Factors Affecting Firm Profitability

This assignment delves into the crucial factors influencing the profitability of firms across diverse industries. It examines a range of internal and external elements, such as working capital management, industry competition, operational efficiency, government policies, and macroeconomic conditions. The analysis draws upon both academic research and real-world examples from sectors like energy and textiles in Pakistan. The aim is to understand how these factors interplay to determine a firm's financial performance and success.

Topic: To analyze the factors that impact profitability aspect or position of different
Pharmaceutical Companies: A study on HIKMA, Oxford Biomedica, Shire, GSK
and Astra Zeneca.

ABSTRACT
Profit maximization is one of the motives of business organizations including
pharmaceutical sector. This dissertation is based on five pharmaceutical companies
namely HIKMA, Oxford Biomedica, Shire, GSK and Astra Zenec, HIKMA, Oxford
Biomedica (OB), Shire, GSK and Astra Zeneca. The aim of the present study is to
analyze the factors that have significant impact on the profitability aspect of companies
positively or negatively. In this, deductive approach and positivism philosophy has been
selected by the scholar.In this, to ascertain the impact of different factors on the
profitability aspect of pharmaceutical sector quantitative investigation type has been
selected. In this, data has been gathered by the researcher from annual reports, books
journals and scholarly articles related to the profitability factors. By applying the tool of
ratio analysis and doing correlation analysis scholar has presented the extent to which
varied factors influence profitability aspect or position of the firm.
Along with this, it can be depicted from the evaluation of such five companies is
that ROE increases, when sales growth and assets turnover ratio moves in upward
direction. It can be seen in both literature review and discussion section that by when
sales increases then profit margin also enhances if business unit has good control over
expenses. Along with this, by making effective use of assets firms performing in
pharmaceutical sector can enhance its both productivity and profitability. High ATO
represents that business unit have made use of both fixed and current assets to a great
extent in relation to generating sales.Hence, from overall discussion, it can be presented
that incline in current ratio, direct and operating expenses are the main factors that
negatively influence profit margin of firm. Further, to improve margin companies of
pharmaceutical; sector needs to make focus on increasing sales log and total assets
turnover ratio.

ACKNOWLEDGEMENT
I am thankful to my tutor, friends and relatives who gave me guidance and
support for this project. In completing my dissertation pertaining to investigating factors
that have an impact on theprofitability ofpharmaceutical companies such as HIKMA, OB,
Shire, GSK and AZ. they always encouraged me to do it in the best possible way. In
addition to this, I also appreciate my mentor for giving me guidance in preparing
dissertation. From his support and experience I was in the position to complete
dissertation in a right manner.

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION......................................................................................1
Background of the study................................................................................................1
Research aims and objectives........................................................................................1
Research questions.........................................................................................................2
Rationale of the study....................................................................................................2
Significance of thestudy.................................................................................................2
Dissertation structure.....................................................................................................3
CHAPTER 2: LITERATURE REVIEW...........................................................................5
Theme 1: Overview of UK pharmaceutical sector........................................................5
Theme 2: Tools & techniques that help in measuring profitability aspect and monetary
performance...................................................................................................................6
Theme 3: Factors that impact profitability aspect........................................................10
Theme 4: Impact of financial sources and working capital elements affects company's
profitability..................................................................................................................13
Literature Gap..............................................................................................................16
CHAPTER 3: DESCRIPTION OF UK PHARMACEUTICAL SECTOR.....................18
CHAPTER 4: METHODOLOGY...................................................................................20
Problem statement........................................................................................................20
Research question........................................................................................................20
Research approach and philosophy..............................................................................21
Research type or strategy.............................................................................................21
Data sources.................................................................................................................22
Data analysis methods..................................................................................................23

Ethical considerations..................................................................................................23
Reliability and validity.................................................................................................24
Research limitations.....................................................................................................24
CHAPTER 5: ANALYSIS AND FINDINGS.................................................................26
5.1 Data display and description..................................................................................26
Return on equity...........................................................................................................26
Current ratio.................................................................................................................27
Log of sales..................................................................................................................29
Assets turnover ratio....................................................................................................29
Gearing ratio................................................................................................................30
5.2 Data analysis..........................................................................................................34
Profitability Model.......................................................................................................35
CHAPTER 6: DISCUSSIONS........................................................................................36
CHAPTER 7: CONCLUSION AND RECOMMENDATIONS.....................................39
7.1 Conclusion.............................................................................................................39
7.2 Recommendations..................................................................................................40
REFERENCES................................................................................................................42
APPENDIX......................................................................................................................47
Correlation analysis.....................................................................................................47
List of figures
Figure 1: Return on equity...............................................................................................27
Figure 2: Current ratio.....................................................................................................28
Figure 3: Log of sales......................................................................................................29
Figure 4: Assets turnover ratio.........................................................................................30
Figure 5: Gearing ratio.....................................................................................................31
Figure 6: Gross margin....................................................................................................32

Figure 7: Efficiency ratio.................................................................................................33

CHAPTER 1: INTRODUCTION
Background of the study
In the present era, firm carry out business operations and functions with the
motive to achieve several goals such as enhancement of customer base, sales as well as
profit maximization. In this regard, business organization is required to make monitoring
of profitability aspect or performance which in turn helps in assessing reasons behind the
growth or declination. Moreover, business unit can attain high margin only when it exerts
control on expenses.For this purpose, business organizations need to have information
about the areas that account for high cost or expenditures because without having
information about the same firm would notbecome able to take action for improvement
(Smith, Bagchi-Sen and Edmunds, 2016).For this dissertation, HIKMA, Oxford
Biomedica, Shire, GSK and Astra Zeneca havebeen selected that recognized as a leading
companies of pharmaceutical sector. In this, dissertation will provide deeper insight about
the factors or elements that have an impact on the profitability of firms. Besides this, it
will also shed light on the extent to which different variables such as return on capital
employed, gross profit, current, gearing and efficiency ratios are highly related to each
other. Further, it also provide stakeholders with the suitable framework that can be
undertaken to enhance or maximize profitability aspect,
Research aims and objectives
Aim
The aim of the present study is to analyze the factors that have significant impact
on the profitability aspect of companies positively or negatively.
Objectives: Considering the above aim following objectives have been drafted by the
researcher such as:
 To evaluate the growth of UK pharmaceutical sector in monetary terms.
 To investigate the factorsthat has aninfluence on the profit margin of HIKMA,
Oxford Biomedica, Shire, GSK and Astra Zeneca.

 To recommend strategic measures to pharmaceutical companies that contributes
in the profitability of pharmaceutical firms.
Research questions
For carry out research in a structured and appropriate manner scholar is required
to develop suitable questions on the basis ofaim and objectives of the study. Hence, main
research questions associated with the present study are enumerated below:
Q.1 What is the current financial trend of UK pharmaceutical sector?
Q.2 Which kind of factors hasgreater influence on the financial position and profit margin
of 5 selected companies?
Rationale of the study
Therationale behind undertaking such study is to analyze the factors that have an
impact on the profitability aspect of pharmaceuticalcompanies. It is considered as issue
because pharmaceutical companies require more fund for the purpose of research and
development activity. In the dynamic business environment, pharmaceutical companies
can attain success only when they provide customers or patients with suitable medicine
that helps in dealing with both chronic as well as non-chronic disease. Further,
pharmaceutical companies also do research on several projects in one time for gaining
competitive edge over others. In this regard, firms can fulfill their motive only when they
earn enough margins. It is considered as an issue now because there are several firms
which are facing problems in managing funds. This in turn places direct impact on the
profitability and overall functioning of firm. In addition to this, profit attainment and
enhancement is highly required to survive in the strategic business arena.Thus, present
researcher will shed light on the factors that contribute in the profit margin of firm
positively.This study entails the factors that positively contribute in the margin of firm
and vice versa.
Significance of thestudy
Outcome and results of the study are highly significant for HIKMA, Oxford
Biomedica, Shire, GSK and Astra Zeneca. Hence, by assessing the main factors that
negatively influence the profit margin firms would become able to develop highly

strategic and competent plan. Further, other companies which are operating in the
pharmaceutical sector of UK also would become able to do profit planning in the best
possible way.Considering this, it can b stated that concerned dissertation and its findings
will offer high level of benefits to the overall pharmaceutical sector.Along with this, by
considering the recommendations mentioned in the current report pharmaceutical
companies would become able to take strategic action for improvement and enhance
profit level or margin. Further, report will provide high level of assistance toother
scholars who willing to conduct study on similar topic or issue. By going through the
findings of such study other researchers would become able to gain understanding about
the factors that closely impact the profitability aspect of firm.
Dissertation structure
Chapter 1: Introduction
In the Introductory section, background, rationale and significance of the study
have been mentioned by the scholar. Besides this, referring the research issue, aims and
objectives have also been formulated by the researcher. In this, researcher has also
mentioned the structure that will be followed during the whole study.
Chapter 2: Literature review
This chapter presents the views and findingsthat have already been presented by
other researcher in relation to the influential factors that impact profit margin.Hence, in
this, brief thesis has been prepared by the researcher through evaluating books, journals
and scholarly articles. Hence, considering the objectives several themes have been
prepared by the researcher with the motive to analyze the factors that affect profit margin
of pharmaceutical companies.
Chapter3: Description
Third chapter of dissertation presentsdescription regarding the trend of UK
pharmaceutical sector. In this, scholar has mentioned details about the industrial
structure, imports and exports, living standard and size of GDP related to pharmaceutical
sector of UK.

