Managerial Finance: Performance Analysis of Glaxo Smith Kline plc and Reckitt Benckiser Group plc

Managerial Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
(a) Calculation of different financial ratios for two years (2017 – 2018):..................................3
(b) Analyse the performance, financial position and investment potential of both companies:. 7
(c). Recommendations of how the financial performance of the poorly performing business
can be improved:.......................................................................................................................12
(d) Limitations of financial ratios:............................................................................................12
TASK 2..........................................................................................................................................13
(a). Calculation of financial ratios for two years (2017 - 2018):..............................................13
(b) Limitations of using investment appraisal techniques:.......................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Managerial finance is a type of finance, also classified as corporate finance. This is
aligned with the financial considerations taken on the basis of the financial framework in the
businesses. To order to perform all forms of roles and tasks, it becomes necessary for executives
to take reasonable steps with regard to financial management. The project study is focused on a
contrast between the financial state of company Glaxo Smith Kline plc and company Reckitt
Benckiser Group plc. The British international drug/pharmaceutical manufacturer Glaxo Smith
Kline plc is situated in Brentford, England (About Glaxo Smith Kline plc, 2019). Whereas
Reckitt Benckiser plc is UK's international consumer-goods organization and company has
headquarter in Slough, England. This is a manufacturer of hygiene, health-care and home-
products (About Reckitt Benckiser Group plc, 2019). The objective of this project study is to
support investors in decision-making regrading which company is more viable for investment
purpose. This study further contains computations of different investment-appraisal techniques
and limitations of these techniques in relation to long term decisions making.
TASK 1
(a) Calculation of different financial ratios for two years (2017 – 2018):
1. Current ratio = Current assets / Current liabilities
All data in £
million except
current ratio
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
Current assets 15907 16927 5424 4952
Current liabilities 26569 22491 6576 7614
Calculation 15907/26569 16927/22491 5424/6576 4952/7614
Current ratio 0.60 times 0.75 times 0.82 times 0.65 times
2. Quick ratio = Quick assets / Current liabilities
All data in £
million except
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018

Quick ratio
Quick assets 10042 11121 4223 3676
Current liabilities 26569 22491 6576 7614
Calculation 10042/26569 11121/22491 4223/6576 3676/7614
Quick ratio 0.38times 0.49 times 0.64 times 0.48 times
3. Net profit margin = Net profit / net sales x 100
All data in £
million except net
profit margin
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
Net profit 1532 3623 6172 2161
Net sales 30186 30821 11512 12597
Calculation 1532/30186*100 3623/30821*100 6172/11512*100 2161/12597*100
Net profit margin 5.07% 11.75% 53.61% 17.15%
4. Gross profit margin = Gross profit / Net sales x 100
All data in £
million except
gross profit
margin
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
Gross profit 19844 20580 6870 7635
Net sales 30186 30821 11512 12597
Calculation 19844/30186*100 20580/30821*100 6870/11512*100 7635/12597*100
Gross profit
margin
65.74% 66.77% 59.68% 60.61%
5. Gearing ratio = Total Debt / Equity