Financial Reporting and Analysis Report for GlaxoSmithKline

This report provides an analysis of GlaxoSmithKline's financial performance, including the importance of financial statements, evaluating performance based on profitability and investment perspective, and future expectations based on current and past performance.

Financial reporting and
analysis report

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Background of company.............................................................................................................3
Importance of cash flow statement, income and financial position statement............................3
Evaluating performance of company on basis of profitability and investment perspective.......5
Future expectation of company based on current and past performance....................................8
Advantages and limitation of using historical cost accounting.................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The financial reporting is being referred to as the process through which the financial
performance of the company is being documented and communicate to the interested parties for
a period of time. For the business to be successful it is necessary that all the financial information
must be shared properly. The present report is based on GlaxoSmithKline which deals in
pharmaceutical industry and is headquartered in Brentford UK. The current report will outline
the importance of financial statements like cash flow, income statement. Further the evaluation
of the financial performance from perspective of profitability and investment ratios will be done.
Along with this, discussion will take place on future expectation based on current and past
performance. In the end, the benefit and limitation of using historical cost accounting will be
included.
MAIN BODY
Background of company
The company GlaxoSmithKline (GSK) is a British multinational company dealing in
pharmaceutical industry. The company is headquartered in UK and was established in year 2000
by the merger of Glaxo Wellcome and SmithKline Beecham. The company GSK is the sixth
largest pharmaceutical company in world as per the records of Forbes 2019. Along with this the
company also has a listing over the London Stock Exchange and is also a part of FTSE 100
index. The objective of the company is to improve the quality of life of human by way of helping
then to do more and make them feel better. The company is a science led healthcare company
which majorly focuses on improving the quality of life of people so that they can live for a
longer. Moreover, the company has focused three long term priority and this need to be followed
in order to improve the working of the business. these three priorities involve innovation,
performance and trust. According to the company, all these three aspect are very essential in
order to improve the working and efficiency of the business.
Importance of cash flow statement, income and financial position statement
For the business to be successful it is necessary that all the financial performance of the
company is being communicated to the external users properly. This proper financial reporting is
necessary in order to communicate the financial results effectively. The reason underlying this
fact is that in case the financial information is not presented in proper manner then this will be

affecting the working and decision making of the external users (Roychowdhury, Shroff and
Verdi, 2019). This is pertaining to the fact that in case financial information will not be correct
then investor will not invest within the company. the financial reporting is very important for
GlaxoSmithKline as this will share the accurate financial performance data to the related parties.
This is necessary because of the reason that before finalising any decision it must be backed by
appropriate data. This data can only be found within the financial statements only. Hence, the use
of financial reporting is very important for the external users in order to take decisions.
The cash flow statement is very important for GlaxoSmithKline that this assist in
calculating the net cash being present with the company. this assist the investor in using the
information relating to cash flow and project for future performance as well (Amiram and et.al.,
2018). As part of financial reporting, the cash flow statement is important because it helps the
external used in taking proper decision relating to their investment within the company. The
external users involve many like investors, potential investor, tax authorities and many others.
All these users need to know that how much cash the company is generating from the different
activities. This further help the investors to decide that how much they have to invest within the
company.
In addition to this, financial reporting involves making of another statement that is
income statement. This is the one which outlines the profit earned or loss suffered by the
company. In case the company is not earning good amount of profit then this will be affecting
the working to a great extent. as per of financial reporting it is necessary that income statement is
prepared and communicated properly (Flower and Ebbers, 2018). This is important as in case the
company will not be earning good amount of profit then the external users need to take decision.
For example, the external user is potential investor and they analyse that company is not earning
profit. Then in this situation they will not be investing within the company as they are not
earning good amount of profit. Further, from point of view of financial reporting, the preparation
of income statement is important. This is because of the reason that it includes the total cost and
revenue so it also assists the company in analysing the areas where they can reduce the cost.
Along with this, another statement which is important for financial reporting is the
statement of financial position. This is also referred to a balance sheet of the company which
outlines the health of business. For the external users of business, it is necessary to have balance
sheet as well. this is necessary because of the reason that it outlines the balance of asset,

