GRADUATE SCHOOL OF MANAGEMENT

INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

ANALYSIS OF FINANCIAL STATEMENTS OF “GlaxoSmithKline” Pakistan

PREPARED BY:

AAMIR HAYAT

& CLASS MATES

CONTACT: +92-314-5561080

STUDENTS OF INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

Analysis of Financial Statements of Glaxo Smith Kline Pakistan From Years 2004-2008

This study covers five years liquidity, leverage, profitability and investor’s point of view analysis of Glaxo Smith Kline Pakistan which is equity based pharmaceutical company. We performed this task with kind help, guidance and value able knowledge delivered by our respected teacher Sir .Muhammad Arif Malik.

Submitted to:

Sir. Muhammad Arif Malik

Prepared by:

Aamir Hayat &Class Mates

Class MBA 20c

Date:December 31, 2009

GRADUATE SCHOOL OF MANAGEMENT

INTERNATIONAL ISLAMIC UNIVERSITY

ISLAMABAD.

Introduction

GlaxoSmithKline Pakistan

It was created on January 1st 2002 through the merger of SmithKline and French of Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan) Limited- standing today as the largest pharmaceutical company in Pakistan

GSK Pakistan operates mainly in two industry segments: Pharmaceuticals (prescription drugs and vaccines) and consumer healthcare (over-the-counter- medicines, oral care and nutritional care).

Some of key brands of GSK include Augmentin, Panadol, Seretide, Betnovate, Zantac and Calpol in medicine and renowned consumer healthcare brands include Horlicks, Aquafresh, Macleans and ENO.

Contents1 Activity Analysis...................................................................................................................................4

1.1 Current Raito:..............................................................................................................................4

1.2 Acid Test Ratio:............................................................................................................................5

1.3 Cash Ratio:...................................................................................................................................6

1.4 Receivable turnover ratio:...........................................................................................................7

1.5 Receivable turnover in days:........................................................................................................8

1.6 Inventory turnover:.....................................................................................................................9

1.7 Inventory turnover in days:.......................................................................................................10

1.8 Day’s sales in Inventory:............................................................................................................11

1.9 Operating cycle:.........................................................................................................................12

1.10 Working capital:.........................................................................................................................13

1.11 Sales to working capital:............................................................................................................14

2 Coverage Analysis..............................................................................................................................15

2.1 Debt to total assets:...................................................................................................................15

2.2 Debt to equity ratio:..................................................................................................................16

2.3 Long term debt to total capitalization:......................................................................................17

2.4 Current liabilities to equity ratio:...............................................................................................18

2.5 Debt to Tangible Net Worth:.....................................................................................................19

2.6 Time Interest Earned:................................................................................................................20

2.7 Fixed Charge Coverage:.............................................................................................................20

3 Investor’s Analysis.............................................................................................................................21

3.1 Degree of Financial leverage:.....................................................................................................21

3.2 Earning per share:......................................................................................................................22

3.3 Price earnings ratio:...................................................................................................................23

3.4 Payout ratio:..............................................................................................................................24

3.5 Percentage of Earnings Retained:..............................................................................................25

3.6 Dividing yield:............................................................................................................................26

3.7 Book Value per Share:...............................................................................................................27

4 Profitability Analysis..........................................................................................................................28

4.1 Net profit margin:......................................................................................................................28

4.2 Gross profit margin:...................................................................................................................29

4.3 Return on assets:.......................................................................................................................30

4.4 Total assets turnover ratio:........................................................................................................31

4.5 Du pont analysis:.......................................................................................................................32

4.6 Return on fixed assets:..............................................................................................................33

4.7 Operating Income Margin:.........................................................................................................34

4.8 Operating Assets Turnover:.......................................................................................................35

4.9 DUPONT Analysis:......................................................................................................................36

4.10 Return on investments:.............................................................................................................37

4.11 Return on common Equity/ Return on total equity:..................................................................38

5 Vertical and Horizontal Common Size Analysis..................................................................................39

5.1 Vertical Analysis of Profit and Loss Account:.............................................................................39

5.2 Vertical Analysis of Liabilities Side Balance Sheet:.....................................................................41

5.3 Vertical Analysis of Assets Side Balance Sheet:..........................................................................42

5.4 Horizontal Analysis of Profit and Loss Account:.........................................................................44

5.5 Horizontal Analysis of Liabilities Side Balance Sheet:................................................................45

5.6 Horizontal Analysis of Assets Side Balance Sheet:.....................................................................47

6 Conclusion:........................................................................................................................................49

1 Activity Analysis

1.1 Current Raito: Current assets____Current liabilities

Current ratio is indicator of short term debt paying ability of the company. Over the years company is showing almost constant trend except year 2005 in which company showed slight improvement in its current debt paying ability. But in year 2008 company is showing lower figure then past four years so there is need of careful measures in order to avoid further deterioration.

