Research and Analysis Project for B.

sc (Hons) In Applied Accounting

Business and Financial Performance

Of

GlaxoSmithKline Pakistan Ltd

(2007- 2009)

Prepared by Faisal Saleem

Mentoring by Fahim Ahmed

This project is prepared in accordance with Oxford Brookes University guidelines.

Table of Contents

Topic & Company selection------------------------------------------------------------------------------3

About GlaxoSmithKline------------------------------------------------------------------------------------4
Overview of the Pharmaceutical Industry-------------------------------------------------------------5
Research Aims and Objectives--------------------------------------------------------------------------7
Information Gathering--------------------------------------------------------------------------------------8
Techniques used in RAP--------------------------------------------------------------------------------10
Limitations in RAP and Ethical issues----------------------------------------------------------------11
Financial Analysis-----------------------------------------------------------------------------------------12
Revenue trend Analysis----------------------------------------------------------------------------------12
Profitability and Return Ratios--------------------------------------------------------------------------14
Liquidity Ratios---------------------------------------------------------------------------------------------18
Interest Cover Ratio---------------------------------------------------------------------------------------23
Dividend Cover Ratio-------------------------------------------------------------------------------------25
SWOT Analysis--------------------------------------------------------------------------------------------27
Conclusion--------------------------------------------------------------------------------------------------31
Future Prospects------------------------------------------------------------------------------------------33
Appendix----------------------------------------------------------------------------------------------------34
Skills & Learning Statement----------------------------------------------------------------------------39
Presentation------------------------------------------------------------------------------------------------45
Bibliography-------------------------------------------------------------------------------------------------55

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INTRODUCTION
Topic selection
I have selected to conduct my research on the topic Business and Financial performance of an
Organization over a three year period. The reason was when I was doing my O levels and A
levels I studied ratio analysis and their interpretation as part of my accounting curriculum and
developed special interest towards it. Various stakeholders analyze companys financial and
business performance before investing their time or money on it. Many ACCA papers (F5, F7
and F9) focus on calculating ratios, analyzing them and finding trends. By performing financial
and business analysis of a real organization, it will give me an opportunity to apply my
theoretical knowledge and help me in my finance career.

Company selection
The company I selected is GlaxoSmithKline Pakistan Ltd (GSKP). The reason for choosing
Pharmaceutical industry is my familys professional affiliation with it. My father is a doctor, my
uncle is a pharmacist and my cousin manages his healthcare company. This led to genetic
curiosity to know about the pharmacy business. The other reason was my mother who is
suffering from high blood pressure and depressive illness. I have seen my father treating my
family, suffering from serious illnesses with dozen of medicines. I consider pharmaceutical
companies as no less than saviors of million lives. This is what GSK has a vision for as to have
an opportunity to make a difference to lives of billions of people and mission to advance the
quality of human life by enabling people to do more, feel better and live longer (Ref: GSK
Pakistan Annual Report 2009).

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About GlaxoSmithKline (Ref: Annual Report 2008/09 + www.gsk.com.pk)

History of GlaxoSmithKline
In 1989 SmithKline Beckman and Beecham merged to form SmithKline Beecham plc. In 1995
Burroughs Wellcome & Co and Glaxo formed Glaxo Wellcome. In 2001, the merger b/w
Glaxo Wellcome and SmithKline Beecham created GlaxoSmithKline. GSK Pakistan Ltd
was formed on January 1st 2002 through merger of SmithKline and French of Pakistan Limited,
Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan) Limited. GSK plc, UK is its
ultimate parent company. GSK Pakistan is listed on Karachi and Lahore stock exchanges.
(Ref: http://www.kse.com.pk/phps/analysisrpt1.php?sec=GLAXO)

The World of GlaxoSmithKline

GSK employs over 99000 people in 114 countries from which 14500 employees work within
R&D. Its global headquarters are GSK House in Brent ford, London, UK. It manufactures over 4
billion packs per year in 28000 different presentations, which are supplied to over 160 markets.
It makes more than 100 prescription medicines and vaccines and distributes more than 32
doses of vaccines every second. It is the only pharmaceutical company tackling the three WHO
priority diseases: AIDS, tuberculosis and malaria.

Leading Products of GlaxoSmithKline

Medicines of GlaxoSmithKline
Augmentin Amoxil Panadol Ventolin Ampiclox Betnovate Calpol Zantac Septran.

Vaccines of GlaxoSmithKline
Engerix Typherix Infanrix Mencevax Fluarix Havrix Varilrix Hiberix Tritanrix Priorix.

