Investment Case Analysis: Why Invest in GlaxoSmithKline Stock?

This report presents an investment case for GlaxoSmithKline (GSK), analyzing its potential for investors. It begins with an introduction to investment decisions and the pharmaceutical industry, highlighting GSK's position in the UK market. The report examines the sector outlook, emphasizing the growth and profitability of pharmaceutical companies. A top-down approach is used to analyze GSK's operations within the UK market. Fundamental analysis includes key financial ratios, such as asset turnover, cash flow return, debt-to-equity, and profitability margins, to assess GSK's financial health in 2016 and 2017. The report also includes a SWOT analysis and risk assessment. The conclusion summarizes the investment case, emphasizing the potential returns for investors. The report aims to provide a comprehensive overview of GSK's investment potential, supported by financial data and market analysis, and is available on Desklib.

Make the Investment
case: Why should
people invest in your
stock?

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
INVESTEMENT CASE..................................................................................................................1
THE SECOTOR OUTLOOK..........................................................................................................1
Top-down approach.....................................................................................................................3
FUNDAMENTAL ANALYSIS......................................................................................................4
RISK ANALYSIS...........................................................................................................................8
SWOT..........................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Investment decision have been made by an individual which is based on their analysis over
the market value and overall performance of the organisation in the market segmentations.
Therefore, investors articulate the overall performance of industry by analysing its pasts records.
Thus, such analysis will be adequate and helpful in making proper ascertainment of the data
base. In the present report there will be operational analysis made on GlaxoSmithKline for
approaching the investors in making investments in organisation. There will be study over the
entire pharmaceutical industry with respect to demonstrate the growth and profitability of such
business in the coming years.
INVESTEMENT CASE
Investing in a pharmaceutical industry will be profitable for the investors as these
organisations are rapidly growing in UK Market. GlaxoSmithKline have been denoted as the best
pharmaceutical industry in the world which have various branches throughout countries. It has
been analysed that the firm in rapidly growing in this sector with a motive to present the best
quality medicines among the buyers. The faith in this industry is relevant with the strength of
research and development department of the organisation is making efforts in testing the drugs
and launching in the market (GlaxoSmithKline PLC, 2018). However, as per analysing the
growth of share value of this industry which determines that there will be adequate raise in
profitability which will bring higher returns to the investors in the upcoming period.
THE SECOTOR OUTLOOK
In respect with analysing the overall pharmaceutical sector on which it can be said that these
industries are more productive in UK. The average turnover has been retained through such
sector is around 41.8 billion pounds which is facilitating the 8.2% of UK goods exporting to
other nation. along with this there are raise in the number of employees in these sectors which
are around 113,000 of people have directly being employed and engaged in this business (Wu
and et.al., 2017).
There are various industries which are making efforts as well as retaining the higher market
gains in such as AstraZeneca as well as GlaxoSmithKline. This sector is heavily integrated with
EU supply chain which presents relies on friction free transfer of material and ingredients. The
higher utilisation of these industries has been made in research and development operations
which have reflected in the fruitful gains improvement in the quality services.
1

Figure 1 Growth of Pharmaceutical industries in UK
(Source: Pharmaceutical industry drives British research and innovation, 2014)
Interpretation: On the basis of above graphical presentation on which trading outcomes
of pharmaceutical industries have been ascertained which reflects the earning and gains of the
business. Moreover, there have been comparison of UK’s pharmaceutical trade with EU’s trade
balance on which UK is retaining higher turnover than EU. Moreover, investing in
pharmaceutical industries will be fruitful to the investors in terms of retaining profitable returns
over their invested funds in the industry. It has been expected here that, these industries will
re4tain higher profitability will be helpful in uplifting the GDP which in turn improves the
economic stability in the nation.
2