Supporting calculations:

Year 2004 2005 2006 2007 20084.56 times 5.1 times 4.42 times 4.27 ties 4.11 times

Year 2004 2005 2006 2007 20084969887/1091980

6519159/1266695

7530354/1703806

7520402/1761218

7970061/1937662

1.2 Acid Test Ratio:Current assets – inventory – prepaid expenses

Current liabilities

Year 2004 2005 2006 2007 20083337579/1091980

4546206/1266695

5334947/1703806

5243277/1761218

4476007/1937662

Ratio 3.1 times 3.58 times 3.13 times 2.97 ties 2.31 times

Acid test ratio is also an indicator of short term liquidity of the company. Company showed positive tend in year 2005 in comparison to previous year but showed slight decrease in year 2006 and further decrease in year 2007. But in year 2008 company is showing considerable decrease in short term liquidity. In nut shell company is showing deterioration from year 2005, so company should take measures to improve short term liquidity.

1.3 Cash Ratio:

Cash& cash equivalents + marketable securitiesCurrent liabilities

Year 2004 2005 2006 2007 20083054057/1091980

4180344/1266695

4765570/1703806

4351044/1761218

2880408/1937662

Ratio 2.19 times 3.3 times 2.79 times 2.47 times 1.49 times

Cash ratio is more conservative way to view the liquidity of the firm. As shown by graph company improved its position in year 2005& 2006 in comparison to year 2004. But from year 2005 onwards company is showing continuous decrease in its short term liquidity and in year 2008 it is at its lowest position. So company should take measure to improve its position other wise according to trend it will show further decrease in its short term liquidity.

1.4 Receivable turnover ratio:Net Sales

Avg. Gross Receivables

Year 2004 2005 2006 2007 20088866959/33407

9416881/64881

10088247/84697

10610882/116847

13403224/1016968

Ratio 265.42 times 145.14 times 119.11 times 90.81 times 13.18 times

Account receivable turnover ratio shows that “how many times receivables are converted into cash during a year”. Company is showing very sharp decrease in receivable turnover. As compare to year 2004 company is showing very sharp negative trend and there is very severe need for improvement.

1.5 Receivable turnover in days:Gross Receivable X 365

Net Sales

Year 2004 2005 2006 2007 200833407 X 3658866959

64881 X 3659416881

84691 X 36510088247

116847 X 36510610882

1016968 X 36513403224

1.38 days 2.51 days 3.06 days 4.02 days 27.69 days

Account receivable turnover in days shows “how many days it take to collect cash of sale proceeds”. In year 2004 company was collecting its cash in less then two days period but over the years company is showing decrease in performance and in year 2008 company is collecting its cash in almost 28 days. So there is severe need of improvement as well.

1.6 Inventory turnover:Cost of goods sold

Avg. inventory

Year 2004 2005 2006 2007 20085361319/1632308

5570494/1862631

6221531/2084180

6658753/2236291

9547619/28856145

3.28 times 3.09 times 2.99 times 2.98 times 3.31 times

Inventory turnover shows “how many times inventory is converted into cash during a year”. In other words it indicates the liquidity of the inventory. In comparison to year 2004 company is showing poor performance in next years 2005 and 2006 and also in 2007, but in year

2008 company overcome the problem and out performs because it is showing better performance then year 2004 even. There is need to continue this kind of performance in future.

1.7 Inventory turnover in days:Avg. inventory X 365

Cost of goods sold

Year 2004 2005 2006 2007 2008

1632308 X 3655361319

1802631 X 3655570494

2084180 X 3656221581

2236291 X 3656658753

2885614.5 X 3659547619

111.13 days 118.12 days 122.27 days 122.58 days 110.32 days

Inventory turnover in days shows “How many days it takes to sell inventory”. Company is showing continuous negative trend in comparison to year 2005, 2006 and 2007.but Company

out performed in year 2008 because it is showing better performance then year 2004 even. There is need of continuity in performance which company showed in year 2008.

