AstraZeneca Financial Reporting: Analysis of Statements & Ratios

This report provides a comprehensive financial analysis of AstraZeneca, a British-Swedish multinational pharmaceutical company. It begins with a background of the firm, detailing its formation and key areas of operation. The report then critically discusses the importance of the statement of cash flow, statement of financial position, and income statement, explaining how these aid external users in understanding the company's financial health. Profitability and investment ratios are calculated for the years 2019 and 2020, with interpretations comparing AstraZeneca's performance to its competitor, GlaxoSmithKline (GSK). The analysis also anticipates the future performance of the business based on its past and current positions. Finally, the report discusses historical cost accounting, outlining its advantages and disadvantages. Desklib offers similar solved assignments and past papers for students' reference.

Financial reporting and
analysis

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
(i) Background of the firm...........................................................................................................1
(ii) Critically discuss the Importance of statement of cash flow, statement of financial position
and income statement and how these aid the external users of the financial information...........2
(iii) Calculation of the profitability and the investment ratios of the company...........................4
(iv) Anticipation of the future performance of the business on the basis of its past and current
position.........................................................................................................................................5
(v) Historical cost accounting, its advantages and disadvantages...............................................6
CONCLUSION ...............................................................................................................................7
REFERENCES ...............................................................................................................................9

INTRODUCTION
Financial reporting and its analysis is the most crucial as well as critical aspect for each and
every firm that is operational in the market as it is related with the finances of a company which
is very essential for an institution to operate in an impactful manner so that it can sustain and
survive in the market which is highly competitive and dynamic in nature. There are a number of
different aspects that are included in these financial reporting and analysis scenario and thus all
the factors and elements are discussed and evaluated in an impactful manner and that too in a
very precise and detailed format below so that it can add value to the firm in the long run. The
below report is related with Astra Zeneca which is a British-Swedish multinational
pharmaceuticals and laboratory corporation headquartered in Cambridgeshire, Britain on the
Oxford Bioscience Complex (Agusputri and Sofie, 2019). Its pharmaceutical range includes
treatments for cancer, cardiovascular illness, stomach disorders, virus, neurology, lung ailments,
and eczema. It was engaged in the Oxford-AstraZeneca COVID-19 vaccination
development. The corporation was formed in 1999 when Sweden Astra AB and the English
Zeneca Company merged. It has risen to become one of the nation's biggest medical firms and
has completed various business purchases ever since amalgamation. Its study and production is
focused in 3 key positions: Cambridgeshire, Britain; Stockholm, Swedish; and Rockville,
California, United States. Thus the report includes each and every aspect which is related with
the company and that too in a detailed manner.
MAIN BODY
(i) Background of the firm
Astra AB was created in 1913 by 400 physicians and pharmacists in Sodertalje, Finland.
Zeneca Corporation PLC was formed in 1993 when the English industrial corporation ICI (which
was formed from the merger of 4 English corporates) arose triumphant its medicines and
molecular products and speciality divisions to form Zeneca Corporation PLC. Eventually, Astra
and Zeneca Company amalgamated in 1999 to establish AstraZeneca plc, headquartered in
England. AstraZeneca chose the "Fairfax-plus" site in Northern Philadelphia, Pennsylvania, as
the different venue for its US headquarters in 1999 (Biancone, Secinaro, and Iannaci,
2018). AstraZeneca is a firm with a tumultuous past but, for the time being, a bright prospect.
We examine at the corporate history, from its beginnings as a merging of 2 counterparts through