Interpretation: By considering the above listed graph on which it can be demonstrated
that, pharmaceutical industries are comparatively more profitable and have higher gains than
other industries. therefore, making investment in such organisations will be fruitful and adequate
for the professionals in terms of having higher returns. It has acquired the 14% of the market
share on which it can easily be analysed that theses industries are succeeding at a prominent rate
and have higher growth which will be effective in economic growth of the business.
Top-down approach
This is the techniques which is being used by the economists or any individual which respect
to the breaking down a system in small parts (Dimitriou and Poufinas, 2017). Therefore, in
relation with analysing the recent growth and situation of pharmaceutical industries on which it
will be break down to analyser the growth and profitability of GSK in UK. Moreover, the origin
of this organisation is from UK which insist that this firm is operating pharma and healthcare
activities which will be helpful and adequate in governing the operational tasks (Ionici and
Adhikari, 2017). It leads the market of pharmaceutical worldwide.
3

FUNDAMENTAL ANALYSIS
To analyse the financial health of GSK in year 2016 and 2017 on which there have been
consideration over various elements which are to be calculated by the professionals in terms of
analysing the outcomes (Domínguez and et.al., 2017). Thus, the profitability, efficiency as well
as revenue had been generated by firm which will be adequate in analysing the capabilities of the
organisation in terms making profitable returns to the society in the upcoming period. This
information will be communicated among investors which will approach them towards making
qualitative investment in the firm (Güven and Şebcioğlu, 2018). Along with this, the financial
health of the business will be examined in terms of making appropriate ascertainment of the data
base.
Moreover, with respect to analyse the performance and the growth of GSK the following
listed table will be helpful in representing the outcomes on the basis of ratio analysis such as:
Particulars Formula 2016 2017
Asset turnover Sales / Average total assets
Sales 27889 30186
Average total assets
56263.
5 57731
49.57
% 52.29%
Cashflow return on assets
Net cash from op activities / Average total
assets
Cash from operating
activities 6497 6918
Average total assets
56263.
5 57731
11.55
% 11.98%
Fixed-Asset Turnover
Ratio Sales / Total non current assets
Sales 27889 30186
Total non current assets 42,370 40,474
65.82
% 74.58%
Debt to Equity Total debt/Total equity
Debt 57,957 56,449
Equity 1,124 -68
51.56 -830.13
Debt ratio Total debt / Total assets
4

Debt 57,957 56,449
Total assets 59,081 56,381
98.10
%
100.12
%
Equity Ratio Total equity / Total assets
Total Equity 1,124 -68
Total assets 59,081 56,381
1.90% -0.12%
Cash debt coverage Cash from op activities / Avg total liabilities
Avg Total liabilities 6,497 6,918
Cash from operating
activities
56263.
5 57731
8.66 8.35
Interest coverage ratio EBIT / Interest expense
EBIT 6,026 6,061
Interest expense 701 720
8.60 8.42
Return on equity
Net income Net income/ shareholder's equity 27889 30186
shareholder's equity 1,124 -68
24.81 -443.91
Current ratio Current assets/ current liabilities
Current assets 16711 15907
Current liabilities 19,001 26,569
0.88 0.60
Quick ratio
Current assets- inventories Current assets- inventories/ current liabilities 11609 10350
Current liabilities 19,001 26,569
0.61 0.39
Gross profit margin
Gross Profit Gross profit/ Net sales *100 18,599 19,844
Net sales 27889 30186
67% 66%
Net profit margin Net profit/ net sales *100
Net profit 4,414 6,167
Net Sales 27889 30186
16% 20%
Interpretation:
5