Health Care Products of GlaxoSmithKline

Horlicks ENO Aquafresh Macleans Sensodyne.

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Overview of the Pharmaceutical Industry in Pakistan

The Pharmaceutical industry in Pakistan is a $1.61 Bn market compared to global market of
$770-780 Bn, which grew by 3-4% in 2009. The value of pharmaceuticals sold in 2007
exceeded $1.4 Bn (growing at 12.9% p.a with exports growing at 23% p.a) and expected to
exceed $2.3Bn by 2012. Since 1999 the government has invested Rs 8 Bn in Pharmaceutical
industry to guarantee good quality drugs at competitive prices. It contributes over 0.16%
towards GDP and employs about 162000 people directly and 1 Bn indirectly. Today, it is
producing 75 percent generic drugs and 25 percent research based brands serving an
estimated 90% of the market. In last 10 years, the industry has invested substantially to upgrade
itself and today majority industry is following Good Manufacturing Practices. Currently it has the
capacity to manufacture products ranging from simple pills to sophisticated Biotech, Oncology
and Value Added Generic compounds. There are 47000 registered products which are being
produced by 525 Pharmaceutical companies including 30 multinationals who have 53% of the
market share. Many units are ISO certified adhering to US and UK Pharmacopeia. Major
players in Pakistan in terms of market share are GlaxoSmithKline (11.6%), Sanofi-Aventis
(4.1%), Getz Pharma (3.9%), Abbott Lab (3.8%), Roche (3.1%) and Merck (2.9%). The industry
is regulated under Drug Act 1976. The Government has set up an independent Drug
Registration and Pricing Authority with the Ministry of Industries deciding upon pricing and
registration of drugs granted by the Central Licensing and Registration Board. The Government
has recently formed a policy allowing companies to produce raw material locally to reduce
dependence on international producers like China, Japan and UK from which almost 95% of
basic raw material is imported.

(Ref: http://www.ppma.org.pk/PPMAIndustry.aspx).
(Ref: http://www.pk.all-biz.info/news/index.php?newsid=391).
(Ref: http://www.dcomoh.gov.pk/about/overview.php).
(Ref: http://www.scribd.com/doc/29916204/Pharma-Industry-Pakistan).
(Ref: http://www.shvoong.com/medicine-and-health/1810555-importance-pharmaceutical-industry/).
(Ref: http://www.pharmabiz.com/article/detnews.asp?articleid=28358&sectionid=5 )
(Ref: http://healthnwfp.gov.pk/downloads/draft%20health%20policy.pdf, pg14)

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Pharmaceutical Industry Growth:

18%
16%
14%
12%
10%
8%

15.50%

6%
4%

9%

11%

2%
0%
2007

2008

2009

Industry Growth rate

(Ref: GSK Pakistan Annual report 2007+2008+2009)

The Pharmaceutical industry growth rate shows a positive increasing trend. In 2009 Pakistan
became sixth most populous country in the world. The fertility rate is highest (4.2 Mn births
every year) and lowest contraceptive prevalence rate (30%) whereas life expectancy has
increased to 65 years. The increasing population requires increasing medicinal facilities.
Diseases like coronary artery diseases, diabetes and high blood pressure have increased.
Deteriorating political conditions including terrorist attacks have caused severe injuries and
stress increasing the usage of medicines. The number of hospitals has increased recently even
in rural areas (550 rural health centers) with 920 public hospitals and 800 private requiring
medicines.

(Ref: http://www.mopw.gov.pk/TotalFertility,ContraceptivePrevalence.html)
(Ref: http://www.mopw.gov.pk/INFANTMORTALITYANDLIFEEXPECTANCY,2010.html)
(Ref: http://healthnwfp.gov.pk/downloads/draft%20health%20policy.pdf, pg 8, 9, 10 & 11)

6|Page

Research Aims and Objectives

Perform analysis of financial statement of GSKP from 2007-2009.

Perform Competitor analysis by comparing the performance of the GSKP with its
competitor.
Perform Business analysis by using SWOT.

This analysis will help reader understand how financial and business performance of GSKP
differed from its competitor and its future prospects. Practically such analysis facilitates
institutional and private shareholders in making investment decisions.