Chapter 4: Methodology
In this chapter of dissertation, researcher has mentioned tools and techniques
undertaken for the present study. Hence, it furnishes information about the tools that have
been undertaken by an investigator for the purpose of data collection and analysis.
Chapter 5&6: Analysis, findings and discussions
In dissertation, this chapter is highly significant as it provides information about
the main factors that may cause of decrease in profitability aspect.Chapter 4presents the
extent to profitability of selected five companies are good. Further, in chapter 5, scholar
has supported all the numeric findings with brief thesis prepared in the literature review
section. Along with this, to facilitate better understanding about topicgraphs have also
been included by the researcher.
Chapter 7: Conclusion and recommendations
Final chapter of dissertation will conclude all the findings in a structured way that
shows the extent to which goals and objectives have met. Besides this, in such section,
recommendations have also been included by the researcher which in turn helps
researcher in developing suitable framework forprofitmaximization.

CHAPTER 2: LITERATURE REVIEW
Literature review may be served as text of scholarly papers that contains findings
and theoretical contribution made by different scholars about the topic which is going to
be investigated. It includes the summary of book, journals and scholarly articles
presented by others. LR is highly significant which in turn offers opportunity to the
researcher to gain understanding about the concerned issue. Hence, it is a process which
in turn provides high level of assistance to the researcher in collecting information about
the research issue or problem through the means of varied sources. LR is the brief thesis
which provides high level of assistance to the researcher in analyzing data set and
supporting the same with empirical studies or findings. In this, themes have been
prepared by the researcher pertaining to analysis tools and factors that affect profitability
aspect. Hence, by evaluating articles and books related to such themes aims and
objectives have attained by the researcher briefly.
Theme 1: Overview of UK pharmaceutical sector
In accordance with the views of Gibson (2016)pharmaceutical sectorof UK is
growing with the very high pace. From assessment, it has found that in the year of 2015,
sales of UK pharmaceutical sector accounts for 28.2 billion, whereas it is estimated that
at the end of 2020 it will be reached on 43 billion. This aspect clearly shows compounded
annual growth rate of 8.4%respectively. This aspect has also supported by Hannon (2016)
who said that UK is now at the forefront of global pharmaceutical sector. Firms which are
operating in such sector are involved in manufacturing new and quality medicines for
many diseases. Contribution of UK pharmaceutical sector in British economy is highly
significant (Overview: The UK Pharmaceutical and Biotechnology Industry, 2017). By
doing assessment, it has found that pharmaceutical sector has provided people with
employment opportunities and raised their disposable income to a great extent.
Further, Baertschi, Alsante and Reed (2016)presented in their study that UK is
recognized as a European leader under the category of pharmaceutical sector. In UK,
more than 450 companies are involved in such sector which has established strong
presence in the field of R&D and manufacturing. Along with this, UK companies account

for 40% of new drugs in clinical trials in Europe. Strong research and development is
considered as one of the main strengths of UK pharmaceutical sector. in the study, Erimia
and et.al., (2016) mentioned that direct investment to UK, in the pharmaceutical industry
is highly favorable. Outcome of the study presented clearly shows that UK government
has made its best possible efforts in relation to creating an environment that attracts more
investors. Hence, with the motive to enhance the level of FDI, flexible regulatory
environment has been created by UK government. Moreover, investors are encouraged to
invest more money when tax policies and legal aspects are favorable. Thus, by imposing
less tax burden and increasing collaboration with the governmentdirect investment has
been encouraged in UK.
DiMasi, Grabowski and Hansen (2016) assessed that pharmaceutical companies
of UKmakesvital contribution and investment in research &development. In the overall
world, pharmaceutical sector of UK is the one which makes vital contribution in the
discovery and development of new medicines. By doing evaluation, it has identified that
one fifth of UK population is suffering from chronic and long term illness. In this, by
considering all such aspects it can beentailed that pharmaceutical sector of UK is growing
immensely (Industry information, 2017). In this regard, for making high contribution in
the economic growth and development firms which are existing or operating in such
sector needs to focus on exerting control over expenses. The rationale behind this, firm
can handle large number of research projects only when it hasenough funds for the same.
Theme 2: Tools & techniques that help in measuring profitability aspect and monetary
performance
According to the views of Adekola, Samy and Knight (2017), profitability is one
of the most effectual measures that helpin assessing and evaluating company’s financial
health as well as performance.At the time of making assessment of organizational growth
management team and other stakeholders consider profit factor. Thus, it is recognized as
main reason due to which business unit strives its best efforts for the maximization of
profitability aspect. Further, Alo,Akosile and Ayoola (2016) stated that as per the agency
theory, relationship of principal and agent takes place between the business units &its
shareholders. As per such theoretical framework, principal (management team of

business organization) takes decision andlay emphasis on doing business transaction,
without considering self-interest, whichmaximizes shareholders wealth. Thus, such
relationship encourages firm to take competent or strategic decisions that aid in the
profitability aspect of firm. However, on the critical note, Almazari(2014)said thatagency
theory crates conflictbetween managers and shareholders. Moreover, sometimes motives
which are considered by manager and shareholdersdiffer to the significant level. Further,
Al-Jafari and Al Samman (2015) analyzed that signaling theory is also highly significant
which in turn motivates businessunit to generate or earn high profit marginand thereby
build distinct image at marketplace. Such theory provides cue to the management team in
relation to the manner in whichinvestors are viewingcompany’s prospects.
Ratio analysis
According to the view of Smith et.al., (2017) by undertaking the technique of
ratio analysis business organization can measure and evaluate the performance of firms.
Ratio analysis may be served a tool that quantitative evaluation or analysis of information
contained in the financial statements of firm. By using such tool one can evaluate the
performance of company from various perspectives such as profitability, liquidity,
solvency and efficiency. Hence, considering such technique management team and other
stakeholders of an organization can measure the performance of the company in relation
to current and past years. Ratio analysis tool offers opportunity to the firm to assess and
evaluate the changes take place in financial aspects over the years. However, on the
critical note, Tsai et.al., (2016) depicted that economic trends and conditions highly differ
from one year to another. On the basis of such aspect, sometimes such tool does not
provide high level of assistance in evaluating financial performance over the years.
matthew, fada and ukonu(2016) mentioned in their study that ratio analysis is the
most effective form of financial statement analysis that offers opportunity to the company
to get quick indication about the financial health and performance. Such tool helps
manager of the firm in assessing reasons due to which profitability of firm is increased or
decreased over the time frame. Thus, by doing ratio analysis firm can take appropriate
measure and would become able to improve performance. On the critical note, Lakshmi,
Martin and Venkatesan (2016) found that ratio analysis is highly based on historical

information that does not mean similar results will be generated or carry forwarded in the
near future. This is one of the main aspects that closely influence the significance of such
tool. Further, Alo, Akosile and Ayoola (2016) said that ratio analysis tool helps in
summarizing financial aspects of firm in the best possible way. Technique of ratio
analysis helps management team in understanding about the extent to which company is
performing well.
Along with this, it also helps in analyzing the areas that require improvement.
Hence, it is the most common and widespread tool assists in analyzing business financial
standing. By using such tool management team can also evaluate its position in against to
the competitors operating in similar industry. However, Atoom, Malkawi and Al Share
(2017) criticized on the ground that different business units consider varied rules and
process to treat income as well as expenditure. In this, it is not possible for the company
to assess its own position in against to the rival firms. On the other side, Zainudinet.al.,
(2016) presented that ratio analysis is one of the most effectual tool that helps in
determining as well as interpreting numerical relationship based on financial statements.
Hence, by calculating different ratios one can present the fair view of financial aspects or
performance. In contrast to this, Cengiz, Combs and Samy (2017) presented that ratio
analysis tool does not consider inflationary measures which is one of the main limitation
of such tool. In the real world, inflationary rates highly differ from one period to another.
In this, by doing comparison of the performance pertaining to different year’s firm would
not able to get suitable view of financials.
Storey (2016)identified that by taking into account the profitability ratios firm can
identify the factors that may cause of decreasing performance.Gross and net profit, return
on equity etc are the most effective measures that help in analyzing the profitability
position of firm. By doing analysis of such ratios manager can ascertain the reasons due
to which growth of firm is deteriorated or increased over the time frame. DiMasi,
Grabowski and Hansen(2016) depicted that gross profitability measurehelps in assessing
return that is generated in the concerned period over direct expenses such as material,
labor etc. Thus, by dividing gross profit from sales firm can determine GP ratio and
would become able to get information about the extent to which performance is improved

