Financial Analysis of GSK & AZN

This report provides a comprehensive financial analysis of GlaxoSmithKline (GSK) and AstraZeneca (AZN) for the year 2014, comparing their performance against industry benchmarks. It begins with an executive summary highlighting GSK's strong financial performance compared to AZN in 2014. The report then delves into detailed company profiles, SWOT analyses for both GSK and AZN, and an industry analysis of the UK pharmaceutical sector. A significant portion of the report is dedicated to ratio analysis, examining current ratio, asset turnover ratio, gross margin, operating profit margin, gearing ratio, interest coverage ratio, and return on capital employed (ROCE). The analysis reveals that while GSK outperformed AZN in several key metrics, both companies experienced decreased profitability in 2014. The report further explores financing options for GSK, considering both internal sources (retained profit, sale of non-productive assets) and external sources (issuing share capital, loans, leasing, discounting receivables). It recommends that GSK prioritize issuing shares to improve its capital structure. Finally, the report discusses budgeting techniques, including zero-based budgeting, flexible budgeting, incremental budgeting, and activity-based budgeting, and analyzes the suitability of these methods in a dynamic business environment. The report concludes with recommendations for GSK, including strategies to improve its financial performance and enhance its market position.

Accounting & Financial
Management
This is a financial analysis of Glaxo Smith Kline and a comparison with Astra Zeneca, with the
industry benchmarks.
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TABLE OF CONTENTS
Executive Summary..............................................................................................................................3
INTRODUCTION................................................................................................................................4
PROFILE OF Glaxo Smith Kline (GSK).............................................................................................5
PROFILE OF Astra Zeneca (AZN)....................................................................................................11
SWOT analysis of GSK vs AZN........................................................................................................17
Industry analysis.................................................................................................................................18
Conclusion.....................................................................................................................................20
Ratio analysis and financial performance......................................................................................20
Financing............................................................................................................................................30
External sources of financing...................................................................................................31
Internal sources of financing..........................................................................................................34
Budgeting...........................................................................................................................................35
Conclusion..........................................................................................................................................43
RECOMMENDATIONS....................................................................................................................43
REFERENCES...................................................................................................................................44
APPENDIX........................................................................................................................................46
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EXECUTIVE SUMMARY
Accounting and Finance management is the vital part of a business organization. Such
aspects are directly associated with the growth and development of the firm because it directly helps
in the decision-making aspects. For this report, 2 leading pharmaceutical organizations a) Glaxo
Smith Kline (GSK) & b) Astra Zeneca (AZN) have been selected. It can be summarized from the
report that GSK offers high quality medications to everyone for their good health. Furthermore,
GSK has made optimum use of its financial resources in the period of 2014 as compared to AZN.
Profitability of GSK was also sound FYE 2014 in comparison to the competitors. Further, it has
been articulated that GSK needs to raise finance from both internal and external sources which in
turn helps them in balancing the financial structure. In addition to this, by developing highly
effectual and realistic budget GSK can make optimum use of the financial resources.
Financial Analysis of GSK & AZN for the year 2014
GSK AZN
Revenue GBP 23 billion USD 26 billion
Cost of Revenue GBP 7.3 billion USD 5.8 billion
Gross Profit GBP 15.7 billion USD 20.2 billion
Gross Margin 68% 78%
Operating Profit GBP 3.6 billion USD 2.1 billion
Operating Margin 15% 8%
Net Profit GBP 2.8 billion GBP 1.2 billion
Net Profit Margin 12% 4%
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INTRODUCTION
Accounting management may be defined as a technique which helps in controlling and
providing the report about the financial position as well as performance. In the present era, each
business organisation place high level of emphasis on maintaining records regarding financial
aspects (Schroeder, Clark and Cathey, 2013). This, in turn, provides deeper insight into the business
organisation about the changes which they need to make in the existing strategic and policy
framework. Moreover, by making a comparison of their own financial performance against
competitors, business unit can assess its position within the marketplace. The company can attain
success only when it manages the financial resources more effectively and efficiently (Hussainey,
Oscar Mgbame and Chijoke-Mgbame, 2011). Moreover, for the execution of business plan business
unit is highly required to make optimum use of resources by preparing the budgeting framework.