On the basis of above measures ration which will be helpful to investors in terms of
analyzing the performance of the organization over the 2 years of period. Therefore, there had
been analysis made on implicating the various elements such as profitability analysis, efficiency
analysis as well as liquidity analysis. Thus, these ratios will be fruitful in bringing the
appropriated information about the growth and capabilities of the firm. On the basis of which
investor will judge the performance and make investment decision. Therefore, there have been
consideration over various analysis such as:
Asset turnover:
This is the ratio which brings the information regarding the capabilities of the
organization in respect with making the returns over the assets which have been generated by
them. Thus, it will be the tool which will ensure the profitability and efficiency of the business.
Thus, as per analyzing the ROA of GSK in 2016 it was 49.57% while in 2017 it has been
increased to 52.29%. therefore, in accordance with such analysis it can be said that, GSK is
making comparatively better returns over its assets in the years. Therefore, it will have risen in
the upcoming period which will be fruitful to the investors as the firm will retain appropriate
earnings.
Cash flow return on assets:
This ratio analysis will be helpful in bringing the information relevant with capacity of
the firm on making return over the operating activities of the firm. Thus, there will be
consideration over the cash generated through operating activities as well as average total sales
of the period which have been considered. Moreover, in accordance with the outcomes for GSK
in the respective years which were have been analyzed as in 2016 it was 11.55% while in 2017 it
raises little bit such as 11.98%. Moreover, it has been articulated here that there will be growth in
the upcoming period too and the firm will make proper return over its operating activities.
Fixed-asset Turnover ratio:
By considering the outcomes based on analyzing the fixed asset turnover ratio which
determines the capabilities of the organization’s fixed assets in terms of making fruitful return
among the society. thus, in 2016 GSK had Fixed-asset turnover ratio as 65.82% while in 2017 it
has 74.528%. Therefore, in 2017 the firm has growth in the Fixed-asset turnover ratio which will
be fruitful in making adequate analysis over the data base. Moreover, it has been analyzed that
6

their firm will have growth in the upcoming period which will be attentive and fruitful in terms
of making appropriate ascertainment of the data base.
Debt to equity:
The debt to equity ratio had been analyzed by the professionals which will be adequate in
term of making appropriate ascertainment of the data base. The efficiency of the firm in respect
with its debts and equity have been helpful to analyze the capacity of making payment to the
long-term debts. Thus, it insists the long terms solvency of the organization which will be helpful
in meeting the loans of the organization at the right time. Similarly, with respect to the debt to
equity analysis of the GSK in year 2016 and 2017 on which there have been drastic changes
were seen.
In 2016 the outcomes were 51.56 while in 2017 it reached to the negative such as -
830.13. It has been analyzed here that the firm is having losses in the equity generation. Thus,
the total equity in 2017 is on negatives such as -68 on which it can eb said that there were less
number of shareholders which w2ere stated in the organization. In respect with this, there will be
higher requirement of generating the capital investors in the organization which will be
beneficial in raising the capital stability as well as uplifting the market share. Similarly, it will
also be helpful to them in terms of enhancing the debt to equity of the firm.
Debt ratio:
By considering the total debts of the organization which will be measured on the data base
as per ascertaining efficiency of the firm. In 2016 the ratio was 98.10% while in 2017 it raises to
100.12%. thus, in respect with this, it can be said that firm has large debts than its assets. Thus, it
will be helpful in terms of meeting the goals and gains of the firm which will be effective and
helpful in terms of meeting the goals at the right time. Thus, there will be raise in the ratio in the
upcoming period on which it will be suggested to the professionals of the organization that they
must make policies for reducing the debts as well as raising assets will be beneficial to the
organization in respect to make proper changes efficiency of the business.
Equity Ratio:
To analyzing the efficiency of organization in respect with the equity of the firm in the
respective years. In 2016 the ratio was 1.90% while in 2017 it has presented the negative
outcomes such as -0.12%. Thus, as per such results on which it can be said that there will be
7

need to have risen in the equity of the organization which will be appropriate in making adequate
return over the equity of firm.
Interest coverage ratio:
This ratio ascertains the information relevant with ability of firm in meeting the interest
expenses in time. Thus, on which in 2016 the outcomes have been analyzed as 8.60 while in
2017 it was reduced to 8.42. However, it has been analyzed here that the firm have higher
interest expenses in the current year while there are not retaining the profits accordingly.
Return on Equity:
This is the ratio which have been analyzed by the professionals in respect with making
adequate analysis over the data base that have been helpful in making returns over the equity
generated by the firm. In 2016 it was 24.81 while in 2017 it was -443.91. Thus, in comparison
with the net income of the organization the equity ratio was not appropriate on which it have
been reflecting the unfavorable outcomes.
Current ratio:
This ratio will be helpful to the organization on which it represents the liquidity of the
organization which defines the short-term solvency of the firm. In 2016 the ratio was 0.88 while
in 2017 it become 0.60. the aim of organization is for reaching it to the 2:1 of the ratio. Thus, on
which current assets are required to be appropriate or there must be reduction in the current
liabilities of the firm.
Net profit:
The profitability analysis will be helpful in determining the ability of the firm in terms of
making returns to its investors. Thus, it is required to be appropriate and adequate for the GSK in
respective years. In 2016 the net profit margin was 16% which have been increased to 20%.
Moreover, firm has effective control on operating expenses as well as revenue generation.
RISK ANALYSIS
SWOT
Strength: In respect with analysing the strength of GSK on which it can be said that firm
is stronger in making effective research and development operations (García-Sánchez and et.al.,
2017). It has the highest global sales and patents which is based on its operations in 115
countries. There has been strong brand portfolio which are making adequate efforts and
ascertainment of the data base will be helpful in reaching to the gaols.
8