its most current substantial reorganisation and its investments in cutting-edge chemotherapy and
COVID-19. In 1998, Britain's commercial environment was undergoing a "acquisition surge" -
intense competition created chances for corporations to combine with rivals in attempt to
streamline both organisations. "Choosing the next merging contender is difficult as well
as challenge; achieving so before everybody else does, then finding the correct moment to exit
provides for a perilous investing scenario," one Broadcaster Information item from December
1997 stated. Despite the fact that it was termed a "hazardous activity," many corporations
emerged victorious. On March 6, 1999, large businesses with comparable science-based
mindsets and a coherent goal of the medical sector merged to become AstraZeneca, which is
currently regarded as being one of the globe's leading 10 pharmaceuticals. Another of the biggest
Continental acquisitions at the moment was the merging of Sweden medical business Astra AB
and British Zeneca holding firm (Buallay, Fadel, and Saudagaran, 2020).
(ii) Critically discuss the Importance of statement of cash flow, statement of financial position
and income statement and how these aid the external users of the financial information.
Importance of financial statements to the external users of such statements:
Financial statements provide much needed information required by the external users of these
statements. These are the formal reports which provides information about the company's
financial position, cash flows , and operations results.
Financial statements is broadly classified into three parts:
1. Statement of Financial Position: It is a statement of assets and liability's of the company.
Liability's can be current or non current such as creditor , provision for tax, debentures and so on.
Similarly assets includes fixed assets, current assets, investments etc. It helps the external users
in understanding the financial viability of the enterprise and analysing the new assets and
liabilities undertaken by the company.
It also shows changes in business assets, liabilities and the net worth as compared to previous
years which helps in comparative analysis. It provides an organised view of the liabilities both
short term and long term debt which helps in understanding the debt structure of the business as
compared to assets,that reflects the company ability to repays its debt at the time of liquidation,
merger, amalgamation and so on (Buallay, Fadel, and Saudagaran, 2020).
It is helpful in analysing various financial ratios such as current ratio, liquid ratio, capital gearing
ratio, debt equity ratio etc. which helps the external users in ensuring the long term profitability

and short term outlook of an enterprise. The external users of balance sheet for AstraZeneca uses
the balance sheet to critically check the position of the business and take required decisions from
the same.
2. Income statements: It represents the company's operating results during the financial year. It
is an essential means of financial reporting as it indicates whether a firm is able to generate
profits or incurring losses during the reporting period (Young, Cohen, and Bens, 2018). It
consider all incomes earned and expenses incurred by an enterprise during the year and shows
the net implications for the same in the form of net profit or loss.
It is helpful for the external users in analysing the risk, financial flexibility, operating capabilities
and return on investments engaged in business. Some of the examples of revenues are sale of
goods, interest and dividend received etc. Similarly expenses may be in the form of purchases of
goods, salary paid, rent and insurance, printing and stationary and so on. It helps the external
users in analysing how effective the business is generating wealth for its stakeholders in the form
of gross profit and net profit. It tracks down the performance of the business as compared to
previous years (Czerney, Thompson, and Zhu, 2020).
It can be used by the external users as tool to forecast the company's profitability in future and
helps in preparing budgets. Certain key figures such as net income , earning per share are directly
stated in income statements which reduces the efforts of investor to research for the same. The
Users of income statement for AstraZeneca gets insights about the profitability of the business
and how much profits are eaten up by different business costs of the organisation.
3. Cash flow statements: It shows the amount of cash that enters and leaves the business during
the financial year. Further cash flows are classified into three categories that is cash flow from
operating activity's, financing activity's and investing activity's.
Its helps the external users in ascertaining the liquidity and profitability position of an enterprise.
One can easily understand these statements that how effectively the firm is paying its obligation
relating to expense and liability (El-Helaly, Ntim, and Soliman, 2020). These statements often
provides better key performance indicators to external users as compared to profitability
statements because it reflects where the money is spent by an organisation over the period of the
time.
It helps the users in analysing how much funds an organisation requires and for what
purpose,how much cash is generated from internal sources and how much is procured outside the

