Financial Performance Evaluation of Top Pharmaceutical Organizations in UK

Running head: ACCOUNTING AND FINANCE FOR MANAGERS
Accounting and Finance for Managers
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1ACCOUNTING AND FINANCE FOR MANAGERS
Table of Contents
Question 1:.......................................................................................................................2
Answer to Part (a):........................................................................................................2
Answer to Part (b):......................................................................................................12
Answer to Part (c):......................................................................................................14
Question 2:.....................................................................................................................14
Answer to Part (a):......................................................................................................15
Answer to Part (b):......................................................................................................16
References:....................................................................................................................19
Appendices:................................................................................................................... 22

2ACCOUNTING AND FINANCE FOR MANAGERS
Question 1:
The current section aims to evaluate the financial performance of the three top
pharmaceutical organisations in UK for which the financial ratios and non-financial ratios
are taken into consideration. These three organisations comprise of GlaxoSmithKline
Plc, Shire Plc and Astrazeneca Plc.
Answer to Part (a):
For evaluating the financial position and performance of the three selected
organisations, the following ratios are taken into consideration:
Profitability ratios:
2015 2016 2017 2015 2016 2017 2015 2016 2017
Revenue A 23,923£ 27,889£ 30,186£ 6,417£ 11,397£ 15,161£ 24,708£ 23,002£ 22,465£
Gross profit B 15,070£ 18,599£ 19,844£ 5,448£ 7,580£ 10,460£ 20,062£ 18,876£ 18,147£
Net profit C 8,422£ 912£ 1,532£ 1,303£ 327£ 4,272£ 2,825£ 3,406£ 2,868£
Gross margin B/A 62.99% 66.69% 65.74% 84.90% 66.51% 68.99% 81.20% 82.06% 80.78%
Net margin C/A 35.20% 3.27% 5.08% 20.31% 2.87% 28.18% 11.43% 14.81% 12.77%
GlaxoSmithKline Plc Shire Plc Astrazeneca Plc
Particulars Details
Table 1: Profitability ratios of GlaxoSmithKline Plc, Shire Plc and Astrazeneca Plc
for the years 2015-2017
(Source: Uk.gsk.com 2018; Investors.shire.com 2018; Astrazeneca.com 2018)

3ACCOUNTING AND FINANCE FOR MANAGERS
2015 2016 2017 2015 2016 2017 2015 2016 2017
GlaxoSmithKline
Plc Shire Plc Astrazeneca Plc
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Profitability Ratios
Gross margin
Net margin
Figure 1: Profitability ratios of GlaxoSmithKline Plc, Shire Plc and Astrazeneca
Plc for the years 2015-2017
(Source: Uk.gsk.com 2018; Investors.shire.com 2018; Astrazeneca.com 2018)
Based on the above figure, it could be evaluated that the gross margin of
GlaxoSmithKline Plc has increased from 62.99% in 2015 to 66.69% in 2016; however, it
has declined slightly to 65.74% in 2017. On the other hand, the ratio of Shire Plc has
fallen significantly from 84.90% in 2015 to 66.51% in 2016; however, it has increased
slightly to 68.99% in 2017. In case of Astrazeneca Plc, the gross margin has increased
from 81.20% in 2015 to 82.06% in 2016; however, the decline is slightly inherent to
80.78% in 2017.
With the help of gross margin, it is possible for the organisations in gauging their
production costs in relation to their revenues (Vogel 2014). The higher the margin, the
better it is for the organisation. In this case, Astrazeneca Plc is leading in terms of gross
margin followed by Shire Plc and GlaxoSmithKline Plc.

4ACCOUNTING AND FINANCE FOR MANAGERS
The net margin of GlaxoSmithKline Plc has fallen drastically to 3.27% in 2016
from 35.20% in 2015; however, it has increased to 5.08% in 2017. The trend is similar in
case of Shire Plc as well; however, the only exception is Astrazeneca Plc, as its net
margin has increased in 2016 compared to the previous year and it has declined in
2017. Net margin is the income that an organisation makes after it has incurred all
expenses and taxes (Warren and Jones 2018). In terms of net margin, Shire Plc is the
leading organisation, since its net margin has increased massively in 2017.
Liquidity ratios:
2015 2016 2017 2015 2016 2017 2015 2016 2017
Current assets A 16,587£ 16,711£ 15,907£ 2,256£ 7,540£ 7,608£ 16,007£ 13,262£ 13,150£
Inventories B 4,716£ 5,102£ 5,557£ 635£ 3,562£ 3,292£ 2,143£ 2,334£ 3,035£
Current liabilities C 13,417£ 19,001£ 26,569£ 3,706£ 7,743£ 7,882£ 14,869£ 15,256£ 16,383£
Current ratio A/C 1.24 0.88 0.60 0.61 0.97 0.97 1.08 0.87 0.80
Quick ratio (A-B)/C 0.88 0.61 0.39 0.44 0.51 0.55 0.93 0.72 0.62
Liquidity Ratios:-
Particulars Details
GlaxoSmithKline Plc Shire Plc Astrazeneca Plc
Table 2: Liquidity ratios of GlaxoSmithKline Plc, Shire Plc and Astrazeneca Plc for
the years 2015-2017
(Source: Uk.gsk.com 2018; Investors.shire.com 2018; Astrazeneca.com 2018)

5ACCOUNTING AND FINANCE FOR MANAGERS
2015 2016 2017 2015 2016 2017 2015 2016 2017
GlaxoSmithKline
Plc Shire Plc Astrazeneca Plc
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Liquidity Ratios
Current ratio
Quick ratio
Figure 2: Liquidity ratios of GlaxoSmithKline Plc, Shire Plc and Astrazeneca Plc
for the years 2015-2017
(Source: Uk.gsk.com 2018; Investors.shire.com 2018; Astrazeneca.com 2018)
Liquidity ratios help in measuring the short-term position of an organisation in
meeting its existing obligations and dues (Reid and Myddelton 2017). In case of
GlaxoSmithKline Plc and Astrazeneca Plc, the ratio has declined considerably over the
years; however, the ratio has increased for Shire Plc in 2016 and it has remained
constant in 2017 as well. The ideal current ratio in the UK pharmaceutical industry is
considered as 2. However, all the organisations are performing below the ideal
standard, which depicts their struggles to clear off their short-term dues and obligations.
The performance is better for Shire Plc among the three organisations based on the
current ratio computed.
Quick ratio is considered as a superior measure of liquidity, since it does not take
into account the inventory base (Dokas, Giokas and Tsamis 2014). In this case, the