Financial Management

Running head: FINANCIAL MANAGEMENT
Financial Management
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1FINANCIAL MANAGEMENT
Table of Contents
Introduction:....................................................................................................................................3
Company overview of GSK Plc and its competitor, Astrazeneca Plc:............................................3
Part 1: Ratio Analysis......................................................................................................................5
Introduction:................................................................................................................................5
Return on capital employed:........................................................................................................5
Conclusion:................................................................................................................................10
Part 2: Zero-Based Budgeting.......................................................................................................10
Introduction................................................................................................................................10
Advantages of ZBB:..................................................................................................................11
Circumstances under which the Zero based budgeting can be implemented:...............................13
Conclusion.....................................................................................................................................14
Part 3: Balanced Scorecard............................................................................................................15
Introduction................................................................................................................................15
Four essential components of balanced scorecard.....................................................................15
Strength and weakness...............................................................................................................16
Design failure:...........................................................................................................................18
Process failure:...........................................................................................................................18
Conclusion.................................................................................................................................19

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Part 4: Consideration of Financial Issues for undertaking Investment Decision...........................20
Introduction:..............................................................................................................................20
Financial issues according to descending order of weight:.......................................................20
Conclusion:................................................................................................................................23
References:....................................................................................................................................24
Appendix:......................................................................................................................................28

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Introduction:
The first section of the assignment would focus on brief overview of the financial
condition of GSK Plc and its competitor, Astrazeneca Plc, which are two of the leading
healthcare service providers in UK for the periods 2016 and 2017. By evaluating the financial
position of these two organisations, it becomes possible for the different stakeholders in
identifying the strengths and loopholes inherent within the organisations. Secondly, the study
focuses on the “Zero Based Budgeting” system. In this method, the budget is made through
justifying all expenses for each new period. As the name suggests the method starts budgeting
from a “zero base” and each and every function of an organization is analysed based on its need
and cost. Thirdly, the balanced scorecard refers the company’s strategy to identifying the growth
of an outcome. This examines the results through comparing the outcomes. This enables the
management to makes a decision through evaluating the growth of a function. Finally, it would
be evaluated that there are a number of factors to be taken into account before any investment
decision is undertaken. In case of large organisations, the selection of projects is a serious
challenge. This is due to the number of viable alternatives, which might lead to rise in profit
level.
Company overview of GSK Plc and its competitor, Astrazeneca Plc:
GSK Plc is a British pharmaceutical organisation GSK Plc deals with creation, invention,
development, production and marketing of vaccines as well as health-related consumer products
in the international markets (Gsk.com 2019). The organisation has primary listing on the London
Stock Exchange and at present, it is a constituent of FTSE 100 index. At August 2016, GSK Plc
has market capitalisation of £81 million, which is the fourth largest in the London stock
exchange. The top selling products of the organisation in the global market include Advair,

4FINANCIAL MANAGEMENT
Flovent, Augmentin, Avodart, Lamcital and Lovaza. The goal of GSK Plc is to become the most
innovative, trusted healthcare and best performing global healthcare organisation. The main
values include focus on the patients, respect, transparency, integrity and others. On the other
hand, the expectations comprise of accountability, courage, teamwork and development. In 2010,
GSK Plc has acquired Laboratorios Pheonix, an Argentine pharmaceutical organisation for $253
million, and UK-based sports nutrition organisation for $256 million and currently it has staff
base of around 95,400.
Astrazeneca Plc is a British-Swedish multinational biopharmaceutical and pharmaceutical
organisation. In 2013, it has shifted its headquarters to Cambridge in UK and it concentrated on
three sites including Cambridge, Maryland and Gaithersburg. It is involved in developing,
discovering and commercialising prescription medicines in the areas of cardiovascular,
oncology, metabolism, autoimmunity and gastroenterology in the healthcare sector with an
employee base of around 64,400 (Astrazeneca.com 2019). In 2010, Astrazeneca Plc has acquired
Novexel Corporation, which has assisted in diversifying its asset base further in the global
market. The organisation has been focusing on science on significant therapy areas along with
accelerating its pipeline. In addition, it has placed additional efforts on transformation of
business through devices, specialty care and biologics. The targeted business development assists
in reinforcement of efforts. Furthermore, the organisation is evolving its culture along with
simplifying its business processes by drawing and retaining the best talent in the market. Hence,
Astrazeneca Plc has focused on these moves for maintaining competitive advantage in the global
market.

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Part 1: Ratio Analysis
Introduction:
The current part would provide a brief overview of the financial condition of GSK Plc
and its competitor, Astrazeneca Plc, which are two of the leading healthcare service providers in
UK for the periods 2016 and 2017. For performing the profitability analysis of the two
companies, three important ratios have been considered that include operating profit margin,
return on capital employed and earnings per share. These ratios would aid in gaining an overview
of the two selected firms in 2016 and 2017.
Return on capital employed:
As indicated by Loughran and McDonald (2016), return on capital employed denotes the
efficacy of a firm to use its capital for generation of profit. Specifically, this ratio assists in
measuring returns accomplished by a firm from capital employed denoted in percent form. The
investors mainly utilise this ratio so that they could ascertain the feasibility of investment within
the concerned firm (Gippel, Smith and Zhu 2015). The ratio for the two organisations is
computed briefly as follows:
Return on Capital Employed = Operating Profit/ (Total Assets – Current Liabilities)
Table 1: Return on capital employed of GSK Plc and Astrazeneca Plc for 2016 and 2017
(Source: Gsk.com 2019: Astrazeneca.com 2019)