Framework for RAP

My project aims to find out about the financial and business performance of GSKP Ltd from
1.1.2007-31.12.2009. Financial statements are difficult to analyze and interpret without the use
of ratios. I used profitability, liquidity, gearing and investment ratios. By defining the ratios, the
reader will be able to comprehend their meaning and understand their usefulness. I have
chosen Abbott Laboratories Pakistan as GSKPs competitor. I have verified the ratios and where
applicable used my own assumptions in calculating them for comparability purposes. In my ratio
analysis I have included reasons for particular ratios figures and trends of GSKP when
compared to Abbott and mentioned the effects of both the average and closing figures in the
ratios where applicable e.g. debtor and creditor turnover. I explained the ratios in ascending
yearly format. The business performance is analyzed using SWOT model which involves
analyzing strengths, weaknesses, opportunities and threats for the company. Then I provided
conclusions of my analysis along with future prospects. I facilitated the analysis by financial
charts and spreadsheets.

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INFORMATION GATHERING
Sources of Information
Information gathering is an arduous task. Extensive work is required to ensure information
presented is appropriate, relevant, reliable and objective. The following sources were used for
information gathering:

Internet:
One of the most accessible methods of collecting information is internet, i.e. websites and
search engines like Yahoo, Msn and particularly Google, was immensely helpful in finding
websites that had information regarding my research. I started my research by visiting the
companys website (www.gsk.com.pk). A companys website provides the user with relevant
information about the company. GSKPs website, besides providing technical information, gave
an overview on its history, products and future prospects. Other websites including regulatory
websites mentioned in the references were helpful in substantiating the analysis. The Karachi
stock exchange website (www.kse.com.pk) was used to find out about listed Pakistani
pharmaceutical companies although financial statements of GSKP werent published on it.

Annual Reports:
An annual report, besides showing past financial performance and position of a company, is a
communication to its stakeholders on the companys core values, vision, mission, objectives,
activities, products, corporate social responsibilities, code of corporate governance, human
resource development and awards and achievements. These are important to understand
before analyzing companys financial and business performance. The annual reports of GSKP
included audited financial statements, financial reports and financial ratios which were the
subjects of my research. Notes to financial statements were used to understand figures in the
financial statements and to make proper comparisons. Chairmans and Chief executives review
were also used highlighting the economic, market and regulatory environment.

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BPP, Kaplan and Economics Study text:

ACCA approved texts like BPP and Kaplan, which I used in studying papers like F7 (Financial
reporting), F9 (Financial management) and P3 (Business analysis), provided details on this
topic regarding ratio analysis. They helped me revise certain concepts and made me perform
this analysis effectively. I also used my A levels Economics book in SWOT analysis as
referenced.
(Ref: Colin Bamford, Keith Brunskill, Gordon Chain, Sue Grant, Stephen Munday, Stephen
Walton, (First Published 2002 Third Printing 2003), Economics, the Press Syndicate of the
University of Cambridge.)

News:
Pakistani pharmaceutical companies rarely make news headlines and the information I have
obtained from (www.dailynews.com) and (www.brandsyanrio.com) for SWOT analysis has been
referenced.

Draft National Health Policy Report 2009 (Ministry of Health, Pakistan):

The national health policy draft report 2009, regarding the Pharmaceutical industry, contains
growth of the sector in terms of revenue, health laws, pricing issues, history, alternate herbal &
homeopathic treatments, competition and unethical practices, drug procurement issues and
non-affordability and non-availability of essential medicines to the public and other health issues
prevalent in the country. This gave me an important insight on the Pharmaceutical industry in
Pakistan.
(Ref: http://healthnwfp.gov.pk/downloads/draft%20health%20policy.pdf)

Graphical representation and Spreadsheets:

Financial charts were used to facilitate the financial analysis by using Microsoft Word and Excel
2007. In addition I have used spreadsheets where I have made statement of comprehensive
income and statement of financial position extracts and calculated ratios. I have given evidence
of using the spread sheets in the appendix.

9|Page

Techniques used in RAP

Financial Information
Ratios are used to assess financial performance of a company. I have calculated the following
ratios:

Profitability and Return ratios:

a)
b)
c)
d)

Sales growth
Gross profit margin
Net profit margin
Return on equity

Liquidity ratios:
a)
b)
c)
d)

Current ratio
Acid test ratio
Accounts receivable collection period
Accounts payable payment period

Gearing ratios:

a) Interest cover

Investor ratios:

a) Dividend cover
b) Earnings per share

Non-Financial Information
SWOT Analysis: For my business analysis, I have used SWOT model. This model links
strengths of a business with the opportunities available to a company. Once categorized as
an opportunity or threat the influences needs to be prioritized then the organization has to
decide how to best grab the opportunities and defend against most serious threats. By
working on internal components like strengths and weaknesses, a company could some
way control external factors like opportunities and threats to its advantage.
(Ref: Text book Kaplan P3 Chapter 2: The environment and competitive forces).

