Financial Management Analysis
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Added on 2019-12-03
Financial Management Analysis
Added on 2019-12-03
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Financial ManagementAnalysis1 | P a g e
Table of ContentsINTRODUCTION......................................................................................................................1CONTEXT.................................................................................................................................1MAIN BODY.............................................................................................................................2Q.1. External source of finance for the companies...........................................................2Q. 2. Factors that affecting the choice of appropriate finance source...............................4CONCLUSION AND RECOMMENDATION.........................................................................7REFERENCES.........................................................................................................................102 | P a g e
INTRODUCTIONThe success of the business is highly depends on the availability of funds. Everyorganization needs funds for different purposes. Finance plays a major role in the companiestherefore, it become necessary for the organization to have adequate availability of fundsaccording to their requirements. Proper availability of finance helps to reduce futureuncertainty in the market. Financial management plays a vital role in generating the fundsand proper utilization of it. It is mainly concerned with the effective funds management.The presented report will helps us in identifying the sources of finance for the organization.There are two types of sources internal and external sources. Internal sources are availableinside the organization whereas externally funds can be generated through outside market. CONTEXTIn this report, two companies AstraZeneca Plc and GlaxosmithKline are selected foranalysis purpose. Both the companies operation prevails in Pharmaceutical industry.AstraZeneca Group: It is a British-Swedish multinational pharmaceuticalbiotechnology company. The company was established on 6th April, 1999 through mergingthe Sweden company Astra AB and UK based Zeneca Group. Headquarter of the company isestablished in London, United Kingdom. Medimmune is its subsidiary company. It is theseventh largest company in the world measured on the basis of revenues. The companyoperates in 100 countries with 50000 employees over the world. Its primary listed on Londonstock Exchange of FTSE 100 Index. It mainly deals with Cardiovascular, gastrointestinal,infection, neuroscience, respiratory and inflammation diseases. The company develops,manufactures and sells pharmaceutical biotechnology products to treat such diseases. GlaxoSmith Kline Plc: It is often shortened to GSK. It is a British multinationalpharmaceutical company that headquartered in Brentford, London, UK. It is the sixth largestpharmaceutical company in the world. The company was established in the year 2000through merging the Glaxo Wellcome and SmithKline Beecham. The company is listedprimary on the London stock Exchange constituent of FTSE 100 Index. A Stiefel laboratoryis the subsidiary of it. The company major deals with the asthma, cancer, infections, mentalhealth, diabetes and digestive conditions. It is a global company that operates in 115 countrieswith 99000 employees. The company is providing a variety of products for improving thecustomers health and remove diseases. The main products are pharmaceuticals, healthcareproducts, nutritional products and medicines. However, the top selling products of thecompany are Advair, Avodart, Flovent, Augumentin, Lovaza and Lamictal. Moreover, under1 | P a g e
the consumer healthcare division it sells Aquafresh, Maclean and Sensodyne toothpaste andhealthy drinks such as Horlicks. All the products are listed in the World health OrganizationModel list of Essential Medicines. In the year 2014, the company also take approval fromregulators for the malaria vaccines. MAIN BODYQ.1. External source of finance for the companiesBoth the companies require funds for its successful operations. The company can fulfilits short term, long term and medium term finance requirements through various externalsources that are described below: Short term finance sourcesBank Overdraft: This facility is given by financial institutions such as banks to thebusiness customers. People that have current account can collect funds from these facilitiesthrough drawing higher the amount than bank balance. Glaxosmith Kline and AstraZenecaGroup also get benefited through these facilities so as to fulfil its immediate and urgentrequirements (Scott, 2014). The advantage of this is that they do not have to give anycollaterals or any security to the banks. However, the cost is that bank charges higher theinterest rates on these facilities. Trade Credit: Under this source, both the companies can purchase from the suppliersat long grace period. It can range from 1 week to 90 days depending upon the industry. Thecompany can negotiate its bills through making delayed payments to the suppliers. Theorganization only makes agreement with the suppliers to acquire funds from this source.However, the disadvantage is that the company cannot get benefited from cash discount. Factors of debts: In this source, AstraZenec Group and GlaxoSmith Kline Companycan sell its receivable bills to a debt factoring company. The cost of that is that bills arefactored at some discount rates. Medium term finance sourcesMedium term bank loan: Loans can be taken from banks for medium term fundsrequirement. The cost of the capital is that company has to pay interest amount at chargeablerate. The rates may be fixed or Fluctuating (Duchin, Ozbas and Sensoy, 2010). Moreover, thecompanies also have to pay timely instalment payments to the banks. Hire Purchase: Under this source, the assets can be purchased without making all thepayments to the creditors (Stickney and et. al., 2009). Glaxosmith Kline and AstraZenec2 | P a g e
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