Company News for GlaxoSmithKline PLC - Essay Example

GlaxosmithKline (GSK) is one of the biggest s in the pharmaceutical industry and currently GSK is a dominant business group in the pharmaceuticalsector. GSK offers various varieties of medicines and vaccines. GSK’s caters to patients suffering from various diseases, such as cancer, cold, asthma, allergies, migraine and herpes etc. In addition, GSK, like any other successful pharmaceutical company, places a lot of emphasis on research and development (R&D) in order to provide medicines that are a result of the latest research in medical science. GSK has also introduced a wide range of health and food products such as energy drinks. GSK also owns and markets Aquafresh range of toothpastes, which may help smokers quit smoking. GSK’s principal pharmaceutical products include medicines in the therapeutic areas, such as respiratory, central nervous system, anti-virals, anti-bacterials, metabolic, vaccines, cardiovascular and urogenital. GSK has operated its business in 114 countries and sold products over 150 countries. The GSK operates in two segments: Pharmaceuticals and Consumer Healthcare. On June 5, 2008, GSK acquired Sirtris Pharmaceuticals Inc., a biopharmaceutical company. On October 14, 2008, group also acquired the Egyptian mature products business of Bristol Myers Squibb (BMS). NEWS & STORIES According to Reuters on Tuesday, 31 Mar 2009, GlaxoSmithkline PLC won final European approval for its new childhood vaccine Synflorix for preventing pneumococcal disease (Reuters, 2009). Reuters reported that on Tuesday, 31 Mar 2009, Shire plc has entered into a joint promotional agreement with GlaxoSmithKline plc for VYVANSE (lisdexamfetamine dimesylate) capsules. The aim behind this promotional agreement is to improve recognition and treatment of ADHD in adults. (Reuters, 2009) On Wednesday, 25 Mar 2009 Reuters reported that GSK plans to take a significant stake in Aspen Pharmacare Holdings Limited. The reason behind this stake is to cement its current relationship into a long term bond which really makes a significant impression on the equity of both the companies. (Reuters, 2009) According to Reuters on Friday, 20 Mar 2009, GSK plc announced that it has sold 5,749,157 shares of common stock, par value of $0.01 per share, of Quest Diagnostics Inc. (Reuters, 2009) QUALITATIVE ISSUES GSK faces several issues that are concerns for the management. Some of these issues are described below: Issues related to the Environment, health and safety are subject to the primary and core issue because the business in which GSK deals is very much sensitive due to its attachment with the humanitarian side of the picture. So GSK’s needs to ensure that their products are neither injurious for health and nor for the environment. Lawsuits filed by patients, can be a result of adverse after-effects of any drug, which may bring a bad name and reputation for the firm, hence they need to ensure that no such window of risk is left open. The directors and senior management should give keen emphasis on practicing the corporate governance affairs, SEC rules and regulations that are imposed on every single business, meeting the accounting and audit standards in accordance with the international laws, and compliance affairs too. GSK’s SHARE PRICE (From 2004 – 2008) GSK’s share price is strengthening day by day due to their business operation which covers over 100 countries and also the ever-diversifying product line (Telegraph, 2009) makes a significant impression on their stock prices. Most of the brokers and stock analysts have estimated a bright future to GSK’s stock in the market (http://uk.finance.yahoo.com). All the analysts have suggested the existing stock holders to hold the current stock as GSK is expected to report its highest net income in the coming year which is why its value in the short and long run will probably rise (Telegraph, 2009). GSK’S CAPITAL & RESERVES The firm has reported the lowest capital in the year 2008, the reason behind which is the recession in the market world over, high prices of raw material, relatively high oil prices, etc, are prime factors behind this decrease in the capital reserves. While in the year 2007, which was very good for the pharmaceutical industry in general, GSK’s aggressive policies and cheapest availability of resources are the some of the factors that inflate the profits and in the end make a reflection on the capital. Other reserves amounted to £5,271 million at 31st December 2005 (2004 – £3,936 million, 2003 – £3,166 million) of which £8,067 million (2004 – £10,243 million, 2003 – £10,785 million) relates to the company and £180 million (2004 – £108 million, 2003 – £93 million) relates to joint ventures and associated undertakings. (GSK, Annual