10 | P a g e

Limitations in RAP and Ethical Issues

Limitations in collecting information
I have collected and used information from secondary sources like websites, annual reports and
ACCA course books. It is important to mention that information regarding Pakistani
Pharmaceutical companies is very difficult to obtain as they dont enjoy extensive media
coverage therefore information regarding GSKP wasnt widely available on print/electronic
media. There are inherent limitations due to which some websites are not updated. There
werent Pharmaceutical industry average ratios for comparison with GSKP. I didnt have access
to any inside information as such information is strictly confidential and not disclosed for
strategic purposes.

Limitations in using ratios

Ratios are measurement of past performance of a company and merely indicators to its future
performance. Problems in comparing ratios between similar businesses involve companies
following different accounting policies and practices and calculating ratios on the basis of
different definition. They operate under different business environment and are exposed to
different risks. Inter-firm comparison and non-financial factors are important before final verdict
about performance of a company can be given. Some of the same ratios are calculated by
GSKP and Abbott using different formula e.g. interest cover and debtor turnover. In my analysis
these ratios have been calculated based on same financial particulars for comparisons
purposes. A particular ratio figure might not be suitable for every business e.g. 4:1 current ratio
is considered high for FMCGs business but not for manufacturing business like pharmaceutical
companies.
(Ref: Text book P3 Kaplan Chapter 13: The role of finance in formulating and implementing
business strategy).

Ethical issues
During my information gathering I remained unbiased and objective. I reported facts and
information objectively without any manipulation to them. I have, to the best of my knowledge,
made references of the sources from where I have gathered information. References were
made to acknowledge others work. Information that hadnt been gathered from annual reports
and official website has been properly referenced. I have, to the best of my ability, gathered
information and performed financial analysis independently and objectively without favoring the
organization.

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FINANCIAL ANALYSIS
Profitability and Return Ratios:

Sales Revenue:

Sales Revenue Trend

16000

14719
13403

Rupees in Million

14000
12000

10088

10611

10000
8000
6000

8450
5914

6584

GSK Pakistan
Abbott

7123

4000
2000
0
2006

2007

2008

2009

The sales of GSKP and Abbott show an upward trend for last four years. Sales growth has been
mainly due to sales volume because of non-adjustments to selling price by the government.
GSKPs sales growth has been due to strong performances from Antibiotics, Cardiovascular,
Respiratory, Dermatology and Gastrointestinal medicines.

(Ref: GSK Pakistan Annual report 2009)

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Sales Growth Percentage:

Sales growth(%)
30.00%

26.30%

25.00%
20.00%
15.00%

18.60%
GSK Pakistan

11.30%

Abbott

10.00%
5.00%

5.20%

8.20%

9.80%

0.00%
2007

2008

2009

In 2007 sales growth was the lowest mainly due to import restrictions placed on raw materials of
few key products. Exports made to Sri Lanka and Afghanistan grew by 19.4% to Rs 256 Mn.
The animal healthcare portfolio showed positive trend and achieved sales of Rs 99 Mn.
However consumer healthcare business decreased by 24.5%.
The reason for high sales growth in 2008 was due to GSKPs ability to obtain large competitive
tenders in polio vaccines business. Products launched along with product promotion in 2007
increased sales. Few improvements to the products in the year also contributed towards growth.
The raw material shortages problems were also resolved. The exports to Afghanistan, Sri Lanka
and Syria grew by 13% to Rs 289.6 Mn. The consumer health care business showed 66.3%
increase to Rs 233 Mn largely because of sales and distribution restructuring taken last year.
The animal health care portfolio grew by 11.1% to Rs 110 Mn.
In 2009 sales growth was 9.8% but underlying sales grew by 14.9% excluding the government
contracts. The consumer health business grew by 28.2% with Eno and Iodex being the main
growth drivers. The exports showed a positive trend achieving sales growth to Rs 390.4 Mn.