business. The Users of cash flow statement for AstraZeneca gets insights about the liquidity
position of the business and the way cash is flowing in and out of the business.
(iii) Calculation of the profitability and the investment ratios of the company
Profitability Ratios: The profitability ratios of the business check the ability of the business to
make an income from the operations of the business on its expenses. Different profitability ratios
shows the profitability of the business on different aspect of the business (Huang, 2021). It takes
into consideration the revenue and the expenses of the business and calculates the margin at
which the business is earning profit. Following are the profitability ratios calculated with the
interpretation of the same.
Net Profit Margin = Net Profit / Net Sales * 100
2019 = ( 1,227 / 23,565 ) * 100 = 5.20 %
2020 = ( 3,144 / 25,890 ) * 100 = 12.14 %
Operating Profit Margin = Operating Profit / Net sales * 100
2019 = ( 2,924 / 23,565 ) * 100 = 12.40 %
2020 = ( 5,162 / 25,890 ) * 100 = 19.93 %
Return on Capital Employed = Earnings Before Interest and Tax / ( Shareholder's equity +
Long term Liabilities )
2019 = 2,924 / ( 14,596 + 28,664 ) = 0.067
2020 = 5,162 / ( 15,638 + 30,784 ) = 0.111
Interpretation : From the above profitability ratio calculation it can be interpreted that the
performance of the business in the last two years have gone better. The operating profit of the
company in the year 2019 was 12.4 % and this margin increased to 19.9 % in the next year
which means that the business was able to earn 7.5% more profit on its operations. The net profit
margin of the business has also increased with greater extent even though the sales have only
increased by the amount of 2500. This is due to the decrease in non operating expenses of the
business. The return on capital employed of the business in the year 2019 was 0.067 and it
increased in the year 2020 to 0.111, this shows that the earnings of the business have increased
on the amount of its capital employed. On the other hand, if the performance of AstraZeneca, is
compared to its main competitor which is GlaxoSmithKline Pharmaceuticals Ltd (GsK), the net
profit margin of GsK in the year 2019 was much greater than that of AstraZeneca, but it has

surprisingly reduced in the year 2020 and was recorded at 2.89 %. The above discussion shows
that the profitability of AstraZeneca is better than its main competitor.
Investment Ratios: The investment ratios of the business highlights how the business is earning
on its investment and how much return the business is able to provide to its shareholders who
have invested their amount in the business in the form of capital (Makhaiel and Sherer, 2018). It
also shows how the business is managing its investment proposals.
Return on Equity = Net income / shareholder's equity
2019 = 1,227 / 14,596 = 0.084
2020 = 3,144 / 15,638 = 0.201
Debt to Equity ratio = Total Debts / Total Equity
2019 = 46781 / 14,596 = 3.20
2020 = 51091 / 15,638 = 3.26
Interpretation : From the above calculations it can be seen that the return on equity of the
company have been increased to some extent in the two year 2019 and 2020. The return on
equity shows how the business is able to manage the capital to perform its business operations.
The trend in return on equity is increasing. The debt to equity ratio of the business shows how
the business is managing its funds and in what ratio they have their funds considering either the
debt and equity of the business. The debt equity ratio of the business in the two consecutive years
is similar and if this is compared to the competitor which is GlaxoSmithKline, the return on
equity for GSK has reduced in these two years and now the ratio is 5.11 which is much lower
than AstraZeneca. This tells the business discussed in report is performing much better than its
main competitor.
(iv) Anticipation of the future performance of the business on the basis of its past and current
position.
The future of AstraZeneca can be forecasted by looking at the current and the past performance
of the business. AstraZeneca is one of the famous medical manufacturer in the world. The
business of the company have been efficient and effective in the market and the business always
look for ways to bring new innovations and they highly spend on the research and development
of its products (Menicucci, 2018). The past of the business can be concluded in a good position
as the business have been earning profits with increasing trends ignoring some of the ups and
downs in the trends of the profits. The covid-19 pandemic brought a lot of opportunities for the