Report, 2005, pg 117). Other reserves include merger reserves, capital redemption reserves and the share buy-back programs, which result in negative figures for both the years 2005 and 2004 (GSK, Annual Report, 2005, pg 118). RATIO ANALYSIS PROFITABILITY RATIO YEAR 2008 2007 2006 2005 2004 Gross Profit Ratio 76% 77% 78% 78% 78% Net Profit Ratio 19% 23% 23% 22% 20% Return on Capital Employed 6% 7% 6% 7% 7% (GSK, Annual Report, 2008-2004) LIQUIDITY RATIO YEAR 2008 2007 2006 2005 2004 Current Ratio 1.72 1.32 1.51 1.39 1.26 Acid Test Ratio 1.29 1.00 1.15 1.13 0.98 (GSK, Annual Report, 2008-2004) ACTIVITY RATIO YEAR 2008 2007 2006 2005 2004 Stock Turnover Ratio 1.62 1.89 2.17 2.18 1.99 Debtor Collection Ratio 11.47 10.73 9.82 10.69 10.00 Creditor Collection Ratio 18.90 17.41 16.43 17.72 16.05 (GSK, Annual Report, 2008-2004) SELECTION OF 4 RATIOS The reason to choose these ratios is to identify liquidity problems if any, highlight the company’s profitability over the recent years. The company’s inventory and cash cycles also play an important role in identifying its effectiveness over the years. CURRENT RATIO GSK’s current ratio is slightly tentative and indicates a lower margin of safety with respect to meeting current obligations. GSKs current ratio will not allow the management to take more debt as compared to previous years (Bized, 2009). PROFIT MARGIN Over the entire 5 year period, GSK’s profit margin has been quite stable. Although GSK has made significant additions to its product line and have tried to come up with innovative products using state of the art technology, which obviously adds to its R&D expenditure, but due to some international laws, foreign currency exchange risk, etc net profit margin has not increased (Bized, 2009). QUICK RATIO GSKs quick ratio is in stable condition through out the 5 year. Although GSK has a higher inventory but proper maintenance of working capital has ensured a fair quick ratio, which indicates a liquidity problem and is very difficult to take more debt in the future (Bized, 2009). GEARING RATIO YEAR 2008 2007 2006 2005 2004 Gearing Ratio 2 1 1 1 1 (GSK, Annual Report, 2008-2004) GSK’s gearing ratio suggests that there is a flow of consistency in the management’s policies. In the year 2008, gearing ratio is doubled with respect to other years, this is due to the macro factors that force the management into taking bold decisions like taking more long term debt, due to which the equity part has come under heavy pressure and makes an adverse effect on the gearing ratio. After reviewing the Centre for Interfirm Comparison (CFIC) website, one can conclude that there is a difference in the analysis described on the website in comparison with the ratio analysis we conducted earlier in this paper. The CIFC (2009) helps businesses in order to provide expertise in the planning, information against the rivals, survey’s and sets the benchmarks for the companies to ensure better quality by adopting the best business practices. While on the other hand, ratio analysis performs the financial task. It is the best tool to evaluate the company’s performance. According to CFIC (2009), it is the good indicator for the external stakeholders to have a sufficient idea of the company’s growth. CONCLUSION All in all, after reviewing the annual reports from 2004 to 2008, one can evaluate that the directors and senior management of GSK keenly practice the corporate governance affairs, SEC rules and regulations, and give a lot of emphasis on meeting the accounting and auditing standards in accordance with the international laws, and compliance affairs. References Bized (2009). Worksheet on the Interpretation of Final Accounts (Student Version). Available: http://www.bized.co.uk/learn/business/accounting/busaccounts/finalacc/student.htm. Last accessed 01,April,2009. CIFC (2009). The Centre for Interfirm Comparison. Available: http://www.cifc.co.uk. Last accessed 01,April,2009. GlaxoSmithKline. (2008). Annual Report. GlaxoSmithKline. (2007). Annual Report. GlaxoSmithKline. (2006). Annual Report. GlaxoSmithKline. (2005). Annual Report. GlaxoSmithKline. (2004). Annual Report. Reuters. (2009). GlaxoSmithKline PLC (London Stock Exchange). Available: http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=ANN&symbol=GSK.L. Last accessed 01 April 2009. Reuters. (2009). Company News for GlaxoSmithKline PLC. Available: http://www.reuters.com/finance/stocks/companyNews?symbol=GSK.L&date=03312009. Last accessed 01,April,2009. Telegraph. (2009). Quote for Glaxosmithkline Plc. Available: http://shares.telegraph.co.uk/quote/?epic=GSK. Last accessed 01 April 2009 Yahoo Finance (2009). Fundamentals for Glaxosmithkline Plc. Available: http://uk.finance.yahoo.com/q?s=gsk&m=L&d=. Last accessed 01, April, 2009. Read More