over the period as well as in against to the rival firm.In this way, such ratio measure gives
clear indication aboutorganizational profitability and helps in making appropriate
decision for the near future.
Al-Jafari and Al Samman (2015) described in their study that by calculating net
margin ratio firm can identify the level of return over indirect expenses. Such ratio
clearly exhibits the return that is generated by firm over operating expenditure, interest
payment and tax obligation.By deducting indirect expenses from GP margin firm can
determine net profit. Hence, by dividing net profit from sales revenue business unit can
identify NP ratio and would become to assess the reasons behind both increasing and
decreasing trends.Usually, investors and other stakeholders make comparison of net
margin ratio over the years and in against to therival firms.Moreover, business unit takes
decision in relation to offering dividend to the shareholders only when it earns enough
profit margins. In this regard, by doing analysis of NP ratio firm can measure profitability
and by taking strategic measure for improvement becomes able to attract more
investors.Further, Barman and Sengupta (2017)assessed thatreturn on invested capital is
one of the most effectual measures that helps in determining profit margin.ROE
presentsand measurescompany’s profitability generated through the money invested by
shareholders. Investors are highly concerned towards the money which isinvested by
them in the firm so they make evaluation of such measure. ROE measure clearly
indicates firm’s performancein relation to generating marginand helps in assessing need
pertaining to taking strategic measure for improvement.
Along with this, Heikal, Khaddafi and Ummah (2014) depicted thatgearing and
debt ratio is the most effectual measure that provides assistancein finding whether capital
structure of the company is optimal or not. Such ratio or measure helps firm in assessing
the extent to which financial requirements have met through the means of equity and debt
instruments. Hence, by evaluating such sources firm andits stakeholders can determine
the level of fixed or periodic obligations.For instance: Under debt sources firms are
entitled to make payment of interest on loan undertaken. Thus, by evaluating the interest
level or payment firm can assess whether such aspect has impact on firmsprofitability or
not.In addition to this, Sattar et.al., (2017)found that current ratio is the most effective

measures that indicates the level to which firm is highly capable in relation to meeting
monetary obligations from current assets. By dividing current assets from the liabilities
business unit can identify the level to which it has maintained current assets for meeting
obligations. By doing liquidity analysis firm canassess whether level of prepaid expenses
etc are affecting firm’s profitability orthere is another reason.
Journal presented by Pradhan and Das (2016)clearly shows that by calculating
assets turnover ratio firm can assess therevenue generated through the means of both
fixed as well as current assets. In his regard, by using the formula of,
net sales ❑
❑ total assets, business organization can identify how efficiently activities have
performed by the personnel. Productivity and profitability of the firm is highly based on
the skills as well as efficiency level of personnel in relation to performing activities.
Hence, assets turnover ratio is highly significant which provides business unit with
standard measure in relation to assessing the extent to which organization is turning over
its assets in the best possible way. By doing analysis of such ratio business unit can
compare its current turnover trends with the previous aspects.Hence, such ratio assists
firm togauge the level to which operational efficiency and sales is increased over the time
frame. g
Thus, by undertaking all the above mentioned ratios firm can take action for the
improvement.
Theme 3: Factors that impact profitability aspect
In accordance with the views of Almazari (2014) interest payment is one of the
major factors that have high level of impact on the profitability aspect. When business
unit takes high level of support of debt instruments for meeting financial needs then it
may result into fixed periodic obligations. Moreover, in the case of debt, firm is obliged
to make payment to the respective holders whether generate enough margins or not. On
the basis of such aspect, firm should lay high level of emphasis on meeting financial
requirements from equity sources rather than debt sources. Thus, interest on debt is one
of the main factors that highly affects profit margin of firm. Sattar and et.al., (2017)
argued that it is not possible for the company to meet monetary requirements through the

means of equity shares to the full extent. Along with this, for the development of optimal
financial structure firm lays emphasis on taking support of both the sources. Along with
this, in the case of equity shares firmis also need to offer returns or earnings to the
shareholders in the form of dividend.Thus, considering such aspect it can be stated that
equity shares alsoaffects thefinancial position but to some extent as compared to the debt
instruments. Further, Dolewikou, Sumekar and Setiadi (2016) asserted that direct
expenses have high level of impact on the gross profitability aspect of firm. Cost of
material and labor is the major factor that has significant impact on theprofitability aspect
or position of firm. Thus, for the generation of high profitability business unit is required
to exert control on expenses. On the other side,Ghebregiorgis and Atewebrhan (2016)
depicted that for thegeneration of high profit margin business unit is highly required to
enhance the sales level. Moreover, when business unit operates at large level then it gets
high economies of scale. Thus, level of business operations and sales have high level of
impact on profit margin.
Further, Heikal, Khaddafi and Ummah (2014) assessed that along with the direct
expensesfirm has to incur other expenditure for ensuring smooth functioning of
operations such as advertisement, salaries, rent & rates etc.Such indirect expenditures
also place direct impact on the profit marginof firm and thereby affects overall financial
position. Woli, Hoogenboom and Alva (2016)claimed that aside from the financial
factors, non-monetary aspects also influence business performance. Under the category of
non-financial aspects, competition is one of the major factors that impacts profit margin
of firm. For instance: When large number of companies is available tooffer products or
services to the customers then it is not possible for the firm to attain more marginsby
charging high prices. Moreover, in the case of charging high prices there is the possibility
that customers will switch on to other retailer. Thus, referring such aspect it can be
presented that level of competition exit at the market place affects both productivity and
profitability aspect of firm.
In the study, Kastalli and Van Looy (2013) clearly mentioned that profit margin
and organizational growth as well success ishighly based on the strategic framework
developed by the management team.In the context of business unit profit enhancement

and maximization of shareholders wealth is one of the main motives of each business
unit. In this regard,management team lays high level of emphasis on developing
competent framework that assists in generating higher returns from share capital and
gaining competitive position over others.Hence, referring this, it can be stated that
organizational profitability is highly based on the decisions and policies formulated by
the team of higher management.Saeidi et.al., (2015) argued thatexternal environmental
conditions pertaining to political, legal and economic also affects financialssuch as profit
margin of firm. Moreover, as per the conditions prevailed in the market and considering
future requirements or aspectsgovernment makes changes in the tax rates. In this, high
tax rates impose financial obligation in front of firm and impacts profit margin. Along
with this, economical conditions such as inflation and deflation also affect purchasing
power of the customers to a great extent (Six Factors Affecting Profit, 2017). Customers
prefer to use quality products and services when their disposable income is high. Thus, it
can be depicted that economic trends or conditions affects both productivity and
profitability aspect of firm. However, it is to be critically evaluated by Alo, Akosile and
Ayoola (2016), who said that in some industries, aspect in relation to purchasing quality
product is not highly dependent on therequirements rather than pricing level. For
example: In the pharmaceutical sector, patients and their family members tend to focus
on using quality medicines that helps in reducing or eradicating disease. This aspect
exhibits that economical aspects do not have major impact on sales as well as profit
margin. Moreover, when condition of growth takes place in the economy then demand
for the luxurious products or services increase and vice versa as compared to others.
Jami and Bahar (2016) revealed in their studyinvestment optionsor opportunities
as well as profitability margin of the firm is highly associated with each other. For carry
out operations and fulfilling obligations firm needs to maintain enough liquidity.
Moreover, at the time of finalizing deal supplier makes evaluation of the working capital
position of firm.Thus, according to the industry average and ideal standards firms needs
to maintain enough liquidity. Hence, for the maximization of profit business unit
shouldfocus on investing money in other opportunities rather than keeping the same with
itself. Thus, by making investment in the profitable opportunities firm can positively
contribute in the attainment of organizational goals.However, Zainudin et.al., (2016)

