Financial Management: Profitability Analysis, Budgeting, and Balanced Scorecard in Healthcare Organizations

Running head: FINANCIAL MANAGEMENT
Financial Management
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1FINANCIAL MANAGEMENT
Table of Contents
Part 1:...............................................................................................................................................3
Introduction:................................................................................................................................3
Organisational profiles of GSK Plc and Roche Holding AG:.....................................................3
Profitability analysis of GSK Plc and Roche Holding AG for the years 2016 and 2017:...........4
Conclusion:..................................................................................................................................9
Part 2:.............................................................................................................................................10
Introduction:..............................................................................................................................10
Advantages and disadvantages of Zero Based Budgeting:........................................................10
Circumstances under which Zero Based Budgeting would be used:.........................................12
Conclusion:................................................................................................................................13
Part 3:.............................................................................................................................................13
Introduction:..............................................................................................................................13
Benefits and limitations of balanced scorecard:........................................................................14
Process failure:...........................................................................................................................17
Conclusion:................................................................................................................................18
Part 4:.............................................................................................................................................18
Introduction:..............................................................................................................................18
Financial issues to be considered before undertaking investment decision:.............................19

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Conclusion:................................................................................................................................21
References and Bibliographies:.....................................................................................................22

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Part 1:
Introduction:
The current section would provide a brief comparison of the profitability positions of
GSK Plc and Roche Holding AG for the years 2016 and 2017. For determination of the
profitability position of these two healthcare organisations, three useful ratios have been used.
These ratios mainly constitute of return on capital employed, operating profit margin and
earnings per share. The comparison of these ratios would help in understanding the financial
performance of the two chosen organisations in the years 2016 and 2017.
Organisational profiles of GSK Plc and Roche Holding AG:
GSK Plc is a UK-based pharmaceutical firm dealing with inventing, developing,
producing and marketing vaccines along with other health products in the global marketplace. It
is listed on FTSE 100 having market capitalisation of almost £81 million in 2016, which is the
fourth biggest in the stated index (Gsk.com 2019). The main products that it sells in the global
arena comprise of Flovent, Avodart, Advair and other medicines. The organisation has the
objective of becoming the most trusted and innovative healthcare in the global marketplace. In
2010, GSK Plc made the acquisitions of Laboratorious Phoenix for $253 million and it has
employees of nearly 95,400 in 2018.
Roche Holding AG is involved in pharmaceuticals and diagnostics business in
Switzerland, Germany and other European nations (Roche.com 2019). It is a Swiss global
healthcare organisation operating under two divisions, which include diagnostics and
pharmaceuticals. In addition, the organisation is focusing on maintaining competitive advantage

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through simplification of its business processes by retaining the best talent. At present, it has
employee base of 65,000.
Profitability analysis of GSK Plc and Roche Holding AG for the years 2016 and 2017:
For assessment of the profitability position of GSK Plc and Roche Holding AG for the
years 2016 and 2017, the ratios that have been considered mainly include return on capital
employed, operating profit margin and earnings per share. The detailed evaluation of these ratios
is presented as follows:
Return on capital employed:
In the words of Vogel (2014), return on capital employed gauges the efficiency of an
organisation in utilising its capital for profit generation. This ratio is used mainly by the investors
for determining the suitability of investment within the organisation (Williams and Dobelman
2017). The detailed calculation of this ratio for the two organisations is presented briefly as
follows:
Table 1: Return on capital employed of GSK Plc and Roche Holding AG for the years 2016
and 2017

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(Source: Gsk.com 2019: Roche.com 2019)
2016 2017 2016 2017
GSK Plc Roche Holding AG
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
6.48%
13.71%
25.95% 23.85%
Return on capital employed
Figure 1: Return on capital employed of GSK Plc and Roche Holding AG for the years
2016 and 2017
(Source: Gsk.com 2019: Roche.com 2019)
. From the above figure, it could be observed that the return on capital employed for GSK
Plc has increased from 6.48% in 2016 to 13.71% in 2017, while the ratio for Roche Holding AG
has fallen from 25.95% in 2016 to 23.85% in 2017. The main reason behind the increase in this
ratio for GSK Plc is the rise in operating profit, while for Roche Holding AG; there has been
decline in operating profit in 2017. Over the years, it has been projected that the trend for few
medicines would continue to lose exclusivity in US and Europe markets, which would affect the
operating income of Roche Holding AG as well in future. However, despite the downfall in the
ratio for Roche Holding AG, it is still considerably higher in comparison to GSK Plc. Thus, in
terms of return on capital employed, Roche Holding AG is enjoying competitive advantage over
GSK Plc in the global market.