(Ref: GSK Pakistan Annual report 2007+2008+2009)

(Ref: Abbott Pakistan Annual report 2008+2009)

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Gross Profit Margin (GPM):

GPM is a financial metric used to assess a firm's financial health by revealing the proportion of
money left over from revenues after accounting for cost of goods sold. The ratio expresses
Gross profit as a percentage of Sales.
(Ref: http://www.investopedia.com/terms/g/gross_profit_margin.asp)

Gross Profit Margin(%)

50.00%

41.90%

41%

38.30%

37.20%

40.00%
30.00%

29.90%

29.10%
GSK Pakistan

28.80%

20.00%

24.10%

Abbott

10.00%
0.00%
2006

2007

2008

2009

The GPM ratios of GSKP and Abbott show a declining trend. GSKPs GPM ratio remained lower
compared to Abbott despite GSKP sales in three years remained higher. This was due to better
control over cost of production by Abbott. GSKPs GPM ratio declined from 38.3% to 37.2% in
2007 because sales increased by 5% whereas cost of production increased by 7%. This can be
attributed to high inflation and increased raw and packaging material prices which the company
was unable to transfer to the consumer due to price restrictions placed by the government.
In 2008 GSKPs and Abbotts GPM ratios declined from 37.2% to 28.8% and 41% to 29.9%
respectively. Sales increased by 23% while cost of production increased almost twice the sales
resulting in a decreased GPM. The increase in international commodity prices, local inputs
prices, fuel and power costs, weakening of PKR against USD bringing cost imported inflation,
rising interest rates and large capital expenditure in 2007 on manufacturing facility had its effect
in 2008 with largest increase in depreciation and increase in provision for obsolete stock
contributed to increase in cost of production. Price increases were granted on loss making
products but didnt have significant impact to improve the situation.
In 2009 GPM declined from 28.8% to 24.1%. The reason was increase in cost of goods sold,
due to adverse macroeconomic factors, which more than offset the increase in sales revenue
with no price adjustments. It was also because of increasing competition in the Pharmaceutical
business with over 500 companies working in a highly genericized market.
(Ref: GSK Pakistan Annual report 2007+2008+2009)
(Ref: Abbott Pakistan Annual report 2008+2009)
(Ref: http://www.pide.org.pk/pdf/highlights/inflation.pdf, pg 5, 6, 8, 10, 12, 14)

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Net Profit Margin (NPM):

Net Profit Margin is calculated by deducting all expenses from gross profit. It indicates
companys cost control effectiveness. Higher the N.P margin, more effective the company is at
converting revenue into actual profit. The ratio expresses Net profit as a percentage of Sales.
(Ref: http://www.investorwords.com/3260/net_profit_margin.html)

Net Profit Margin (%)

20.00%
15.00%

16.90%

18%
14.60%

16.50%

15.70%
9.80%

10.00%

GSK Pakistan
Abbott

5.00%
4.80%

6.30%

0.00%
2006

2007

2008

2009

In 2007 GSKPs NPM ratio declined from 16.5% to 15.7% whereas Abbotts NPM ratio
increased from 16.9% to 18%. Despite Abbott achieving good sales growth in 2007 it was able
to contain its operating expenses and therefore an increased NPM. The decline in GSKPS
NPM was due to increase in selling, marketing, distribution and administration expenses by 15%
and 11% respectively whereas the GPM only increased by 2.2%. Other operating income
increased by 29% to Rs 639 Mn mainly from pension funds receivable which some how
mitigated the effect of rising operating expenses.

In 2008 GSKPs NPM ratio declined from 15.7% to 14.6% whereas Abbotts NPM sharply
declined from 18% to 4.8%. GSKs GPM decreased from the previous year which affected the
NPM as well. Selling, marketing, distribution expenses and administration expenses increased
by 9.8% and 6.9% respectively the lowest in the three years due to which operating profit
increased by 15%. GSKP exercised tighter control over their operating expenses despite
highest sales growth. Other operating income increased by 100% to Rs 1279 Mn mainly
contribution by sale of a land. Finance charges increased by high 542% largely consisting of
exchange losses affecting PAT.

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In 2009 GSKPs NPM ratio sharply fell from 14.6% to 6.3%. Abbott NPM increased from 4.8% to
9.8%. Selling, marketing and distribution expenses showed highest increase of 26% due to
increased investment in core and new brands and increased freight cost (rising oil prices).
Administrative expenses rose by 13% due to rising inflation which increased the labor, travelling
and accommodation costs as indicated in the below regulatory reference. Increased employee
development training expenses and legal costs also contributed to high operating expenditure.
Other operating income decreased by 66% with income from financial assets decreasing by
8.9% due to dividend payment. Excluding the effect of sale of a land profit would have
decreased by 16% instead 52.2%.