entailed that identification of opportunities are not enough to get success. Company can
generate high margin or return from the investment proposal when it has information
regarding its viability. In other words, it can be presented that company can generate high
returnsfrom the proposal only when it applies the technique of investment appraisal
(Factors that affect the profitability of firms, 2017). Hence, by employing money in the
suitableprojectcompany can maximize its profit level to a great extent.
Laitinen (2017)stated that usually two variables such as sales and profit margin
atepositively related with each other. Firm which follows cost plus pricing strategy needs
to focus on enhancing sales pattern to generate high margin. Thus, promotional campaign
or aspects have major impact on both sales as well as profit margin. Moreover, customers
are attracted to purchase the products or services from specific retailer only when they
have information about the same. By taking into account such aspect, it can be presented
those promotional activitieshelps in enhancing both customer base as well as profit
margin. For instance: Under pharmaceutical sector, business unitneeds to do promotion
for providing information to the patients, doctors etc about medicines. Thus, promotional
activities have positive impact on both sales revenue as well as profit margin of business
unit. On the other side, Burja (2017)assessed and presented that successful management
is highly required for the long term growth and profitability aspect of firm. The rationale
behind this, poor management may cause of decline in workers morale and negatively
affects customer service as well as employee turnover. Along with this, inappropriate
expansion plans also place high level of impact on margin in negative way. Thus, for the
attainment of goals and high profit firm needs tofocus on the aspect of effective
management.
Theme 4: Impact of financial sources and working capital elements affects company's
profitability
According to the Pecking order theory, Adekola, Samy and Knight
(2017)mentioned in their study that business units take decision in relation to raising
funds by considering the law of least efforts. On the basis of such theoretical framework
business organization makes focus on issuing equity when it thinks that issuance of more
debt is not sensible. On the basis of such theory, firms lay more focus on using internal

financing sources rather than external. Moreover,external financing sources impose cost
in front of business entity and placesdirect impact on the profit margin. On the other side,
Jami and Bahar (2016) depicted that, as per such theory debt level should be preferred
over equity when financial requirement can be fulfilled through the means of external
sources. Moreover, some of the managers believe that when high equity shares are issued
then it may result into dilution of control. Kastalli and Van Looy (2013)argues that as
compared toPecking order theory, trade off theory is highly prominent that entails firms
should be financed by both the sources such as debt and equity. In other words, it can be
stated that trade off theory presents that monetary needs should be fulfilled partially by
debt and remaining from equity. Moreover, debt sources offer benefit to the firm in tax
brackets.Further, such theory focuses on the aspect that marginal cost increases when
company takes resort of more debt. Hence, trade off theory provides deeper insight to the
firm about the level of debt and equity needs to be considered for financing purpose. In
this way, such theoretical framework helps in exerting control on marginal cost and
enhances profit margin to a great extent.
Along with this, trade-off theory also exhibits that firm target an optimal level of
liquidity with the motive to balance both benefit and cost of holding cash. When business
unit holds high level of cash then it may result into low rate of return due to high liquidity
premium and tax disadvantages. Hence, considering the trade off theory it can be stated
that negative relationship takes place between return on equity and current ratio. On the
contradictory note, Al-Jafari and Al Samman (2015) mentioned that high or enough
liquidity helps firm in saving transactional cost related to the aspect of raising
funds.Moreover, in the case of enough liquidity firm is not required to liquidate assets for
making payments. Along with this, such theory states that high liquidity helps firm in
meeting medium term funding requirement when other suitable sources are not available
for the same.Afrifa and Padachi (2016)found and presented thatliquidity and profitability
aspect of the business organization is negatively correlated. For offsetting short term or
current obligations firm need to maintain liquidity within the firm but to a certain extent.
When firm maintains high liquidity within the organization as compared to industry
average as well as ideal ratio then it negatively impacts of profit margin. Moreover, firm
holds high cash and avoids making investment in other opportunities then it may result

into declining profit margin. In addition to this, elements of working capital such as
higher inventory and receivable period negatively influence both liquidity and
profitability aspect.
In accordance with Afrifa and Padachi, (2016), a company's internal strength will
be enhanced or distracted by the various components of working capital such as accounts
payable, receivables, inventories etc. However, if the organisations as better execution
over such parts of departments that there will be fruitful increments in the capital
structure. An adequate working capital will reflect the liquidity of organisation which in
turn helpful in making payment of debts. As per the views of Adekola, Samy and Knight,
(2017) if the working capital of firm is not adequately managed by professional then it
will affect the profitability because it consists of investments in current assets which are
essential for industrial operations. However, in relation with making the investment in
current assets its is also known as the short term or circulating capital.
Hamid and et.al., (2017) stated that, in terms with the current assets of the
organisation which are easily convertible into cash and cash equivalent in the accounting
period. These are beneficial for the business in terms of generating reserves or funds for
the financial requirements as well as for the operational needs of venture. This can be
known as the cash and bank balance, trade debtors, prepayments etc. thus, with the help
of such operations the firm will enhance the operations as well as make the adequate
improvements in the operational activities of company. Therefore, in context with Baños-
Caballero, García-Teruel and Martínez-Solano, (2016), if the business do not estimate its
current assets than they will not become able to sort out the accurate requirements of
funds and finance for the industry. There is need to have the proper assessments over
trade debtor or accounts receivable which in turn fruitful for organisation in terms of
analysis the payments they will have to receive from the sales they have made. These are
need to be include in the financial statements of entity.
Vázquez and et.al., (2016) defies that, there is need to have proper informations
regarding the Gross working capital of business which is estimation of the total amount
of funds to be invested in the current assets of entity. Therefore, it will be beneficial if the
managers make the adequate execution over optimum utilisation of such resources. And

the allocation of funds in the different departments will help in managing the
requirements of funds for such units as well as enhances the efficiency of business. On
the other side Temtime, (2016) determines that, if company is capable of making the
payments of its current liabilities such as trade creditors, bills payables, loans and
advances, outstanding expenses and accruals of business. Therefore, it can be said that, in
terms of meeting the long-term capitals of the differences between current liabilities and
assets are need to be determined by the professionals which is known as net working
capital. Nortey and et.al., (2016) evaluated that, if the firm is able to make the payments
of its debts, creditor or liabilities than there will be increment in the goodwill of firm as
they will become to attain the faith of external individuals of the firm. However, such
reform will help in generating appropriate amount of capital as well as helps in increasing
market value of entity.
In accordance with Anarfi and Boateng, (2016), the company would become
financial strong as if they would make the adequate payments of the debts in the current
environment as well as make profitable investments. Therefore, the sound capital
structure will help in making innovative changes in the production, sales or marketing
techniques as well as the firm become able to expand such industrial operations. Thus, it
can be said that, there is need to have the proper management of all such resources and
payments of debts which will be due to appropriate cash flows of entity. Therefore, the
Orobia, Padachi and Munene, (2016) defines that if there is accurate and efficient
management of financials such as management of cash inflows and outflows as well as
income or expense in a period than the organisation will become able overcome various
operational risks. There has been various strategies which are need to be understand such
as aggressive strategies which describes that if the business is seeking of the higher
profitability than they will have to bare the higher risks. It includes making large
investments, increment in production which in turn bring the high profitability as the firm
will able to have the rise in sales and become able to fulfil demands of buyers. There will
be risk too if the numbers of produced goods will not being sold or if there will be
reduction in the demands of such products. Hence, it can be said that there will be losses
which are going to be faced by organisation in terms of not having the proper production
and profitability. There will be increment in the waste as well as not proper return will be

acquired by firm from such investments. As per the views of Afrifa and Padachi, (2016),
there will be importance in terms of Solvency, smooth business operations as well as the
adequate returns over investments.
Literature Gap
By making assessment or evaluation of books, journals as well as scholarly
articles it has identified that in the previous times studies were conducted by the
researcher pertaining the factors that have major impact on firm’s profitability. Findings
published by other scholar’s clear show that there are several factors which in turn has
significant on the margin generated by the firm. Published articlesexhibit that both
financial and non-financial factors impact profitability of firm. Studies of other
researchers entail that expenses including both direct & indirect, interest payment,
changing political and economic conditions etc are the main factors that have high level
of impact on the organizational profitability.
Along with this,secondary data findings also present themanner in whichratio
analysis tool helps in measuring performance.There are several ratios such as
profitability, liquidity, solvency and efficiency that can be used to determine the aspects
which have influence on margin. By using such ratios one can measure performance and
assess the areas that require improvement. However, in the past studies financial results
of the specific companies were not supported with the theoretical aspects. Hence, by
assessing such gap scholar has taken decision in relation to conducting profitability
analysis of 5 pharmaceutical companies. Hence, by doing analysis of the financial aspects
of HIKMA, OxfordBiomedica, Shire and GlaxoSmith Kline and AZfactors have been
assessed that closely influence the profitability aspect ofpharmaceutical company.