Weakness: There are various weakness such as past disabilities, scandals as well as fall of
market value which are affecting its image in the market (Alexander and Venkateswaran, 2018).
Along with this, issues of having higher reliance in the UK market which have been making
negative influences to the operational practices of the firm.
Threats: There will be issues and which are relevant with the operational practices which
will affect the market practices of GSK. Changes in government policies relevant with specific
drugs will affect the operations (da Silva, Nery and Júnior, 2017). Moreover, firm is required to
be attentive towards changing government plans and policies regarding uses of drugs.
Opportunities: It has been analysed that, the research and development sector of the
organisation is more capable for the firm in making adequate raise in sales. The innovations and
technical influences will be helpful to the firm in retaining adequate profitability which will
result in balance capital structure.
CONCLUSION
On the basis of above report it can be concluded that, GlaxoSmithKline have been engaged
in dealing in pharma and Healthcare activities. Report was based on analysing the financial
performance of the organisation on the basis of it 2 years of past records. There had been
analysis over the profitability, efficiency and liquidity of the organisation. Moreover, it had been
suggested to investors for making profitable investment in GSK.
9

REFERENCES
Books and Journals
Alexander, A. S. and Venkateswaran, C. J., 2018. Determination of Business Intelligent Using
Micro Financial Analysis of Tamilnadu SME. Indian Journal of Public Health Research
& Development. 9(2). pp.436-440.
da Silva, G. N., Nery, L. A. S. S. and Júnior, L. T. K., 2017. Economic-financial analysis of an
investment of tanks for ARLA 32 at the fleet of a transportation company. Independent
Journal of Management & Production. 8(5). pp.583-595.
Dimitriou, D. and Poufinas, T., 2017. Quantitative financial analysis for the estimation of road
accident costs. International Journal of Decision Support Systems. 2(4). pp.260-277.
Domínguez, A. and et.al., 2017. Real farm management depending on the available volume of
irrigation water (part I): Financial analysis. Agricultural Water Management. 192. pp.71-
84.
García-Sánchez, F. and et.al., 2017. KBS4FIA: Leveraging advanced knowledge-based systems
for financial information analysis. Procesamiento del Lenguaje Natural. 59. pp.145-148.
Güven, A. and Şebcioğlu, Ş., 2018. Impact of climate change on financial analysis of a small
hydropower project. International Journal of Environmental Science and Technology,
pp.1-6.
Ionici, O. and Adhikari, A., 2017. AN INTEGRATED APPROACH TO TEACHING
FINANCIAL STATEMENTS ANALYSIS USING BLOOMBERG AND THOMSON
REUTERS. Northeastern Association of Business, Economics and Technology, p.171.
Wu, D. and et.al., 2017. Optimisation and financial analysis of an organic Rankine cycle cooling
system driven by facade integrated solar collectors. Applied energy. 185. pp.172-182.
Online
GlaxoSmithKline PLC. 2018. [Online]. Available through :<
http://financials.morningstar.com/cash-flow/cf.html?t=GSK&region=usa&culture=en-
US>.
Pharmaceutical industry drives British research and innovation. 2014. [Online]. Available
through :< https://www.theguardian.com/business/2014/apr/22/pharmaceutical-uk-
research-and-development-employment>.
10