1.8 Day’s sales in Inventory:Ending inventory X 365

Cost of goods sold

Year 2004 2005 2006 2007 2008

1632308 X 3655361319

1972953 X 3655570494

2195407 X 3656221581

2277175 X 3656658753

3494054 X 3659547619

111.12 days 129.28 days 128.79 days 124.8 days 133.58 days

Day’s sale in inventory shows “How many days it takes to sell current inventory”. Company is showing continuous deterioration in performance over the years. Company slightly improved its performance in year 2006&2007 in comparison to previous year but showed poor performance in year 2008 again so there is need of improvement in performance and company should take measures to improve its performance.

1.9 Operating cycle:Inventory turnover in days + receivable turnover in days

Year 2004 2005 2006 2007 2008111.13+1.38 118.12+2.51 122.27+3.06 122.58 + 4.02 110.32 + 27.67

112.51 days 120.63 days 125.33 days 126.6 days 138.01 days

Operating cycle shows “How many days it takes to sell inventory and collect cash of sale proceeds”. Company is showing continuous decrease in performance because company is taking more and more days to complete this cycle. There is also a need of improvement.

1.10 Working capital:Current assets – current liabilities

Year 2004 2005 2006 2007 20084969887 – 1091980

6519159 – 1266695

7530354 – 1703806

7520402 – 1761218

7970031- 1937662

3877907 5252464 5826548 5759184 6032399

Working capital is an indication of short term solvency of company. Company is showing continuous improvement in terms of working capital in comparison to year 2004 except year

2007 which is showing slight decrease. There may be idle funds that should be put into some profitable operation.

1.11 Sales to working capital: Sales________ Avg. working capital

Year 2004 2005 2006 2007 200888669593877907

94168814565186

100882475539506

106108825792866

134032245895792

2.29 times 2.06 times 1.82 times 2.87 times 2.27 times

Sale to working capital gives an indication of the turnover in working capital per year. Company showed decrease in performance in year 2005& 2006 in comparison to year 2004. But company showed reasonable increase in performance in year 2007 and then again a reasonable decrease in year 2008. lower sales to working capital ratio mean less profitable use of working capital while higher ratio shows more profitable use of working capital.

2 Coverage Analysis

2.1 Debt to total assets: ______Debt _

Total assetsYear 2004 2005 2006 2007 2008

13170366865190

15225498260511

19069049443822

204686810164509

227073410625625

19.18% 18.43% 20.19% 20.13% 21.37%

Debt to total assets ratio shows how much asses are financed by borrowed money. Company showed better performance in year 2005 as compare to previous year. From year 2006 and onward company is showing slight decrease in performance as compare to previous years and in year 2008 almost 21% assets are financed by borrowed money as compare to 20% in 2007.

Note: that company is equity based but we used current liabilities as debt to compute this ratio.

2.2 Debt to equity ratio: Debt___

Equity

Year 2004 2005 2006 2007 200813170365548154

15225496737962

19069047536918

20468688117641

22707348354891

23.74% 22.60% 25.53% 25.21% 27.72%

Debt to equity ratio determines entity’s debt paying ability. It shows how well the creditors are protected against insolvency. Company is showing continuous decrease in performance except year 2005 in which company showed better performance in comparison to previous year. Management should take measures to improve performance.

2.3 Long term debt to total capitalization:

Long term debt____Total capitalization

Year 2004 2005 2006 2007 20082250565773210

2558546963816

2030987740016

2856508403291

3330728687963

3.89% 3.67% 2.64% 3.39% 3.83%

Long term debt to total capitalization ratio shows how much debt company is using in comparsion to tottal capitalization of the company. As this company is equity based so we have calculated this raio on the basis of current debt of the company. Company’s debt decreased in year 2005 in comparsion to previous year and it furthur decreased in year 2006 in comparsion to year 2005. After year 2006 company is showing increase in debt in years 2007&2008. Despite of this slight increase in debt company is in strong position to pay ots debts.