CHAPTER 3: DESCRIPTION OF UK PHARMACEUTICAL
SECTOR
In terms of analysis the organisational overview of UK pharmaceutical industries
there is need to make the adequate examination of the economical and political
environment of UK market. This may include various factors such as business structure,
imports and exports of goods and services as well as the economical standard of country.
This factors will be the reason behind influencing the performance of business as well as
the marketing environment pharmaceutical industries. To determine the business aspects
of such entities there is need to examine the internal environment of UK with the help of
various factors such as:
Industrial structure:
As per the current environment in UK many pharmaceutical industries are
operating trade. The main motive of such organisation is to analyse the obstacles medical
environment of UK as well as the requirement of the medicines and other medical help to
improve such situation I country. Therefore, the main operations of such industries are
base on making the adequate research and development for medicines. All the Allopathy
treatments are based on the medicines which have the huger research behind each pill.
The medicines go through various researches, examinations or tests. Therefore, on the
said of successful achievement of the operations will lead it to make the perfect launch in
UK medical environment (Adekola, Samy and Knight, 2017). There products are being
produces by the chemists, biologists, pharmacists etc. which in turn based on improving
healthy environment as well as preventing the nation with various serious diseases like
cancer, tuberculosis etc.in consideration with having cure from such life threatening
diseases there will be need of having antidotes, vaccines as well as the effective drugs
which are based on various researches and pre examination.
Exports and imports:
There has been various corporations which are making the exports and imports of

the drugs and the medical services in UK. Therefore, to enhance the operational quality
of such industries the government has presented various legal norms, rules and laws to
such industries (Baños-Caballero, García-Teruel and Martínez-Solano, 2016). On the
other side, there has been imports and exports which are relevant with the chemicals,
medicines and the antidotes, vaccination throughout the worlds.
Living standard:
In terms of the citizens in the country there has been increment in the living
standards of people as well as it brings the healthiest environment. Therefore, with the
help of HMRC the various rules and regulations will be facilitates and implicated over
the day to day operations of business (Vázquez et.al., 2016). In the recent time there has
been increment in the healthy environment such as all the laboratory tests based on any
diseases are free of costs, people can take medical consultation with doctor and regular
check-up which are free for citizens as they could have the adequate treatment and health
benefits.
GDP size:
In terms with having revolution in the health, medical and pharmacy segmentation
the GDP ratio of the country has also been increased. It also affects in favourable balance
or payments and the revenue of the government will be fruitful (UK trade: January,
2016). On the other side that, working capital of organisation must be managed and
maintained as it does not affect the profitability of entity as well as have the best
operational environment of such organisation.

CHAPTER 4: METHODOLOGY
Research methodology includes wide range of tools and technique that will be
considered by the scholar for presenting suitable solution of issue. RM is highly
significant which in turn providesindication to the scholar about the manner in
whichstudy needs to be conducted. In addition to this, methodology section also provides
deeper insight to the stakeholders about the tools employed forresolving research issue
and attaining objectives. In this, research methodology section highlights the type,
philosophies and approaches that have been employed by the scholar to analyze the
impact ofdifferent factors on the profitability of different pharmaceutical
companies.Further, RM chapter also entails the methods that have been used by the
researcherfor the purpose ofdata collection and analysis.
Problem statement
In the current research, the main problem is to analyze the factors that have
significant influence on the profit margin of pharmaceutical company.In this, the main
issue isto analyze the manner through which firms which are operating in the
pharmaceutical sector of UK can improve its profitability and overall financial
performance. Moreover, profit is the major factor that has high level of impact on the
implementation of strategic and competent framework. For gaining competitive edge
over others firms operating in pharmaceutical sector needs toinvest high fund or money
in R&D activity. This is possible only when firm ensures effective financial management
and generates high profit margin. Thus, the main focusofresearcher is to present the
reasons due to whichprofitability of the pharmaceutical firms are negatively
affected.Thus, the present research and its outcome will provide high level of assistance
to the management team of pharmaceutical companies in developing sound strategic and
policy framework.

Research question
On the basis of aims and objectives research questions are enumerated below:
Q.1 What is the current financial trend of UK pharmaceutical sector?
Q.2 Which kind of factors has greater influence on the financial position and profit
margin of 5 selected companies?
Research approach and philosophy
Selection of research approach and philosophy is highly needed to conduct study
in a highly structured way. Approaches of research can be distinguished into types such
as inductive and deductive that varies as per the investigation conducted by the
researcher. Under inductive approach,scholar starts with observation and a specific
pattern. Hence, in this, by making evaluation of tentative hypothesis scholar develops
new theoretical framework. In contrast to this, deductive approach of the research is
applied when type or nature of investigation is quantitative.On the basis of such
approach, scholar tests hypothesis and confirm the same by taking into account existing
theoretical framework.
Further, there are mainly two types of philosophies that are associated with the
research such as interpretivism and positivism. At the time of choosing approach and
philosophy researcher needs to keep in mind the types of investigation carried
out.Moreover, positivism philosophy is suitable when research type is quantitative. As
per such philosophy, through analyzing numeric data set scholar presents solution. On the
other side,interpretivism philosophy is highly based on assumptions as in this, by
interpreting qualitative aspects scholar presents solution of theissue.
Hence, considering the quantitative research type, deductive approach and
positivism philosophy has been selected by the scholar. As per such selected
approach,hypothesis has been tested by the researcher through the means of existing
theoretical framework. Further, in accordance with positivism philosophy, by analyzing
numeric figures scholar has presented the level to which profitability aspect of UK
pharmaceutical companies are influenced from varied factors.

Research type or strategy
Specifically, qualitative and quantitative are the main two research types that can
be undertaken by the scholar for carry out research in a structured way. Moreover,
selection of further tools such as approaches, philosophy, data collection and analysis is
highly influenced from the type of investigation undertaken. Qualitative research may be
served as exploratory kind of study that is used to gain deeper insight about the
underlying reasons, opinions and motivations. Such research type or strategy is highly
significant that assists in developing hypothesis for potential quantitative research. On the
other side, quantitative investigation is conducted by the researcher when solution of
issue is based on numeric data set. In this, to ascertain the impact of different factors on
the profitability aspect of pharmaceutical sector quantitative investigation type has been
selected. In accordance with such research type, by making evaluation of return of equity,
current ratio, assets turnover, gearing and efficiency aspect of selected pharmaceutical
companies’ scholar has assessed the factors that have high level of impact on the
profitability of pharmaceutical companies.
Data sources
In research, data is the main input that is considered by the researcher for
determined suitable solution from issue. Specifically, there are mainly two sources that
researcher can undertake to gather data set such as primary and secondary. In thisregard,
data that is gathered by the researcher for first time through the means of survey, focus
group, observation, interview etc is known as primary. Primary data is highly effectual or
significant which in turn helps scholar in gathering data set as per the issue. On the other
side, secondary data may be presented as one that has already been gathered and
published by other authority. Hence, main secondary sources that can be used by the
researcher for the purpose of data collection includebooks, journals and scholarly articles.
In the present times, internet provides researcher with wide range of study material and
helps in gaining deeper understanding about issue.
Hence, in the current research, to evaluate or assess the factors that has an impact
on the profitability of pharmaceutical firms such as HIKMA, Oxford Biomedica, Shire,
GSK and Astra Zeneca secondary data sources have been considered by the researcher.In

this regard, annual report of such 5 companies from FY 2012 to 2016 has been evaluated
by the researcher.Thus, by searchingannual reports data has been gathered by the scholar
in relation to sales, expenses, assets and liabilities. In addition to this, other scholarly
articles that are related to the research topic or issue has alsobeen evaluated by the
researcher. Hence, with the motive to prepare brief thesis and analyzing findingsjournals
and scholarly articles related to the factors having impact on profitability aspect been
considered. Thus, through collecting and analyzing secondary data set outcome of issue
has been presented by the researcher.
Data analysis methods
For conducting study in the best possible way selection of appropriate analysis
methods are highly required. Tools which are considered for the purpose of data analysis
highly vary according to the type or nature of research. In the context of qualitative
investigation is researchers usually prefer to do thematic analysis.As pert such technique,
by preparing several themes and including graphs scholar presents thesolution of issue.
On the other side, under quantitative study scholar presents solution of the concerned
issue by applying statistical and other financial tools or techniques. Statistical techniques
include correlation, T, Z and chi square test, ANOVA etc for determining suitable
solution from quantitative or numeric information. Hence, as per the research issue,
scholar can apply test and would become able to present the outcome of issue
investigated.
In this, for analyzing the influence of different factors on the profitability of
selected pharmaceutical companiesquantitativeanalysis or evaluation has been conducted
by the researcher. By applying the tool of ratio analysis and doing correlation analysis
scholar has presented the extent to which varied factors influence profitability aspect or
position of the firm. Along with this, graphs have also been added in thereport to show
and develop clear understanding about the findings.
Ethical considerations
In research, it is the accountability of scholar to comply with the aspects of ethical
aspects. Hence, to meet ethics activities pertaining to plagiarism has been completely
avoided by the researcher. In this regard,all the theoretical information has been

