GlaxosmithKline (GSK) Plc is one of the biggest names in the pharmaceutical industry and currently GSK is a dominant business group in the pharmaceutical sector. 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, and 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).
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.
Gross Profit Ratio
Net Profit Ratio
Acid Test Ratio
(GSK, Annual Report, 2009-2005)
GROSS PROFIT RATIO:
Efficient management strategy reflects in the gross profit sales which increased in the year 2005, 2006 and 2007 with ABOVE 76% (Annual Report, 2009) as compared with the year 2009 and 2008. In the year 2009 & 2008, GSK Plc hasn’t focuses on reduces the cost of goods sold which gives a slightly negative reflection on the gross profit. Slight decrease in the year 2008 gross profit because of economic recession in the economy reflects on the gross profit of GSK Plc. Moreover, GSK Plc high ratio of COGS in the shape of FOH, Purchases etc and also due to internal restructuring. On the whole the gross profit margin is fair enough and one should hope that the percentage of gross profit margin will increase in years to come.
GROSS PROFIT RATIO:
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).
GSK’s current ratio is slightly tentative and indicates a lower margin of safety with respect to meeting current obligations. GSK’s current ratio will not allow the management to take more debt as compared to previous years (Bized, 2009).
QUICK or ACID TEST RATIO:
GSK’s 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).
The GSK Plc’s EPS suggest that although the economic condition is not viable but sound business running strategies make a positive impact on the EPS in the year 2009. It also gives the impression that in 2009-08 quality of earning makes a reflection on the shares and also the share prices of the company (Annual Report, 2009).
Lowest capital reserves of £1,415m were reported in the year 2008 which is the lowest capital reported in the last 5 years.
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).
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 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).
All in all, after reviewing the annual reports from 2005 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.
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GlaxoSmithKline. (2009). Annual Report.
GlaxoSmithKline. (2008). Annual Report.
GlaxoSmithKline. (2007). Annual Report.
GlaxoSmithKline. (2006). Annual Report.
GlaxoSmithKline. (2005). Annual Report.
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Reuters. (2010). Company News for GlaxoSmithKline PLC. Available: http://www.reuters.com/finance/stocks/companyNews?symbol=GSK.L&date=03312009 . Last accessed 27, July, 2010.
Telegraph. (2010). Quote for Glaxosmithkline Plc. Available: http://shares.telegraph.co.uk/quote/?epic=GSK . Last accessed 27 July 2010
Yahoo Finance (2010). Fundamentals for Glaxosmithkline Plc. Available: http://uk.finance.yahoo.com/q?s=gsk&m=L&d=. Last accessed 27, July, 2010.