2.4 Current liabilities to equity ratio:Current liabilities

Equity

Year 2004 2005 2006 2007 200810919805548154

12666956737962

17038067536918

17612188117641

19376628354891

19.68% 18.79% 22.60% 21.69% 23.19%

Current liabilities to totoal equity raio shows the percentage of liabilities of the firm in comparsion to its equity. This also indicate the debt paying ability of the company. Company is showing slight decrease in current liabilities in year 2005 in comparsion to year 2004. But it is showing significant increase in libilities in years 2006&2008 with a slight decrease in year 2007 in comparsion to year 2006. We can say that company is in position to pay its current liabilities and it is capable of meeting its cuuent liabilities.

2.5 Debt to Tangible Net Worth:

Total LiabilitiesTotal Shareholder’s Equity-Intangible Assets

Year 2004 2005 2006 2007 20081317036 5548154-0

15225496737962-0

19069047536918-0

20468688117641-0

22707348354891-0

23.74% 22.60% 25.53% 25.21% 27.72%

Debt to tangible net worth is more conservative way to look at debt paing ability of the company. Company is showing continuous increase in its debs except year 2005 in which company showed slight decrease in comparsion to year 2004. But as whole company is in position to cover its debt because these are only short term debts. So we can say that company is capable of covering its debts, but management should take measures to keep current liabilities at some constant point.

2.6 Time Interest Earned:

EBITInterest

As mentioned earlier company is equity based so there is no long term debt and no interest liability.

2.7 Fixed Charge Coverage:

EBIT+Interest Portion of Lease Rentals______Interest + Interest Portion on Lease Rentals

Note: Company is equity based so these ratios do not exist.

3 Investor’s Analysis

3.1 Degree of Financial leverage:

EBITEBT

Year 2004 2005 2006 2007 200821478862147886

27076452707645

26511852651185

26700932670093

30778993077899

1 Times 1 Times 1 Times 1 Times 1 Times

The degree of financial leverage is the multiplication factor by which the net income changes as compared to the change in EBIT. As the company is equity based so it shows 1 degree of financial leverage. It means that the company was not in a position to use any debt. The financial leverage from 2004-2008 between 1 to 1 indicates that as earnings before interest changes, net income will change by 1 times that amount. If earnings before interest increase, the financial leverage will be favorable.

3.2 Earning per share:

Net income – preference share dividend:Common shares out standing

Year 2004 2005 2006 2007 20081471285000 -0109226800

1813668000 – 0109219980

166496300 – 0136537475

1670525000 – 0170671844

1955187000 – 0170671844

13.47 per share 16.60 per share 12.19 per share 9.8 per share 11.46 per share

It shows the amount of net income earned on a share of common stock during an accounting period. It applies only to common stock and to corporate income statement. As per the above table, the earning per share increases between 2004-2005, from 13.47 per share to 16.60 per share. This shows profitable opportunities of earnings for company in 2005. But earning per share ratio decreased between 2005-2007 and then slightly increased in 2008. In 2007 the earning per share ratio is 9.7 per share, which shows less profitable opportunities for the company. So overall, in 2005 the company’s earnings is 16.60 per share, where as in 2007 the company’s earnings is 9.7 per share which is unprofitable for the company.

3.3 Price earnings ratio:Market price per share

Earnings per share

Year 2004 2005 2006 2007 2008181/13.47 186.3/16.60 157.9/12.19 192.4/9.8 75.9/11.4613.4 times 11.2 times 12.9 times 19.5 times 6.6 times

Price earnings ratio expresses the relationship between the market price of a share of common stock and that stock’s earnings per share. The above table shows that the price earnings ratio has been decreased between 2004-2005 from 13.4 Times to 11.2 Times. This is due to increase in market price as well as earning per share. And the ratio has been increased between 2004-2005 and after wards decreased between 2005-2008. This shows that the company has less profitable opportunities in 2007 and 2008 as compared to 2004 and 2006. 2006 is considered to be good year for the company. But 2008 is considered to be the worst year for the company.

3.4 Payout ratio:Dividend per shareEarnings per share

Year 2004 2005 2006 2007 20087/13.47 8/16.60 8/12.19 7.5/9.8 9.5/11.551.97% 48.19% 65.62% 76.60% 82.26%

The dividend payout ratio measures the portion of current earnings per common share being paid out in dividends. The ratio has been continuously increased between 2004 to 2008. This shows the profitable opportunities for the short term investors. But this shows the unprofitable opportunities for long term investors. This is due to the dividend per share. It means that the company has not in a position to operate the profitable projects.