liabilities and equity present within the company (Weygandt, Kimmel and Kieso, 2018). for
example, the investor will be using the balance sheet in order to analyse that how much dividend
is being provided to the shareholders before investing. On the other hand, the bank before
lending the money will evaluate the balance sheet that how frequently the company is paying off
the debt and what is the ratio of debt and equity. All this information assists the external users to
take their decision in better and effective manner. The reason behind this fact is that in case the
working of the business is not good then they will not be investing or providing them with debt.
Thus, it can be stated that the use of financial reporting is very important for the
businesses. This is important for the reason that it will provide all the information relating
revenue, expenses, debt, equity and other financial reports (Robinson, 2020). Along with the
external users, the internal users also require proper financial reporting. This is necessary for the
reason that the use of profit statement assist the company in analysing the fact that how
profitable the business is. Moreover, the financial reporting also assists the management in
making the strategies in proper and effective manner. The reason underlying this fact is that in
case the financial reporting will be proper then this will improve the working efficiency of the
business and profitability of the business. with respect to the external users the use of financial
reporting is very important because in case the reports will not be prepared in proper manner
then this will affect the working efficiency to a great extent. the reason underlying this fact is that
in case the proper financial information will not be used then this will be affecting the working
efficiency and image of the company.
Evaluating performance of company on basis of profitability and investment perspective
Analysing and evaluating the profitability and performance of the company is very
important. The reason pertaining to the fact is that in case the company is not earning good
amount of profit then this will be affecting working efficiency of the business. hence, for
GlaxoSmithKline it is very important that they effectively evaluate the profitability aspect of the
company. also, when the profitability of the company will be good then this will result in
increase in investment within the company. The reason underlying this fact is that in case the
profits will be high then this will increase interest of investor within the company.
Profitability ratio
Gross profit ratio
Particular Formula 2019 2020

GP ratio GP/ sales * 100 64.85 65.68
GP 21891 22395
Sales 33754 34099
Net profit ratio
Particular Formula 2019 2020
NP ratio NP/ sales * 100 15.61 18.73
NP 5268 6388
Sales 33754 34099
return on capital employed
Particular Formula 2019 2020
ROCE
EBIT/ capital employed
*100 12.51 13.35
EBIT 6961 7783
Capital employed (total asset- current
liabilities)
5564
2
5828
3
Return on equity
Particular Formula 2019 2020
ROE Net income/ shareholders’ equity * 100 46.19 43.79
Net income 5268 6388
Shareholder equity 11405 14587

The profitability of the company refers to as the total income earned by reducing the total
cost from the total revenue being generated. This is the net income which is for distribution
among the shareholders or for reinvestment. In case the working of the company is not good then
people will not be investing money within the company. with respect to the GP ratio it is clear
that company is earning good amount of gross profit and it has also increased from the past year.
This implies the company is earning a good amount of profit. Further with respect to the net
profit ratio it is clear that the company has high deviation within the gross and net profit. This
simply implies that company is having large amount of indirect expenses and because of this, the
net profit of the company has reduced.
Furthermore, with respect to the return on capital employed as outlined that fact that
return has increased in comparison to the last year. This is because of the reason that in year
2019 it was 12.51% and in next year it increased to 13.35 % which is good. This simply implies
that the return which company was giving on the capital being employed has increased and
overall performance of the company has increased. But in contrast to this the return on equity has
negatively resulted and it has declined in comparison to the last year. In the year 2019 the return
on equity was 46.19 % and in 2020 it was 43.79 %. The return on equity ratio is the one which
assist company in measuring rate of return which owner of company shares receives for their
holding. With this, ratio it is evident that the rate of return of the common share has reduced and
this can negatively affect the working of the business to a great extent.
Investment ratios