rephrased bythe scholar in an appropriate manner. Besides this, reference list has been
added by the investigator in the study that clearly shows the sources from which
secondary data including both numeric and theoretical have been gathered. Along with
this, proper citations of the concerned relevant sources have been done which in turn
shows that findings of the study are highly new rather than copied. Hence, by taking into
account all the aspects it can be stated thatall theethical aspects have been met by the
investigator to a great extent. Along with this, for avoiding the level of biasness 5
companies have been selected from pharmaceutical sector for doing evaluation. This
shows that considering the ethical aspects sample has been determined for the present
study and evaluation.
Reliability and validity
In order to ensure the feature of level of reliability and validity in the study latest
articles have been used by the researcher. Moreover, recently published sources serve
highly reliable information about the research issue which is going to be investigated.
Considering such aspects importance, the sources that were published after 2008have
been considered for the present study. Along with this, sources that highly related to the
research topic or issue such as influential factors related toprofit margin have been
evaluated by the researcher. Thus, by using relevant sources pertaining to factors that
impacts profitability of company study has been conducted by the investigator. For this
purpose, key words such as profitability elements etchave been used by the scholarto
search relevant articles.Along with this, at the time of data collection priority has been
given by the researcher to the websites that are highly authentic. Hence, researcher has
considered the websites that protected through the means of copyright.
The rationale behind considering copyright sources that they offer accurate and
reliable information.This aspect shows that highly reliable and valid sources have been
used by the researcher for doing literature review. Further, to maintain reliability, all the
numeric figures have been recorded with the high level of accuracy. Thus, no
modifications have been done by the researcherin the financial data set to arrive at
expected results. This aspect shows that factor of biasness has completely been avoided
by the scholar. Besides this, all the numeric aspect with the information generated

through the means of company’s financial statementshas clearly been supported with
journals and other articles. This aspect shows that to make the study highly reliable and
validall the best possible efforts have been made by the researcher.
Research limitations
In the context of present study, time and cost is considered as one of the main
limitations that affect the significance of outcome to some extent. With the motive to
present findings or outcome within the suitable time frameless number of companies
pertaining topharmaceutical sector has been considered by thescholar. Moreover, in this,
to present suitable solution of issue financial data has been gathered by the researcher. In
this regard, if business unit will consider more companies for the purpose of evaluation
then there is a requirement to gather more data which in turn recognized as a highly time-
consuming process. Hence, to overcome such limitationscholar has selected 5 companies
and evaluating the data set of same presented the extent to whichdifferent factors affect
the profitability aspect of firm. Along with this, due to having time and cost constraint
statistical tools such as SPSS have not used by the researcher. However,by keeping in
mind research issue, aims and objectives scholar has taken decision in relation to
applying the tool of ratio analysis. In this way, all the appropriate measures have been
taken by the scholar to avoid limitations.

CHAPTER 5: ANALYSIS AND FINDINGS
5.1 Data display and description
This chapter of dissertation is highly significant which presents the findings of
concerned issue. In this, results have been generated by the researcher through applying
the tool ofratio analysis on financial data set. Hence, by analyzing ratios scholar has
presented or assessed the factors that haveinfluence on the profitability aspect of
pharmaceutical companies. In addition, statistical test such as correlation has also been
applied by the scholar to determine the relationship which takes place between ROE and
several other aspects such as current ratio, gearing, gross margin etc. Graphs have also
been included by the scholar considering the tableof analysis which in turn facilitates
better understanding about the results. Further, outcome of the ratios have also been
supported by the researcher with the help of key findings mentioned in the literature
review section.
In this:
 ROE: Return on equity
 ATO = Assets turnover ratio
 Gear: Gearing ratio
 LN: Log of sales
 GM: Gross margin ratio
 Efficiency: Operating expenses / profit
Return on equity
Year
Hikma
pharmaceuticals
company
Oxford
Biomedic
a
company
Shire
compan
y
Glaxo smith kline
company
Astra
Zeneca
company
2016 0.06 -1.31 0.01 0.21 0.20
2015 0.19 -1.18 0.13 0.94 0.15

2014 0.23 -0.39 0.39 0.57 0.06
2013 0.21 -1.22 0.12 0.72 0.11
2012 0.13 -0.45 0.20 0.70 0.26
Table 1: Return on equity
2011 2012 2013 2014 2015 2016 2017
-1.5
-1
-0.5
0
0.5
1
1.5
ROE-HIKMA PHARMACEUTICALS
COMPANY
ROE-OXFORD BIOMEDICA
COMPANY
ROE-SHIRE COMPANY
ROE-GLAXOSMITHKLINE
COMPANY
ROE-ASTRAZENECA COMPANY
Figure 1: Return on equity
Interpretation: Both tabular and graphical presentation shows that negative
returnsweregenerated by Oxford Biomedical Companyfrom shareholders equity during
the period of 2012 to 2016. This is not a good indicator because it presents inefficiency
level of company in relation to making use of shareholders fund. On the other side,
during the concerned financial years fluctuating trend has found in the outcome of return
on equity. Out of 5 companies, GSK is the one that has made optimum use of
shareholders fund over others. Considering the above depicted aspect, it can be said that
due to the ineffective strategic frameworks and higher expenses business unit failed to
generate high returns from shareholders equity.
Current ratio
Year Hikma Oxford Shire Glaxo Smith Kline Astra Zeneca

pharmaceuticals
company
Biomedica
company company company company
2016 1.58 3 0.97 0.88 0.87
2015 2.30 2 0.61 1.24 1.08
2014 1.20 2.56 1.72 1.10 0.96
2013 1.53 1.75 2.37 1.11 1.27
2012 1.67 4.25 1.95 0.99 1.37
Table 2: Current ratio
Figure 2: Current ratio
Interpretation: By doing analysis, it has assessed that fluctuating trend exists in
the current ratio of 5 companies considered for evaluation.In the accounting year
2016,current ratio ofall the companies decreased except of OXFORD
BiomedicaandSHIRE. Considering such ratioit can be stated thatHIKMA and Oxford
Biomedica is highly capablein relation to meeting obligations on time.However,
considering the findings presented in literatureit can be stated that negative relationship
exists between current ratio and organizational profitability.Moreover, when company
keepshigh liquidity with itself rather than investing in other productive activities,then it
may result into decline in profit margin. Hence, referring the same it can be depicted that

maintenance of high liquidity within the firm is the main reasons due to
whichprofitability of OB was highly negative from FY 2012 to 2016. Thus, from the
overall evaluation, it can be presented that high current ratio has significant impact on
theprofitability aspect of firm.
Log of sales
Year
Hikma
pharmaceuticals
company
Oxford
Biomedica
company
Shire
company
Glaxo Smith Kline
company
Astra Zeneca
company
2016 7.58 3.33 9.34 10.24 10.04
2015 7.27 2.77 8.77 10.08 10.11
2014 7.31 2.64 8.70 10.04 10.17
2013 7.22 1.61 8.50 10.19 10.15
2012 7.01 2.08 8.45 10.18 10.24
Table 3: Log of sales
Figure 3: Log of sales
Interpretation: The above depicted table shows increasing trend in the sales log
of Hikma, OB, Shire and GSK over the years. This in turn indicates that companies have
increased the demand for the products or services offered by them. However, out of 5

selected firms for the evaluation purpose, profitability aspect of GSK, AZ & Shire was
good from 2012 to 2016 and it increased significantly over the time frame. This in turn
contributes in the profit margin of business organization. This aspect or finding can
clearly be supported with the literature review aspects which in turn show that for the
generation of high margin there is a requirement pertaining to enhancing the level of sales
trend or pattern. Hence, referring overall evaluation it can be depicted that sales revenue
has an impact on the profitability margin of firm significantly.
Assets turnover ratio
Year
Hikma
pharmaceuticals
company
Oxford
Biomedica
company
Shire
company
Glaxo Smith Kline
company
Astra Zeneca
company
2016 0.45 0.49 0.17 0.47 0.37
2015 0.55 0.31 0.39 0.45 0.41
2014 0.66 0.41 0.44 0.57 0.45
2013 0.71 0.36 0.59 0.63 0.46
2012 0.64 0.33 0.64 0.64 0.52
Table 4: Assets turnover ratio
2011 2012 2013 2014 2015 2016 2017
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
ATO-HIKMA PHARMACEUTICALS
COMPANY
ATO-OXFORD BIOMEDICA
COMPANY
ATO-SHIRE COMPANY
ATO-GLAXOSMITHKLINE
COMPANY
ATO-ASTRAZENECA COMPANY
Figure 4: Assets turnover ratio
Interpretation: By applying financial tool on data set, it has found that assets
turnover ratio of HIKA was fluctuated during the period of 2012 to 2016.On the other
side, ATO of OB inclined from g.33 to .49 times at the end of 2016. In contrast to
this,ATO of remaining three pharmaceutical companies decreased over the time frame.