3.5 Percentage of Earnings Retained:Net Income – All Types of Dividend

Net Income

Year 2004 2005 2006 2007 2008

-----1813668-8744001813668

1664963-10922961664963

1670525-12800401670525

1955187-16213841955187

----- 51.78% 34.43% 23.37% 17.07%

It shows how much percentage of earnings the company retained after distributing the dividends to the shareholders. The above table shows that the ratio gas been decreased between 2005-2008, which means that the company pays all most all of its earnings as dividends this is due to the payout ratio in 2008. So in 2005 the ratio is 51.78% and in 2008 the ratio is 17.07%. Which means that the 2008 is bad year for the company.

3.6 Dividing yield:Dividind per share

Market price per share

Year 2004 2005 2006 2007 20087/181 8/186.3 8/157.9 7.5/192.4 9.5/75.93.86% 4.29% 5.06% 3.89% 12.51%

The dividend yield indicates the relationship the dividends per common share and the market price per common share. As per the above table shows the ratio has been increased between 2004-2006 from 3.86% to 5.06%. This shows the positive trend for the company. It also

shows the profitable opportunities for the company. But the ratio has been decreased between 2006-2007 from 5.06% to 3.89%, and the ratio suddenly increased in 2008 i.e., 12.51%. This shows that the company has less profitable opportunities in 2004 and 2007.

3.7 Book Value per Share:

Total Equity-Preferred EquityNo. of Shares of Common Stock Outstanding

Year 2004 2005 2006 2007 2008----- 6737962-0

1093007536918-0136537

8117641-0170672

8354891-0170672

----- Rs.61.64 Rs.55.20 Rs.47.56 Rs.48.95

Book vales per share indicates the amount of stockholder’s equity that relates to each share of outstanding common stock. The above table shows that the book value has been decreased between 2005 to 2007 from Rs.61.64 to Rs.47.56. This shows that the book value of the company is higher in year 2005 but the book value has been decreased in 2007 and 2008. This shows the positive trend in 2005 and 2006 as compared to years 2007 and 2008.

4 Profitability Analysis

4.1 Net profit margin:Net profitNet sales

Year 2004 2005 2006 2007 200814712858866959

18136689416881

166496310088247

167052510610882

195518713403224

16.5% 19.3% 16.5% 15.7% 14.5%

Net profit margin gives a measure of net income generated by each dollar of sales. Company showed increase in margin during year 2005 in comparsion to year 2004 but after year 2005 net profit margin is countinuously decreasing upto 2008 which is indicator of deterioration in performance. Management sholud take measures to keep net profit margin high.

4.2 Gross profit margin:Gross profit

Net sales

Year 2004 2005 2006 2007 200835056408866959

38463879416881

386666610088247

395212910610882

385560513403224

39.5% 40.8% 38.2% 37.24% 28.8%

Gross profit equals the difference between net sales and cost of goods sold. Company is showing continuous decrease in gross profit margin except year 2005 in which company showed slight increase in comparsion to year 2004. Management should take measures to increase or at least keep it at some constant piont.

4.3 Return on assets:Net income

Avg. total assets

Year 2004 2005 2006 2007 200814712856865190

18136687562851

16649638855092

16705259804166

195518710395067

21.4% 27% 18.8% 17% 18.8%

Return on assets measures firm’s ability to utilize its assets to create profits by comparing profits with asstes that generate the profits. Company showed increase in return in year 2005 in comparion with year 2004, but then showed significant decrease in subsequent year i.e. 2006&2007. In year 2008 company is showing increase in return on assets in comparsion to previous couple of years which is an ary of hope for the company but there is need of continuous improvement i.e. company should use its aeetes more properly to generate more and more prifts.

4.4 Total assets turnover ratio:Net sales

Avg. totlas assets

Year 2004 2005 2006 2007 200888669596865190

94168817562851

100882478855092

106108829804166

1340322410395067

1.29 times 1.24 times 1.14 times 1.08 times 1.29 times

Total assets tuenover measures the activity of the assets and the ability of the firm to generate sale through the use of the assets. Company is showing contunuous decrease in return from year 2004 to year 2007 but then showed a significant increase in year 2008 in comparsion to previous years. There is continuous varion in return of total assets, this gives an ambigous indication to investors. So it recommended that management should try keep it at some constant point.