Debt to equity ratio
Particular Formula 2019 2020
Debt to equity total liabilities/ equity 5.38 4.09
Total liability 61335 59623
Total equity 11405 14587
Price to earnings ratio
Particular Formula 2019 2020
PE ratio Market price of share/ EPS 0.45 0.30
Market price 42.36 35.02
EPS 93.9 115.5
Along with the profitability it is also very crucial for the business that investment ratios
are also being evaluated. The reason pertaining to the fact is that in case the objective of
investment will not be attained then this will be affecting the working efficiency of the business.
the reason underlying this fact is that in case the working of the company will not be good then
people will not invest. Thus, with respect to the investment ratio it is clearly visible that debt to
equity ratio has declined from last year. In the year 2019, the ratio was 5.38 whereas in 2020 it
declined to 4.06. This has reduced in comparison to last year and it implies that the company has
reduced the debt component from the capital structure. With the ratio it is clear that the company
has increased the equity and reduced the debt. Moreover, with the help of the price to earnings
ratio it is clear that a low price which implies that currently the company is undervalued. Overall
it can be stated that the company is performing good and in case any person wants to invest
within the company then this will provide them good returns.
Future expectation of company based on current and past performance
In the current era, competition has inclined which requires firm to largely pay attention on
adopting significant technique so that higher profitability with maintaining stability in the sector
can be maintained (Paniagua, Rivelles and Sapena, 2018.). For this purpose, firm focuses on
developing relevant objectives so that potential position in industry can be uplifted with optimum
utilization of resources. From the evaluation of current performance regarding the specified

company in the pharmaceutical industry is that higher effective outcome to stakeholders can be
provided. There are larger number of aspects which helps in assessing that that recent
performance as compared to previous to has improved or fell.
On the basis of profitability of the company it can be mentioned that there is inclining
trend which is indicating good level of performance. Net profitability & return on capital
employed are the crucial indicator that are taken into consideration for evaluating company’s
ability to offer return & generate revenue. From the evaluation it can be specified that future
expectations of profitability on the basis of current & past outcome is expected to be positive. It
is expected that the inclining pattern will be followed. GlaxoSmithKline is one the successful
organization that deals in mentioned sector which require higher utilization of the technological
components so that higher profitability and stability can be obtained.
From the evaluation of the given details regarding the company’s investment performance
that working efficiency of the business is low which is negative sign of managing relationship
with shareholders. In respect to become successful in the current & potential period there is
larger requirement to concentrate on developing strategy which can accomplish objective of
having higher earning with mitigating risk. Present efficiency of enterprise to deal with
prevailing challenges is low which needs company to focus on implementing improvement
actions. The future expectations with respect to this area is that proper risk management strategy
development so that higher effective outcome with gaining significant image in market
(Assenga, Aly and Hussainey, 2018). On the basis of given details, it is important for the
company to take few crucial measures so that higher extent of productivity with ensuring quality
can be derived. the prevailing performance with perspective of investment is declining that is
indicating negative sign. It can decline credibility and efficiency to raise funds in order to meet
the objective of business.
In the potential period, competition and complexity in this specified sector will inclined
which needs firm to be prompt in the decision making process. Customer service, higher quality
service, greater profitability, competitive return to shareholders, compliance with industrial
standards, etc. are the few objectives of business that is expected to accomplish. There are
several objectives such as adopting advanced and upgraded technology, effective & optimum
utilization of resources, overcoming prevailing competition, etc. are the ways which can be
helpful for the firm to develop appropriate risk management strategies. On the basis of this, it can