Hence, declining trend of ATO is the main reasons due to which profitability of HIKMA,
Shire, GSK and AZ moved downward. This aspect shows thatprofitability is highly
influenced from the level to whichfirm makes use of assets optimally. ATO is the
measure that reflects the salesrevenue generated by the firm through making use of
assets. In this way,use of assets have greater influence on both firm’s sales revenue and
profit margin.
Gearing ratio
Year
Hikma
pharmaceuticals
company
Oxford
Biomedica
company
Shire
company
Glaxo Smith Kline
company
Astra Zeneca
company
2016 0.45 0.77 0.57 0.92 0.73
2015 0.48 0.79 0.41 0.83 0.69
2014 0.46 0.32 0.36 0.88 0.66
2013 0.46 0.36 0.36 0.81 0.58
2012 0.51 0.21 0.48 0.84 0.55
Table 5: Gearing ratio
2011 2012 2013 2014 2015 2016 2017
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
GEAR-HIKMA PHARMACEUTICALS
COMPANY
GEAR-OXFORD BIOMEDICA
COMPANY
GEAR-SHIRE COMPANY
GEAR-GLAXOSMITHKLINE
COMPANY
GEAR-ASTRAZENECA COMPANY
Figure 5: Gearing ratio
Interpretation: Outcome of gearing ratio analysis presents that solvency position
of HIKMA and SHIRE is highly good.Result of such evaluation presents that liabilities of

both HIKMA and Shire are less as compared to total assets maintained by them. On
theother side, in FY 2016, gearing ratio of OB, GSK and AZ accounts for .77, .92 &.73.
Gearing position, sometimes also affect the financial position and performance of firm.
Moreover, business unit should maintain enough assets as per the liabilities but not very
high. Thus, it can be stated that business units need to make focus on investing additional
assets such as cashetc in other productive activities.
Gross profit margin
2016 2015 2014 2013 2012
HIKMA
PHARMACEUTIC
ALS COMPANY 50.56% 56.81% 57.15% 55.97% 45.18%
Oxford biomedica
company 57.1% 62.5% 64.3% 80.0% 87.5%
SHIRE COMPANY 66.5% 84.9% 83.7% 86.4% 86.2%
GLAXOSMITHKL
INE COMPANY 66.7% 63.0% 68.2% 67.6% 70.1%
ASTRAZENECA
COMPANY 82.1% 81.2% 77.6% 79.5% 80.7%
Table 6: Gross profit margin
2016 2015 2014 2013 2012
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
350.00%
400.00%
ASTRAZENECA COMPANY
GLAXOSMITHKLINE
COMPANY
SHIRE COMPANY
Oxford biomedica
company
HIKMA
Figure 6: Gross margin
Interpretation: Graph depicted above shows that fluctuating and decreasing trend
has assessed in the gross margin or profitability ofselected pharmaceutical companies.As

compared to 2012, significant reduction hasfound in the GP margin of HIKMA, OB,
Shire, GSK and AZ.Incline in the level of direct expenses is one of the main causes due
to whichprofitability aspect of firm decreased over the time frame. Hence, for making
improvement in the level of gross margin concerned pharmaceutical companies need to
exert control over direct expenses such as material and labor.
Year
Hikma
pharmaceuticals
company
Oxford
Biomedica
company
Shire
company
Glaxo Smith
Kline company
Astra Zeneca
company
2016 0.69 1.69 -0.27 0.86 0.74
2015 0.53 2.40 0.74 0.32 0.79
2014 0.53 2.22 0.66 0.77 0.89
2013 0.54 4.25 0.59 0.61 0.82
2012 0.67 2.43 0.76 0.60 0.64
Table 7: Efficiency ratio

2011 2012 2013 2014 2015 2016 2017
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Efficiency-HIKMA
PHARMACEUTICALS COMPANY
Efficiency-OXFORD BIOMEDICA
COMPANY
Efficiency-SHIRE COMPANY
Efficiency-GLAXOSMITHKLINE
COMPANY
Efficiency-ASTRAZENECA COMPANY
Figure 7: Efficiency ratio
Interpretation: The above depicted table shows thatlevel of operating expenses
incurred by Oxford Biomedica due to this its profit margin was negative.Along with this,
expenses made by all the selected five pharmaceutical companies increased over the time
frame. This is one of the main factor or element that has direct impact on the profitability
aspect.In the context of business unit, there is a need to incur several expenses for
ensuring smooth functioning of operations. Thus, operating expenses such as selling &
distribution, administration etc has direct impact on profit margin.Considering all such
aspects it can be depicted thatoperating expense level has significant impact on the
operating profitability aspect or position of firm.

5.2 Data analysis
From Pearson's correlation coefficient table
25 data 90% 95%
23 df 0.337 0.396
Interpretation and findings: Return that is generated by the firms through the
means of shareholders equity is highly correlated with log of sales such as 0.84
respectively. On the other side, moderate correlation exists between ROE and assets
turnover ratio. In contrast to this,lowercorrelation has found between ROE and gearing
ratio.The rationale behind such positive correlation is thatsales growth, efficiency in
relation to using assets and interest on debt considered as main factor that affect profit
margin as well as ROE.Thus, considering the outcome of correlation analysis it can be
stated that no specific relationship exists between ROE and gearing ratio. Results of
statistical analysis show thatCR measure is strongly correlated with Eff. On the basis
ofsuch aspect, current ratio will enhance with the increase that takes place in the outcome
of Eff.Further, in the context of LNS correlation with gearing aspect> .39 that clearly
exhibits the strong relationship between such two variables.
Outcome of statistical test presents thatstrong negative correlation takes place
between current ratio and return on equity such as -.535.In accordance with such aspect,
profitability will decrease with the rise in current ratio. Hence, both the elements will
move in negativedirection becauseinvestment is highly required for generating enough
margins. In the literature review section, it has assessed that company can maximize
profit margin through investing money in productive activities rather than keeping the

same with itself. Along with this, considering the results of correlation it can be stated
that ROE and ATO are strongly related witheach other. At 95% confidence interval, it
has found that value of correlation pertaining toROE and ATO is greater than .396. Thus,
considering all such aspects it can be depicted thatif ATO will increase then same
movement takes placein the profitability aspect.Scholarly articles also present that sales
and profitability aspect is affected from the extent to which business unit makes use of
assets effectually.
Further, tabular presentation shows that no relationship existing between gearing
and ROE measure because value is below the level of .337.In this, movement of gearing
aspect will not have any impact on the profit margin generated by the firm. It has found
from the literature review section that debt-equity structure of firm impacts profitability
aspects rather than ratio of long & short obligations to total assets. The reason behind
this, in debt firm is obliged to make payment of interest which in turn places direct and
negative impacton profit margin. Besides this, efficiency ratio and ROE is strongly
correlated but in a negative manner. Referring such result, it can be presented that
profitability of the pharmaceutical companies will be decreased on the increase
inoperating expenses.It is alsoclearly mentioned in the literature review section that
expenses whether direct or indirect has impact on profit margin. Thus, business units
require tomake control over expenses by taking strategic action or measure.
Profitability Model

CHAPTER 6: DISCUSSIONS
On the bas is of literature review, findings and results section below mentioned
graphs have been framed. This in turn clearly reflects the factors that have impact on the
profit margin ofcompanies which are operating in pharmaceutical company.
Considering the chart depicted in finding section, it can be presented that there are
several factors that collectively impacts profit margin. By doing financial evaluation, it
has identified that negative relationship takes place between the profitability aspect(ROE)
and current as well as gearing ratio. This aspect shows that profitability of the firm will
decrease if current and gearing ratio will increase. Tabular presentation (correlation
analysis) states that negative and weak relationship exists between ROE and gearing or
solvency position. This aspect can clearly be supported with the findings of secondary
analysis which shows that when, for meeting funding or financing requirement, firm uses
more debt rather than equity then relative interest charges reduces the profitability of
organization to a great extent. Thus, at the time of making selection of financing source
business unit should keep in mind both cost as well as benefit.
Further, brief thesis prepared in literature review section and results analyzed in
chapter 5 clearly presents that profitability and current ratio has inverse relationship. In
other words, it can be presented that if current ratio will increase then profitability moves
in downward direction. By doing analysis of scholarly articles it has found that
profitability of firmis alsohighly dependent on or connected to inventories and
receivables. Moreover, both such elements of working capital are recognized or
considered as cash constraints. The reasonbehind this, when firm has maintains high level
of liquidity in the form of inventory and debtors then it is not in position to invest money
in furtherproductive or profitable activities. In this way, higher liquidity level
closelyaffects the profit margin of firms taken into consideration such as HIKMA, OB,
GSK, AZ and Shire. Further, through evaluating different theories and models it also has
found that business units performing activities or functions in the pharmaceutical
companies need to maintain liquidity within the organizationbut to a specific limit for