4.5 Du pont analysis:Net profit margin X total assets turnover

Year 2004 2005 2006 2007 2008.165 X 1.29 .193 X 1.24 .165 X 1.14 .157 X 1.08 .145 X 1.2921.3% 24% 18.8% 16.9% 18.6%

In Du Pont Return on Assets we combine net profit margin and return on total assets to view the performance of the company. Company showed significant increase in performance in year 2005 in comparsion to year 2004.then it showed countinuous decrease in years 2006&2007 in comparsion to previous years. In year 2008 company is showing reasonable increase in returns in comparsion to year 2007. This is also showing ambiguity in performance so management should try to keep these returns at constant point.

4.6 Return on fixed assets:Net incomeFixed assets

Year 2004 2005 2006 2007 200814712851433626

1816681503102

16649631774449

16705252236720

19551872415255

1.026 1.206 0.94 0.75 0.809

Return on fixed asstes measurs the firms ability to utilize its fixed assets to generate profits. Company showed increase in rerurn in year 2005 in comparsion to year 2004. In subsequent years company showed decrease in returns. It means that company did not use its assets for generating maximum profits during those year. Then in year 2008 company is showing increase in profit generation as compare to year 2007. There is also a need of consistancy in performance.

4.7 Operating Income Margin:Operating Income/EBIT

Net Sales

Year 2004 2005 2006 2007 200821478868866959

27076459416881

265118510088247

267009310610882

307789913403224

24.22% 28.75% 26.28% 25.16% 22.96%

The above trend shows increase in operating income margin from year 2004-05, but there is a continuous decline in the subsequent years till 2008. Hence it is required to improve the operating income margin.

4.8 Operating Assets Turnover:

Net salesAvg Operating Assets

Year 2004 2005 2006 2007 20081.079 Times 1.15 Times 1.29 Times 1.42 Times 1.75 Times

This ratio measures the ability of operating assets to generate sales. As the trend shows the continous increase in the above ratio, i.e sales are increasing due to the profitable utilization operating assets. So company must attained the trend.

4.9 DUPONT Analysis:

Operating Income Margin X Operating Assets Turnover

Year 2004 2005 2006 2007 200825.78% 33% 33.64% 35.57% 39%

This analysis indicates that an increase in operating assets turn over and operating income margin resulted in an increase in return on operating assets. This is a positive trend and it is

required that company must maintained the current trend.

4.10 Return on investments:

Net income + interest ( 1 – Tax )Avg ( long term debt + net worth )

Year 2004 2005 2006 2007 20081471285 + 02797927

1813668 + 03388765

1664963 + 0 3786352

1670525 + 0 4085698

1955187 + 0 4208279

52.5% 53.5% 43.9% 41.0% 46.0%

Return on investment applies to ratios measuring the income earned on the invested capital. This ratio measures the ability of the company to reward those who provide long term funds to the company. Company showed slight increase in returns in year 2005 in comparsion to previous year but went down sharply in years 2006&2007. Then in year 2008 company improved significantly. This increase in returns in year 2008 is providing some hope for further improvement in performance but there is also a need of cosistancy.

4.11 Return on common Equity/ Return on total equity:

Net income – Dividend of redeamable preference sharesTotal equity

(As company has issued only common shares so both ratios are same)

Year 2004 2005 2006 2007 200814712855548154

18136686737962

1664963 7536918

1670525 8117641

19551878354891

26.5% 26.9% 22.0% 21.0% 23.0%

Return on total equity measures the retrn to both common and preferred stockholders. Company provide slightly increased returns to stock holders in year 2005 but then decreased in two following years i..e. 2006&2007. In year 2008 company company improved its performance and provided stockholder with increased rteturns. Management should take measures to futher improve this retrun and there is also a need of consistancy.

5 Vertical and Horizontal Common Size Analysis

5.1 Vertical Analysis of Profit and Loss Account:

Vertical Analysis of Profit & LossYears 2004 2005 2006 2007 2008

% % % % %Net Sales 100 100 100 100 100 C.G.S 71 63 61.67 62.75 71.23Gross Profit 29 37 38.33 37.25 28.77selling, marketing, distribution Expenses 9.9 11.4 10.44 11.41 9.9administrative Expenses 3.9 4.6 4.33 4.6 1.55other operating Expenses 1.55 2.1 2.2 2.11 1.55other operating income 9.54 6.02 4.92 6.02 9.55operating profit 23 25 26.28 25.2 22.96financial charges 0.57 0.11 0.19 0.11 0.57Profit Before t 22.4 25 26 25 22.39Taxation 7.8 9.26 9.6 9.26 7.8Profit after taxation 14.6 15.74 16.5 15.74 14.59

The C.G.S of the company decreases from 2005-07 as compare to 2004, but in 2008 management did not manage C.G.S in 2008, as a result C.G.S increases. Due to decrease in C.G.S the gross profit also increases from 2005-07 but due to increase in CGS gross profit also decreases. The profit of the company also increases from 2005-06 due to decrease in CGS and expenses, but due to increase in CGS company’s profit also decreases slightly. The overall position of the company is better for the investors.