(Ref: GSK Pakistan Annual report 2007+2008+2009)

(Ref: Abbott Pakistan Annual report 2008+2009)
(http://www.pide.org.pk/pdf/highlights/inflation.pdf, pg 10, 14)

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Return on Equity (ROE):

ROE ratio expresses Profit after tax (PAT) as a percentage of Shareholders Equity. It tells how
efficiently a business uses its resources.
(Ref: Text Book F7 Kaplan 2009/2010 Chapter 19 Interpretation of Financial Statements)

Return on equity (%)

35.00%
30.00%
25.00%
20.00%

32.10%
23.60%
22.10%

15.00%

23.40%

25.50%
GSK Pakistan

20.60%

10.00%

9.60%

11.50%

Abbott

5.00%
0.00%
2006

2007

2008

2009

GSKPs ROE stands higher in 2008 and Abbotts ROE stands higher in 2007 and 2009. GSKPs
ROE decreased from 22.1% to 20.6% in 2007 because PAT increased by only 0.4% whereas
Equity increased by 7.7%. Non-current assets showed highest increase (38%) including
operating assets (54%) increasing equity whereas low sales growth with high cost of production
and high operating expenses decreased PAT. A decrease in ROE is not necessarily bad as it
might reflect investments made by the company which give returns later.
In 2008 GSKPs ROE increased from 20.6% to 23.4% whereas Abbotts ROE declined sharply
from 32.4% to 9.6%. Abbotts NPM ratio declined sharply in the same year. PAT increased by
17% and equity increased by only 2.9% leading to increase in ROE. Despite high % increase in
cost of production and finance charges this was offset to extent by high sales growth, lowest
increase in operating expenses, decrease in other operating expenses and increase in other
operating income by almost 100% increasing ROE to 23.4%.
In 2009 GSKPs ROE fell lowest to 11.5% because its PAT significantly decreased by 52.2%
whereas equity decreased by just 3% whereas Abbott showed a sharp increase from 9.6% to
25% which is indicative of rising N.P margin in 2009. Selling and distribution and Administrative
expenses increased the highest and other operating income decreased by 67% resulting in a
decrease in operating profit by 49%.
(Ref: GSK Pakistan Annual report 2007+2008+2009)
(Ref: Abbott Pakistan Annual report 2008+2009)

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Liquidity Ratios:
Current Ratio:
It measures the adequacy of current assets to meet short term liabilities. It reflects whether a
company is in a position to meet its liabilities as they fall due.
(Ref: Text Book F7 Kaplan 2009/2010 Chapter 19 Interpretation of Financial Statements)

4.76
5
4

Current Ratio (Times)

4.3

4.1

4.4

3.2

3.55

GSK Pakistan
2.5

2.03

Abbott

1
0
2006

2007

2008

2009

The current ratio of GSKP declined from 2006 onwards but remained higher when compared to
Abbott. In 2007 current liabilities increased by 3.5% because of the royalty and technical fees
which increased by 60%. This can be expected due to the nature of the industry. Creditors and
Bills payable by related parties decreased by 27% and 44% respectively. Current assets
decreased by 0.1% including the stores and the spares that increased by 65%. Trade debts
showed 40% increase and receivables due from related parties increased by a large 665%
because of large amount due from staff provident fund. Investments in Bonds also contributed
to high current ratio figure. Cash position declined by 8.9% mainly due to dividends payments
and capital expenditure.

18 | P a g e

In 2008 current assets increased by 6% whereas current liabilities increased by 10% offsetting
the increase in current assets. Both stock-in-trade and trade debts have high figures constituting
a ratio of 4.1:1. Trade debts increased by 770% majorly contributed by other trade debtors. The
reason was large orders received in polio vaccines business. This sharp increase can be traced
to highest sales growth. This large increase needs to be taken into account by management.
Other receivables including related parties decreased by 60% because of payment from staff
provident fund. Creditors increased by 16% whereas bills payable from associated companies
increased by 90%. Cash position decreased by 36% mainly due to investments and capital
expenditure on facility improvement, up gradation of plant and machinery and purchase of
vehicles.

In 2009 current assets increased by just 2.5% and current liabilities increased by 30% resulting
in current ratio of 3.2:1. Trade debts minimally declined by 2% indicating slow cash conversion
and weak credit control. Debts will be paid over a period of time and for prompt payments GSKP
might allow increased discounts. GSKP needs to reconsider their credit policy so debtors pay
promptly but this may jeopardize good relationships. Bills payable by associated companies
decreased by 87% constituted their payments. Cash position declined again by 36% due to
dividend payments and decline in profitability. The declining cash position should be taken into
account by management.

