. Thus, there is no correction in
accounting is required. The main objective of financial statements and maintenance of accounts
is to convey the true and fair picture of an organization as on a particular date and as long as the
financial statements are fulfilling its objectives by preparation and presentation of financial
statements in accordance with the financial reporting framework there is no need to make any
changes to the accounting system in an organization. The financial statements of GSK have been
prepared in accordance with the relevant accounting framework and are showing the true and
correct picture of the company thus, there is no need to make any corrections to the existing
accounting information (Lehmann 2014).
Taking into consideration the discussion above and after conducting an in-depth analysis
of financial position of the company it can be concluded that the company is in a transitional
phase where it is trying to improve its operating results and financial position after a
considerable downward period. The operating results clear from the income statement and
subsequent profitability ratios such gross profit ratio, operating ratio and net profit ratio that the
company is not doing as well in the present as it once did in the past. The ever decreasing gross
profit, operating profit and net profit ratios is the clear indication to that. It is all but obvious that
once the operating results of an organization took a downward turn it subsequently followed by
the deterioration of financial position of such organization. The management of the company
needs to find ways to deal with the increased amount of competition in the market. Spending on
research and development activities will help the company to come up with new and better

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products to attract new customers as well as in keeping the existing customers happy and
satisfied.
Stage 3:
Equity valuation of GSK Plc. is provided below. The equity valuation in this case has
been ascertained using the intrinsic valuation model. In accordance with the intrinsic valuation
model the value of all liabilities of an organization are aggregated and the resultant outcome is
subtracted from the aggregate amount of all assets owned and controlled by the organization.
This gives us the net asset of such organization which is then divided by the number of shares
outstanding to calculate the equity value of each share of such organization. Let us calculate the
equity value per share of the company using intrinsic valuation model in last five years to assess
how the same has been influenced due to the performance of the company.
Computation of Equity value:
All amounts are in GBP
millions except per share data. 2012-12 2013-12 2014-12 2015-12 2016-12
Total current assets
13,692.0
0
15,227.0
0
14,678.0
0
16,587.0
0
16,711.0
0
Total non-current assets
27,783.0
0
26,859.0
0
25,973.0
0
36,859.0
0
42,370.0
0
(A)Total assets
41,475.0
0
42,086.0
0
40,651.0
0
53,446.0
0
59,081.0
0
Total current liabilities
13,815.0
0
13,677.0
0
13,295.0
0
13,417.0
0
19,001.0
0
Total non-current liabilities
21,850.0
0
21,412.0
0
23,093.0
0
34,915.0
0
38,956.0
0
(B)Total liabilities
35,665.0
0
35,089.0
0
36,388.0
0
48,332.0
0
57,957.0
0

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(C) Net assets (A-B) 5,810.00 6,997.00 4,263.00 5,114.00 1,124.00
(D) Shares Mil 2,495 2,460 2,433 2,444 2,455
Equity value per share (C /
D) 2.33 2.84 1.75 2.09 0.46
The equity value per share in the year 2012 was 2.33 pound per share which increased to
2.84 pound per share in the very next year in 2013. However, in the year 2014 the equity value of
each share reduced to 1.75 pound per share. The equity value of each share is lowest at present
with only 0.46 pound per share in the year 2016.
The potential range of error in calculation of equity valuation of GSK is as dependent on
the number of errors contained in the financial statements. In case the financial statements is free
of any material error then the computation of equity value of each share of the company will also
be materially free from any error. Similarly in case the financial statements of the company
contain one or more material error / errors, especially if the material error is in relation to the
value of assets and liabilities the equity valuation shall also be affected (Krylov 2015).
The principal drivers of equity valuation of the company and value per share is the
aggregate impact of operating performances of the company over the years. As can be seen from
the equity valuation table provided at the beginning of stage 3 that the equity value per share of
the company in the year 2012 was 2.33 pound per share which rose further to 2.84 in the year
2013. The increase in equity value of share of the company was directly a result of the
company’s better operating performance in the year 2013 as compare to the operating
performance in the previous year. Quite contrasting is the equity value of each share of the