This project report is based on the pharmaceutical sector which is one of the leading and growing
industries in UK. For this project, Glaxo Smith Kline GSK) has been selected which is the world's
sixth largest pharmaceutical company. It offers high-quality drugs and vaccines to the customers. It
is the main constituent of the FTSE 100 indices and listed on London Stock Exchange. The
company has made vital contributions in the economic growth and development by offering
employment opportunities to many people. Another multinational pharmaceutical company - Astra
Zeneca (AZN) has been selected for this report as the major competitor of GSK. AZN’s
headquarters is also situated in London, just like GSK.
This report will shed light on financial health and performance of GSK against its competitors such
as AZN, through the means of ratio analysis technique. Further, it will describe the company's and
its competitor's profile in depth. The report will also develop understanding of the sources of
finance which GSK can undertake for fulfilling the financial requirements about the acquisition of
land and building. In addition to this, project report also depicts how budgeting technique assists the
company in making effective utilisation of the financial resources. Moreover, now the company can
get the desired level of outcome or success if it has effective control on financial spending. The
rationale behind this finance is one of the essential and crucial elements that have the high level of
impact on the growth aspect of the firm.
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PROFILE OF Glaxo Smith Kline (GSK)
Established in December 2000
Founders It established through the means of merger
strategy such as Glaxo Wellcome and Smith
Kline Beecham. Hence, both the organisation
merged their business operations and function
and started with the new name such as GSK.
Website www.gsk.com
Leading brands & product line Top selling products of GSK includes Advair,
Avodart, Flovent, Augmentin, Lovaza and
Lamictal. Along with this, consumer products
which are offered by GSK has earned £5.2
billion in the accounting year 2013.
Geographical presence GSK has extensive network of manufacturing
sites as well as research and development
centres in US, UK, Spain, Belgium and China.
Along with this, business unit offers
pharmaceutical; products to the customers
worldwide.
World headquarters Headquartered in Isleworth, London
Chief executive officer Andrew Witty
Worldwide employees 100000 people across 150 countries
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Initial public offering On initial level, company has listed on London
stock exchange and now it becomes the most
important constituent of FTSE 100 index. In
August 2016, the market capitalization of the
firm is around £81 billion. Further, another
achievement is that company has got the fourth
position in London stock exchange. Now, it is
also listing on the New York stock exchange.
The company is well known for the high-quality
products which are offered by it.
Worldwide revenue 2014 / 2015 £23 billion / £23.923 billion
Mission GSK mission is to provide the high level of
assistance to the people to do more, feel better
and live longer (Mission, vision and strategies of
GSK, 2016).
Vision Long term vision has been setting down by the
firm for their value chain about being carbon
neutral by 2050. Further, vision statement of the
company is to become a leading firm in the
pharmaceutical sector.
Value Key values of GSK include integrity, respect for
people, ensuring transparency and offering
patient focused products or services.
Key competitors  Pfizer
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 AZN
 Xeno Port
 Merck
 Colgate-Palmolive
Research and development investments Business unit has invested £300000 in
researching new medicines, vaccines and other
products.
Firm level strategies Company primarily focuses on increasing
growth, reducing the risk level and improving
the long-term financial performance. Hence, the
company has developed competent strategic and
policy framework to attain all such aspects. This,
in turn, enables a firm to enhance the sales
revenue and thereby offered improved return to
the shareholders. Along with this, the major
focus of GSK is on three areas such as
pharmaceutical, vaccines and consumer
healthcare.
Mergers & acquisition  It acquired GlycoVaxyn in the year 2015.
However, GSK Cancer division has been
sold to Novartis. Despite this, Novartis
Vaccine Division was acquired in 2014
by GSK.
 In the year 2013, it acquired Human
Genome Sciences and CellZome in 2011.
 During 2010, it acquired Maxinutrition
and Laboratories Phoenix.
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Corporate credit rating Sound
Award and recognitions GSK is awarded by ‘Royal society of London’
for the contribution made by it in the medical
and veterinary sciences.
Corporate social responsibility initiatives  GSK has organised several campaigns
with the aim to develop awareness
among the people regarding the health
aspect.
 Besides this, the company is not setting
the fixed amount for this purpose. It
takes more initiatives and prefers to
invest more on charities, NGO's, etc.