be identified that the potential expectations of the company to identify the lacking areas and
improve them so that higher profitability and sustainability can be achieved. Gaining the leading
position in the mentioned industry via boosting the strengthen areas such as generating higher
profitability and offering greater attractive return. It can be helpful in meeting desires of
stakeholders from enterprise. Ensuring to lower down risk associated with investing in company
so that earning on share can be incline. It can be interpreted that there are various factors which
will perform highly effective. GlaxoSmithKline can expect to the basis of current & previous
performance to decline the complexity to have higher profitability and stability in market.
Advantages and limitation of using historical cost accounting
Historical cost accounting is a measure within accounting which states that value of the
asset within the balance sheet is recorded at the original cost acquired by the company. This
principle simply states that the use of historical cost accounting involves the asset to be recorded
at the original cost.
Advantages of historical cost
The first and foremost benefit of using historical cost accounting system is that this
principle assist company in maintaining objectivity and reliability of the accounting information
being used (Hughes and et.al., 2019). This is necessary because the amount within the financial
statements is recorded in proper manner and this provides the better working.
In addition to this, another benefit of using the historical cost accounting is that it is
simple and convenient manner. The reason underlying this fact is that when the historical cost is
used then this provides better picture of the company as it involves the cost at which the asset
was acquired.
Along with this, another benefit of using the historical cost accounting is that this cost
can be verified anytime as there are proper invoices and this provides proof of working and
recording in better and effective manner.
Disadvantages of historical cost
The limitation of using the historical cost accounting is that it may lead to insufficient
provision relating to depreciation (Brukhanskyi and Spilnyk, 2019). The reason underlying this
fact is that the depreciation is charged over the original cost over the fixed asset and it is
reducing the cost of the asset.

Moreover, another drawback of using the historical cost accounting is that it does not
provide the true position of the asset. This is basically because of the reason that the asset is
recorded at historical cost and it is not necessary that currently the price is also the same (What is
the advantage of using historical cost on the balance sheet for property, plant and equipment?
2022). So it does not include correct information relating to the asset’s current position.
CONCLUSION
In the end the above report concluded that financial reporting is very important for the
success of the business. the reason underlying this fact is that in case financial reporting will not
be good then proper communication with respect to all the financial aspect is necessary. The
above report summarised that for financial reporting the use of statements like cash flow, income
and balance sheet is very necessary. Further it was analysed that the profitability of the company
is good and the company is worth investment. The reason behind this fact was that the company
is having good profitability and this will improve the earning of the investor.

REFERENCES
Books and Journals
Amiram, D., and et.al., 2018. Financial reporting fraud and other forms of misconduct: a
multidisciplinary review of the literature. Review of Accounting Studies. 23(2). pp.732-783.
Assenga, M.P., Aly, D. and Hussainey, K., 2018. The impact of board characteristics on the
financial performance of Tanzanian firms. Corporate Governance: The international
journal of business in society.
Brukhanskyi, R. and Spilnyk, I., 2019, June. Cryptographic objects in the accounting system.
In 2019 9th International Conference on Advanced Computer Information Technologies
(ACIT) (pp. 384-387). IEEE.
Flower, J. and Ebbers, G., 2018. Global financial reporting. Macmillan International Higher
Education.
Hughes, L., and et.al., 2019. Blockchain research, practice and policy: Applications, benefits,
limitations, emerging research themes and research agenda. International Journal of
Information Management. 49. pp.114-129.
Paniagua, J., Rivelles, R. and Sapena, J., 2018. Corporate governance and financial performance:
The role of ownership and board structure. Journal of Business Research. 89. pp.229-234.
Robinson, T. R., 2020. International financial statement analysis. John Wiley & Sons.
Roychowdhury, S., Shroff, N. and Verdi, R.S., 2019. The effects of financial reporting and
disclosure on corporate investment: A review. Journal of Accounting and
Economics. 68(2-3). p.101246.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2018. Financial Accounting with International
Financial Reporting Standards. John Wiley & Sons.
Online
What is the advantage of using historical cost on the balance sheet for property, plant and
equipment? 2022. [Online]. Available through: <
https://www.accountingcoach.com/blog/advantage-historical-cost >