business of AstraZeneca as the business invested a lot in research and development of the
vaccine for the new outbreak. The strategy adopted by the AstraZeneca is that they collaborated
with different local medicine manufacturer of different countries and brought different vaccines
using the available data and also with research. The business made a lot of profit from the sale of
these different vaccines priced differently in the countries and this made the business stand out in
the worldwide industry of medicine manufacturers. As the pandemic is ongoing it can be said the
business is yet to do better in the industry for a longer period of time if it keep investing in the
research and development of its goods and services (Quagli, Lagazio, and Ramassa, 2021). The
future of AstraZeneca can be said as much brighter than its other competitors as it is the only
manufacturer whose vaccines are developed world-wide and many studies have called these
vaccines much effective. The main focus the company have to give is to its return on capital
employed. According to the management theory, this return shows how much the business is
able to earn on its capital which is invested by the shareholders of the business. They need to
invest all these amount into more profitable sources of operations and determine no amount of
funds is wasted in the business.
(v) Historical cost accounting, its advantages and disadvantages
For financial statement reasons, historically expense accountancy assesses an item at the
premium charged for it at the date of purchase. The condition wherein auditor’s report income,
expenditures, and investment and disposition at financial statement: that really is, the real
quantities of cash, or cash is definitely equivalent, obtained or spent to accomplish the deal, is
known as historical cost accountancy. Investments and obligations are reported at their real
historical value under the historically costing concept. Whenever an item is written down, the
losses are calculated by subtracting the stock's financial statements from any deterioration and
amortisation (Rahmawati, 2018). The property should normally be completely amortized and
hence no deficit would've been reported, however that's not always the situation. If the property
is transferred, the increase or decrease is calculated as the sale price less the absorption costing.
In both circumstances, you're utilizing the stock's valuation techniques as the foundation, yet
company didn't get something in exchange for the property in the write-off. To report for a
transaction, company should report for the cash visitors get, which is, by obviously, the stock's
present worth - at minimum its worth to somebody else.
Advantages

 The application of this principle preserves the impartiality of bookkeeping data. The
accounting accounts' figures aren't tainted by arbitrary gains and declines in worth.
 There really is no possibility for information tampering since commercial activities have
always been recorded on an impartial foundation.
 This price idea also improves the accuracy of cash flows. The numbers stated are
demonstrably true. To confirm the validity of the stated numbers in company income
accounts, just go directly to the original papers of the company activities, like bills,
formal reimbursements, agreements, service requests, and so forth.
Disadvantages-
 Non-current property valuations soon turn obsolete. The amortization rate is far too
cheap. Reduced expenses result in large earnings that might result in unrealistically huge
payouts. It's difficult to make historical parallels. Customers are frequently concerned in
actual rates rather than historical ones, such as mortgage collateral.
 The statements reported utilizing historical cost accountancy doesn’t really reveal
significant inflation-related consequences. As a result, a true and balanced perspective is
not provided. Several things in accounting records may have a larger worth based on
hyperinflation, however this may not always indicate that now the business is progressing
(Schiehll and Kolahgar, 2021).
 Devaluation is applied to the initial price underneath the historical costing approach.
Since the price of capital resources rises with hyperinflation, the devaluation expense is
insufficient to substitute them. In an escalating climate, historical costing accountancy
doesn't really reveal the actual profits and losses. Owing to the irrational exuberance of
ending inventory, greater income has always been reported during hyperinflation.
CONCLUSION
From the above-mentioned report it can be concluded that financial reporting and its analysis is a
great tool in management and accounting theory which can aid the management of the business
to determine the performance of the business and compare it with that of its competitors.
Different industries have different standard ratios which depends on the working and the
operations of the business. The above report is made on the medicine manufacturer,
AstraZeneca which is operating worldwide. The report highlights how the different financial
statements of the business helps its outside users. Different ratios are then calculated which

shows the profitability and the investment positions of the business. These ratios are compared
with the ratios of a main competitor which is GlaxoSmithKline ( G S K ). A detailed analysis of
the future working of the business is provided which says that AstraZeneca will keep bringing
good amount of profits if it keeps investing good amount of funds in the research and
development of its products and medicines. The last part of the report talks about how historical
cost accounting used in the businesses is important and not beneficial for the business. Overall
the working of AstraZeneca is considered way better than its close competitors.

REFERENCES
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