5.2 Vertical Analysis of Liabilities Side Balance Sheet:Vertical Analysis Of Balance Sheet

Liabilities % % % % %

Years 2004 2005 2006 2007 2008Share capital and reserves Authorized capital Issued & paid up capital 12.7 13.2 14.46 16.79 16.06Reserves 68.1 68.3 65.35 63.07 62.57Non current liabilites Staff retirement ben 2.2 1.9 0.70 0.23 0.20Defered taxation 1.11 1.18 1.45 2.58 2.94 Current Liabilites Trade & other paybales 13.9 10.8 16.93 16.71 17.57Taxation 2.01 4.51 1.12 0.62 0.66Total Liabilities & Shares Holder'sEquity 100 100 100 100 100

The Issued & Paid up capital of the company is increases from 2005-08 as compare to 2004. The reserves of the company are in decreasing trend. The reserve decreases from 68% to 62.57% during 2004-08. The company did not manage its Liabilities efficiently due to which current liabilities of the company increases.

5.3 Vertical Analysis of Assets Side Balance Sheet:

VERTICAL ANALYSIS OF BALANCE SHEET

Assets

years 2004 2005 2006 2007 2008

Fixed Assets 17.36 18.20 18.79 22.01 22.73

Long Term Loans 0.7 0.48 0.38 0.53 0.580

Long Term Deposits 0.1 0.085 0.07 0.07 0.064

Investments 5.9 23.2 1.021 3.412 1.62

Current assets

stores & spares 0.79 0.6 0.69 1.05 1.09

stock in trade 23.8 23.9 23.25 22.4 32.88

Trade debts 0.5 0.79 0.90 1.15 9.571

Loans and Advances 0.7 0.8 0.58 0.80 1.12

Trade deposits and prepayments 0.6 0.8 0.81 0.83 0.88

Accrued interest 0.3 0.8 2.01 1.08 0.76

Other receivables 15.9 0.7 0.418 3.72 1.45

Investments 0 2.4 1.049 9.66 1.46

Cash & bank balances 44.49 48.23 49.41 41.84 25.64

Total Assets 100 100 100 100 100

The fixed Assets of the company increases year by year. It increases from 17.36% to 22.73% of the total assets. The company also taking long term loans which are also increasing from 2004-08. In 2005 company invests more as compare to 2004, but from 2006-08 the investment also decreases. The trade debts of the company also increase. From 204-07 there is small increase in trade debts, but in 2008 there is unexpected change in trade debts. This shows that company did not efficiently manage its trade debts.

5.4 Horizontal Analysis of Profit and Loss Account:HOROZONTAL ANALYSYS OF P&L A/C

Years 2004 2005 2006 2007 2008% % % % %

Net Sales 100 106.2019 113.7735 119.6677 151.1592C.G.S 100 103.9016 116.0457 124.1999 178.0834

Gross Profit 100 109.72 110.2984 112.7363 109.9829selling, mkt, dis Expenses 100 86.86008 101.4753 116.6409 128.0185administrative Expenses 100 103.0864 124.2946 138.4933 148.0241other operating Expences 100 144.5186 142.257 143.701 133.7169other operating income 100 186.8044 264.6327 340.8813 682.2745

operating profit 100 126.0609 123.4323 124.3126 143.299financial charges 100 46.31307 67.5361 40.3832 268.7284

Profit Before Taxation 100 127.1372 124.1866 125.4453 141.6062Taxation 100 135.9153 149.2139 152.4719 161.3971

Profit after taxation 100 123.271 113.1639 113.5419 132.8898

The sales of the company shows increasing trend from 2004-08. The gross profit of the company also increasing from 2004-07, but due to unexpected increase in CGS the gross profit in 2008 decreases. The operating profit of the company also increases due to increases in sales. The profit of the company also shows increasing trend. Profit increases from 23% to 32% from 2005-08 as compare to 2004.