(Ref: GSK Pakistan Annual report 2007+2008+2009)

(Ref: Abbott Pakistan Annual report 2008+2009)

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Quick Ratio:
It is also known as the acid test ratio because by eliminating inventory from current assets it
provides the acid test of whether a company has sufficient liquid resources to settles its current
liabilities.
(Ref: Text Book F7 Kaplan 2009/2010 Chapter 19 Interpretation of Financial Statements)

Quick/Acid test ratio (times)

3.5
3
2.5

3.1

3.01

2.3

2
1.6

1.95

1.5
1

1.24

GSK Pakistan
Abbott

0.94

0.5
0
2006

2007

2008

2009

The quick ratio for GSKP declined from 2006 onwards but remained higher than Abbott. In 2007
stock represents 30% of the total current assets and after accounting for its deduction the
remaining 70% of the quick assets can meet the short term liabilities. Trade debts, loans and
advances and other receivables form 8% of the total current assets and dont pose significant
threats to GSKP to meet its current liabilities in case funds from them dont materialize.
However cash represents 57% of the total current asset which is a significant amount and
therefore it seems GSKP is meeting current liabilities through this source. GSKP might keep
healthy cash figure to meet unexpected liabilities or other sources dont materialize cash.
In 2008 quick assets decreased by 15% where current liabilities increased by 10% resulting in a
decreased ratio figure. Stock represents 44% of the total current assets and increased by 53%
due to increasing raw and packing material prices by 77%. Trade debts, loans and advances
and other receivables formed twice (16%) of the total current assets this year. Cash decreased
by 36% and represented 34% of the total current assets and resulted in a decline in the ratio
from 3:1 to 2.3:1.
In 2009 quick assets decreased by 8% whereas current liabilities increased by 30% due to
which the ratio declined sharply from 2.3:1 to 1.6:1. The ratios have been declining constantly
because of increasing stock value and decreasing cash position, which represents only 21% of
total current asset. Stock represents 50% of total current assets and remainder to meet current
liabilities, which have been increasing which means lower current assets to cover them.
(Ref: GSK Pakistan Annual report 2007+2008+2009)
(Ref: Abbott Pakistan Annual report 2008+2009)

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Debtor Turnover:
It is a rough measure of the average length of time it takes for a companys account receivable
to pay what they owe.
(Ref: Text book F9 BPP, Second edition 2008, Chapter 4 Working Capital)

Debtor turnover (days)

30
25

25

20
15

10.99

10
5

GSK Pakistan

15.4
9.36
8.79

2.7

3.5

Abbott

7.73

0
2006

2007

2008

2009

The debtor turnover days show an increasing trend for GSKP and for Abbott it increased from
2008. In 2007 the debtor days increased by 30% with trade debts increasing by 40% from
previous year. In 2008 the debtor days increased significantly by 340% to 15.4 days. This can
be traced back to current ratio above where trade debts increased very significantly by 770%
and average trade debts increased by 463% whereas sales also increased the highest by 23%.
If the closing trade debt figure would have been taken it would have shown even higher figure
than 15.4 and average figures have been taken to smoothen the effect of large increases. In
2009 the debtor turnover figure showed an increase of 62% to 25 days. The trade debts
decreased by small 2% and sales increased by 9% the ratio should have shown a decline if
taken closing trade debt figure. The ratio has shown an increase because the average trade
debts increased by 78% whereas sales by just 9%. The company significantly increased its
trade debts in 2008 which had effects in 2009. Increasing days is a bad sign suggesting lack of
proper credit control which may lead to irrecoverable debts. However this might be a deliberate
policy by GSKP to attract more trade like major polio vaccine business by offering good credit
terms.
(Ref: Text Book F7 Kaplan 2009/2010 Chapter 19 Interpretation of Financial Statements)
(Ref: GSK Pakistan Annual report 2007+2008+2009)
(Ref: Abbott Pakistan Annual report 2008+2009)

21 | P a g e

Creditors turnover:
It represents the credit period taken by the company from its suppliers.
(Ref: Text Book F7 Kaplan 2009/2010 Chapter 19 Interpretation of Financial Statements)
Abbotts ratio is based on formula in the appendix. The 2007 annual report wasnt available so
2007 figure wasnt calculated.