meeting current liabilities. The rationale behind this, in the present times toenhance profit
margin and balancing the risk level firms require employing fund in different investment
opportunities rather than preserving the same with itself.
Along with this, section of literature review clearly exhibits that trade off theory
of theory also supports the aspect that increasing current ratio trend has negative
influence on firm’s profitability. Trade-off theory presents that selected pharmaceutical
companies such as HIKMA, OB, Shire, GSK and AZwill attain lower returns of holds
more cash within the business unit.Financial section also supports such aspect by
presenting that Shire which has maintained 3current assets in against to 1 liability
attained negative returns in 2016. Along with this, in other years, pharmaceutical
company such as Shire has also maintained high liquidity within the firm from 2012
to2015 over current liabilities. Thus, high liquidity level offers tax disadvantages to the
firm. Thus, it can be presented on the basis of overall evaluation that increasing or high
liquidity as compared tothe industry average is dangerous for the firmin terms of
financial aspect i.e. reduction in profit margin.
Further, by taking into account the financial results, it can be depicted that
measure like ROE and ATO are strongly correlated. Such results can clearly besupported
with the findings assessed through the means of literature review section. It has found
from evaluation that for generating high profit margin there is arequirement for the firm
to effectively make use of both fixed as well as current assets.Hence, in the context of
business organization, profitability aspect is highly dependent on the extent to
whichresources are optimally utilizedincluding both fixed and current. Thus,for
enhancing the level of both productivity and profitability firm is required to make
effective use of assets such as plant & machinery, furniture & fixtures etc.This aspect can
clearly belinked with the section of financial evaluation.It has assessed from financial
analysis that ROE of Shire decreased in 2016 from .393 to .011respectively. During the
same financial period, ATO of Shire also declined from .63 times to .17 times. Hence,
due to the declining assets turnover ratio, return of equity of Shire also decreased. Along
with this, the same tendency can be seen in the performance of GSK and AZ. In the
accounting year 2016, ROE of GSK and AZ accounts for.213 &.204 significantly. Hence,

considering the results of ATO it can be depicted as per the decrease in assets turnover
ratio, profitability of the concerned firms moved in negative direction. Thus, for
maximizing profit margin firm needs to make focus on developing strategic framework
that facilitates optimum use of total assets.
Along with this, it can be discussed on the basis ofoverall evaluation that sales
level is another major factor that has an influence on firm’s profitability. Moreover, it has
assessed from literature review section that profit of the firms is closely affected when it
considers or uses cost plus pricing method or strategy. However, cost plus pricing
strategy or method is suitable only when level of competition is not high. Scholarly
articles clearly present that pharmaceutical sector is filled up with the stiff competition. In
this, it is not possible for the firms to set price byconsidering cost plus pricing method. It
can be seen in the section of financial analysis that irrespective of increasing sales level,
profitability of firm decreased. Hence, for making improvement in the profit marginall
the pharmaceutical companies considered for the investigation purpose need to
makecontrol on expenses. Hence, from overall discussion, it can be presented thatincline
in current ratio, direct and operating expenses are the main factors that negatively
influence profit margin of firm. Further, to improve margin companiesof pharmaceutical;
sector needs to make focus on increasing sales log and total assets turnover ratio.

CHAPTER 7: CONCLUSION AND RECOMMENDATIONS
7.1 Conclusion
By summing up this dissertation, it has been concluded that both financial and
non-financial factors closely impact the profit margin of firm. In this, quantitative
research is conducted to analyze the elements that have either positive or negative impact
on firm’s profitability.It can be summarized that for attaining research aims and
objectives ratioanalysis of 5 companies such as HIKMA, Oxford biomedica, Shire, GSK
and AZ has been done. Further, correlation analysistool has also been applied to present
the fair solution of issue. It has been articulated from the report that for enhancing
profitability aspect all the concerned pharmaceutical and other companies need to exert
control on expenses such as direct, indirect and interest.Further, it can be stated from
evaluation that negative correlationship exists betweenefficiency ratio and ROE. It
presents thatoperating expenses such as rent, salaries, miscellaneous expensesthat are
incurred by the firm closely influences profitability. Thus, business unit needs to develop
suitable budget for controlling overspending.
Along with this, it can be depicted from the evaluation of such five companies is
that ROE increases, when sales growth and assets turnover ratio moves in upward
direction. It can be seen in both literature review and discussion section that by when
sales increases then profit margin also enhances if business unit has good control over
expenses. Along with this,by making effective use of assets firms performing in
pharmaceutical sector can enhance its both productivity and profitability. High ATO
represents thatbusiness unit have made use of both fixed and current assets to a great
extent in relation to generating sales. In this way, by making effectual use of assets
business units can fulfill their aims and objectives. Besides this, it can be inferred from
the evaluation that sales and profit generated through the means of shareholders equity
will increase significantly when current ratio measure declines. Ithas asserted from the
financial evaluation of five companies and scholarly articles that when business unit
invest money in other projects then it may result into high sales as well as margin. Thus,

at the time of developing strategic framework and policies business units such as
HIKMA, OB, Shire, GSK needs to keep in mind such order or tendency.
Besides this, when company uses its assets including both fixed and current in an
appropriate manner then it may result into high profit margin. In addition to this, analysis
of 5 companies of pharmaceutical sector taken into consideration clearly shows that
negativerelationship takes place betweensolvency position and profitability aspect. In
accordance with such aspect, profit margin of pharmaceutical company decreases when
in the capital structure level of debt increases. It can be presented from secondary data
assessment thatdebt imposes fixed periodic burden on firm pertaining to interest payment.
Thus, high debt position places negative impact on organizational profitability. Along
with this, it has been articulated from evaluation that no relationship takes place between
the variables such as gearing and ROE. Moreover, such measure only entails the level to
which total assets are available in against toboth long and short term obligations.
Further, it can be concluded that when current ratio increases then profitability is
influences negatively. Moreover, when extra cash or higher liquidity is not invested by
the firm in productive activities then it may result into decreasing profit level or margin.
By doing analysis of books, journals and articles related to such topic, it has found
thatfirmsrelated o pharmaceutical sector needs totarget an optimal liquidity which in turn
ensures proper balance in the cost and benefit.In accordance with the trade offtheory
selected five companies will generate low return if they hold more cash. Moreover,
business units will lose both liquidity premium and tax benefits on the maintenance of
high liquidity as compared to the level of obligation. Thus, to enhance the level of profit
margin and developingstrategic planall the selected five companies such as HIKMA, OB,
Shire, GSK and AZ needstoconsider all the above depicted aspects.
7.2 Recommendations
Considering the findings of present study, several strategies are recommended to
HIKMA, OxfordBiomedica, SHIRE, GSK and AZ which in turn positively contributes in
profit margin such as:

 For making improving in both gross and net profitability aspect concerned
pharmaceutical companies need to lay emphasis on undertaking the tool of
budgetary control. By doing continuous evaluation of expenditures in against to
the predetermined aspects firm can assess deviation. Hence, by identifying the
causesof deviations business unitwould become able to improve margin by taking
strategic action.
 Further, it is recommended to the pharmaceutical companies tomake focus on
considering optimal capital structure while taking decision in relation toraising
funds. Business units should follow either industry average or ideal ratio such
as .5:1 at the time of issuing shares and taking resort of debt sources.
 It has been assessed from overall evaluation that effective use of assets needs to
taken for increasing both profit margin and return on equity. Thus,
pharmaceutical companies needs to make focus on organizing training session for
personnel. This in turn helps in persuading personnel about the manner in which
they needto carry out activities. Along with this, concerned business
organizations also tend to focus on the maintenance of fixed assets such as plant
& machineries etc.
 In addition to this, it is advised to the management team of all the concerned
pharmaceutical companies to lay emphasis on maintaining current assets within
the firm as per the liabilities. Hence, at the time of determining ratio in relation to
maintaining current assets business units should consider the level of industry
average.This in turn helps firm in improving liquidity position and enhancing the
level of profit margin. Considering the literature review section and findings of
correlation analysis it can be presented that pharmaceutical companies should
focus on assessing profitable investment opportunities. Hence, by capitalizing
such opportunities firm would become able to maximize profit margin.
Hence, by following all the above depicted aspects firm would become able to
HIKMA, OB, Shire, GSK and AZ would become able to maximize profit margin and
offer high return to the shareholders. Increasing profit margin will enable firm to build
effective image at market place and attract large number of investors.

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APPENDIX
Correlation analysis