5.5 Horizontal Analysis of Liabilities Side Balance Sheet:

Horizontal Ananlysis of Balance SheetLiabilities

Years 2004 2005 2006 2007 2008% % % % %

Share capital and reserves          Authorized capital          Issued & paid up capital 100 125 156.25 195.3124 195.3124Reserves 100 120.7805 132.031 137.1522 142.2278           Noncurrent liabilities          Staff retirement benefits 100 106.3058 44.31304 15.5579 13.95461Deferred taxation 100 128.1601 180.348 345.3986 410.9519Current Liabilities          Trade & other payables 100 93.74531 167.5806 178.0585 195.7662Taxation 100 269.6506 76.27451 45.48936 50.94932

The Issued and Paidup capital of the company increasing from 2004-08. The reserves of the company also increases from 20.78% to 42.22% as compare to 2004. The payables of the company also decreased in2005 as compare to 2004., but company did not manage its payables , therefore the payables are in increasing trend from 2006-08.

5.6 Horizontal Analysis of Assets Side Balance Sheet:

HORIZONTAL ANALYSIS OF B/S ASSETSAssets

Years 2004 2005 2006 2007 2008Non-Current Assets: % % % % %Fixed Assets(property, plant ,equipment) 100 104.85 123.77 156.02 168.47Long term loans 100 82.95 75.02 112.70 129.28Long term deposits 100 96.69 93.93 93.93 93.65Investments 100 47.13 23.71 85.27 42.25Current Assets          Stores & spares 100 97.96 120.41 198.59 215.05Stock in trade 100 120.87 134.50 139.51 214.06Trade debts 100 194.21 253.53 349.77 3044.18Loans and Advaces 100 125.25 128.99 161.84 238.13Trade deposits and prepayments 100 140.60 171.66 189.47 209.75Accrued interest 100 308.09 877.82 507.98 372.70Other receivables 100 70.21 111.17 473.07 192.53Cash & Bank Balances 100 130.46 152.80 139.25 89.22

The fixed assets of the increases from 4.58% to 68.47% in 2005-08 as compare to 2004. Its shows company is in good position. The percentage of the loan taken by the company decreases from 2005-06 as compare to 2004, but in from 2007-08 loan of company decreases. The investment made by the company decreases from 2005-08 as compare to the 2004. Company did not invests from its reserves. The management of the company is inefficient in taking receivables from its customers. The trade debts increases from 94.21% to 3044.18%, which is unexpected increase as compare to 2004.

6 Conclusion:

Company is showing decline in performance when viewed through liquidity analysis. Especially years 2006&2007 are showing decline in performance. In year 2008 company is showing slight improvement in performance. Company’s operating cycle is also increasing which is also an indicator of detoriation in performance of the company. There is need of improvement in performance of management. And the company needs to improve its operations and management to earn more profit.

As mentioned earlier that the company do not have any long term debt liability so we can say that company have strong ability to repay its current debts, despite of the fact that current debts of the company are increasing. As the company does not use the interest bearing debts, so we find only the short term debt ratios. Graph shows that in years 2005 and 2006 the company debt position is some what good. But in years 2007 and 2008 company’s debt position is not good. Because these years become bad for the company due to higher financial leverage.

If we see company from investor’s point of view only year 2008 is giving some hope to investors to make investment in company so company should improve its performance and should bring consistency in performance to gain investor’s confidence. As the Glaxo Smith Kline Company is equity based, so its has financial leverage is equal to one. The reason is that the company is not used the long term debt, so the degree of financial leverage of the company is one. As we take a look on the investor’s analysis we can say that there is more opportunity for the investor’s to invest in the company in 2008, but on the other hand 2005 and 2006 are not going to be good for the investors to invest in the company.

Company is also showing deterioration in profitability and profitable use of assets over the years. As we take a look on the profitability analysis of the company, we come to know that in years 2005 and 2006 the profit margins of the company goes up, but on the other hand in 2007 and 2008 the profits of the company going down. But if we look on the returns on fixed assets and return on assets the company perform well in year 2005. But overall the company’s performance was very well in year 2005. And the company’s performance was very bad in the year 2007 and 2008. So 2008 was the bad year for the company in terms of profitability.

Reference:

www.gsk.com.pk

www.google.com