 Further, health and education programs
about AIDS, HIV, malaria and diarrhoeal
diseases. Through this, GSK persuades
people to take quick treatment while
suffering from malaria.
 Moreover, this disease creates the high
level of the health issues so, prompt
prevention of it is highly required.
 In the accounting year 2008, business
unit has donated medicines
approximately £5.3 million for
humanitarian aid.
 Thus, it can be said that business unit has
offered support to 118 countries which
suffered from war and natural disaster.
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 Business enterprise was also donated
medicines, vaccines and consumer health
products to the people who affected from
an earthquake.
Taxes and fines Fine of £37m has been imposed by the
Competition and market authority on GSK for
its illegal behaviour.
Penalties imposed by the government UK government has imposed penalties of
£44.99m on GSK due to making supply of
paroxetine.
Legal suits filed for and against the organization Approximately 5000 filed suit in against to GSK
due to the side effects of its antidepressant Paxil
and anti-nausea drugs.
Management and leadership team  Chairman – Sir Philip Hampton
 Chief Executive Officer – Sir Andrew
Witty
 Chief Financial Officer = Simon
Dingemans
 Global Vaccines Chairman – Dr Moncef
Slaoui
 Independent Non-Executive Directors –
Manvinder Singh and Stacey Cartwright
Dividend paid In 2015, GSK paid a dividend of 80p on each
equity holding, however, on the other hand, a
special dividend paid of 20p per share.
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Vision 2020 GSK's vision is to file up to 20 new drugs by
2020.
PROFILE OF ASTRA ZENECA (AZN)
Established in AstraZeneca Plc is one of the largest pharmaceutical public
limited company that was established in the year 1999.
Founders It has been established through the merger of both the Astra
AB and Zeneca Group Plc.
Website Headquarter of the company is located in Cambridge,
England.
Leading brands & product line Its product portfolio mainly consists of cardiovascular and
metabolic diseases (CVMD), anaesthetics, infectious
disease, neuroscience, respiratory, gastrointestinal and
inflammation.
Geographical presence It operates across the globe as AZN carries out its daily
operations in Angola, Africa, Europe, Ghana, Australian,
China, Hong Kong, India, Argentina, United States,
Mexico, Mauritius, Nigeria, Zambia and others. Its
worldwide operations are divided into four parts that are
US, Europe, Established ROW and Emerging Markets as
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well.
World headquarters Cambridge, England
Chief executive officer Ward-Lilley
Worldwide employees 50000
Initial public offering AZN is primarily listed on London Stock Exchange ad
constituent of FTSE 100 Index. However, secondarily it is
listed on NYSE (New York Stock Exchange) and OMX
exchange.
Worldwide revenue 24.708 US dollar billion
Mission The target of the company is to improve people’s health by
rendering exceptional medical treatment.
Vision The vision statement of AZN is to deliver improved value
to all the stakeholders and society through best practices
and services.
Value To deliver best vaccination and cure treatment
To improve workers talent and capabilities and value their
efforts
To maximize business performance and competitive
strength
To use advanced and upgraded technologies through R&D
operations
Key competitors Amgen, GSK, Teva Pharmaceuticals
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Research and development
investments
AZN regulatory focused on innovations by
collaboration with many research institutions and strategic
R&D centres at different locations such as Maryland,
Gaithersburg and Cambridge, UK. In 2015, AZN spent
$140 billion on R&D operations which clearly demonstrate
that company pay focused on bringing innovations and
uniqueness in their practices so as to deliver the best
treatment and medical services to the patients to cure their
diseases. IMED technology, Global Medicine Development
(GMD) and other innovations to provide the best therapy
are the results of R&D operations.
Firm level strategies The corporate strategy of AZN is to focus on moving
towards innovative science-led practices it is highly focused
on delivering sustainable delivery and put best efforts to
give better value to the patients and shareholders. The
company also pay its focus to accelerate its pipeline
business model, maximise growth and build a strong culture
to retain a talented workforce.
Mergers & acquisition  n December 2015, AZN acquired ZS Pharma
company and Entasis Therapeutics which proves as
an improvement to its pipeline and CVMD
technology.
 In the year 2014, it acquired Bristol-Myers Squibb
(BMS) to share its global diabetes alliances.
 In the year 2013, it acquired Omthera
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