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company as on 31st December, 2016 was only 0.46 per share. Again the huge depreciation in
equity value of the share of the company in the year 2016 is directly relating to the lackluster
operating performance of the company in the year 2016. Thus, it is clear that the main factors
contributing to the equity value of shares of the company is its operating performance and
financial position.
In order to comment on the volatility of the assets of the company first it is important to
ascertain the changes in assets. Thus, only the changes in value of asset in the current year, i.e.
2016, compare to the value of assets in the year 2015 shall be computed and later commented
upon.
GLAXOSMITHKLINE PLC ADR (GSK) Balance Sheet
All amounts are in GBP
millions except per share
data. 2015-12 2016-12 Change Change %
Assets
Current assets
Cash
Cash and cash equivalents 5,830.00 4,897.00 (933.00) (16.00)
Short-term investments 75.00 89.00 14.00 18.67
Receivables 3,824.00 4,615.00 791.00 20.69
Inventories 4,716.00 5,102.00 386.00 8.18
Prepaid expenses 307.00 335.00 28.00 9.12
Other current assets 1,835.00 1,673.00 (162.00) (8.83)
Total current assets 16,587.00 16,711.00 124.00 0.75
Non-current assets
Property, plant and
equipment
Gross property, plant and
equipment 20,750.00 22,164.00 1,414.00 6.81
Accumulated Depreciation (11,082.00) (11,356.00) (274.00) 2.47
Net property, plant and
equipment 9,668.00 10,808.00 1,140.00 11.79

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Equity and other
investments 1,462.00 1,248.00 (214.00) (14.64)
Goodwill 5,162.00 5,965.00 803.00 15.56
Intangible assets 16,672.00 18,776.00 2,104.00 12.62
Deferred income taxes 2,905.00 4,374.00 1,469.00 50.57
Prepaid pension benefit -
Other long-term assets 990.00 1,199.00 209.00 21.11
Total non-current assets 36,859.00 42,370.00 5,511.00 14.95
Total assets 53,446.00 59,081.00 5,635.00 10.54
Based on the above computation let us comment on the volatility of assets of the
company. As can be seen clearly from the above table that cash and cash equivalent of the
company in the year 2016 has reduced by as much as 16% from the cash and cash equivalent
balance in the year 2015. Except cash and its equivalent all other current assets have increased in
the year 2016. Thus, vitality apart from cash are all positives and in favor of the company as far
as it is with current assets are concerned. Non-current assets have also increased in the year 2016
compare to the non-current assets of the company in the year 2015. As a whole the total assets of
the company have increased by more than 10% in the year 2016 over its corresponding balance
in the year 2015. However, only analysis of asset volatility will not help us to identify the actual
volatility of the business of the company. It is important to note that though assets have increased
by more than 10% in the year 2016 the total liabilities have increased even more in proportion to
the assets in the year 2016 (Kellermann et al. 2015).
The cash flow statement of the company makes it clear that the company has been regular
in repaying its debts. The fact that the company has not failed to pay its debt obligation on time
is huge positive factor in building a positive credit profile for the company in the market.
However, the company has made debt repayment of 9554 million pounds in the last five years

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whereas the amount of additional debt issued by the company in the same period is about
11113.00 million pound. This clearly suggests that the amount of outstanding debts of the
company over the years have increased and continue to increase at a stable pace. Though this
suggests that the company has a good credit rating which is indicated by the lenders willingness
to provide additional loans but it also increases the credit risks attached with the company’s
profile. The default risk of borrowing is much higher than using equity funds to expand business.
As the increase in borrowing clearly suggests that the company in using increased amount of
borrowed funds to expand its business it is certainly increasing the default risks associated the
business of the company. In case the company fails to repay any of its installment in repayment
of the loans it will enhance the risk of insolvency. Thus, the default risk of doing business has
increased for the company with increase in the amount of borrowed funds in its capital structure
(Frank and Shen 2016).

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