Creditor turnover (days)

30

25

25

25

27
21

20
15

22
GSK Pakistan

17

Abbott

10
5
0
2006

2007

2008

2009

GSKP maintains on average 25 or above days to pay creditors except in 2008 where the figure
was 17 days. In 2007 the overall decrease in total trade creditors was by 35% due to the fact
that companys had significant cash & bank balances to pay the debts.
In 2008 the reason for decrease in creditor days was because average total trade creditors
increased by 1% whereas cost of production increased by 43%. The ratio would have shown an
increase if closing trade creditors would have been taken than the average figure as total
creditors increase (52%) is more than increase in cost of production. GSKP is taking more days
to pay debts than the average figure above suggests. If average figure is considered it means
GSKP is paying its creditors quicker when in the same year debtor days have considerably
increased. This represents in-disciplined working capital management policy.
In 2009 the creditor figure showed a dramatic increase of 102% majorly due to introduction of
associated creditors of Rs 879 Mn which more than offset bills payable by associated
companies which decreased by 87%. On average total creditors figure increased by 82%
whereas cost of goods sold only increased by 17% leading to increase in ratio figure. Increasing
creditors may provide free finance but might jeopardize good credit terms.
(Ref: GSK Pakistan Annual report 2007+2008+2009)
(Ref: Abbott Pakistan Annual report 2008+2009)
(Ref: Text Book F7 Kaplan 2009/2010 Chapter 19 Interpretation of Financial Statements)

22 | P a g e

Interest Cover (I.C):

It indicates the ability of the company to pay interest out of profits generated.
(Ref: Text Book F7 Kaplan 2009/2010 Chapter 19 Interpretation of Financial Statements)

Interest cover (Times)

600
500

546
463

394

400

318
GSK Paksitan

300
200

244

280

Abbott

202
143

100
0
2006

2007

2008

2009

When companies issue loans they have to pay interest regardless of the profit. If the ratio is not
a healthy one it deters lender to lend funds or lend it on high interest rates.
(Text Book F9 Kaplan 2008/09 Chapter 16 Capital Structure and Financial Ratios)

An I.C ratio of less than 1 indicates that company is not generating enough cash to cover its
payment and 1.5 is considered bare minimum. The ratios are seen to be high and may reflect
the nature of the industry and indicate that finance charges are sufficiently covered by profits.
(Ref: http://www.investopedia.com/articles/basics/04/040804.asp)

Abbott financial charges figure doesnt include exchange losses so they havent been included
in GSKs financial charges figure and included in operating expenses.
The I.C ratio increased in 2007 to 546 times due to increase in operating profit by 1% and
decrease in financial charges by 12%. Bank charges increased by a small 0.71% from the
previous year but contributed about 73% to the total finance cost.

23 | P a g e

In 2008 GSKPs I.C ratio increased while there was a severe decline in Abbott I.C ratio. GSKPs
operating profit showed an increase of 13% from the previous year. The exchange loss of Rs
6.74 Mn was included in other operating expenses and financial charges instead of increasing
decreased by small 0.6%. An increase in the I.C ratio is a good sign for shareholders as high
financial charges may deter dividends being paid. Bank charges had increased by 4% from the
previous year because of rise in interest rates in the country.

In 2009 operating profit decreased by 49% due to increased operating expenditure but finance
cost increased by 16% from 2008 resulting in a decrease in I.C ratio. Bank charges increased
by 26% from the previous year due to continuation of high interest rate policy (tight monetary
policy) by State Bank of Pakistan to curb inflation.

(Ref: GSK Pakistan Annual report 2007+2008+2009)

(Ref: Abbott Pakistan Annual report 2008+2009)
Ref: http://www.pide.org.pk/pdf/highlights/inflation.pdf, pg 10, 12)

24 | P a g e

Dividend Cover:
It expresses the relationship between available profits and the dividends payable out of profits.
The higher the ratio the more likely it is that the current dividend level can be sustained in the
future.
(Ref: Text Book F7 Kaplan 2009/2010 Chapter 19 Interpretation of Financial Statements)

Dividend Cover (Times)

4
3.5
3
2.5
2
1.5
1
0.5
0

3.4

GSK Pakistan
1.2

2006

1.2

0.67

0.7

2007

2008

1.1
0.7

Abbott

2009

Ordinary Shareholders are interested in capital growth and dividends. They want to know
number of times a company can pay dividends after paying interest and tax as it help them
decide further investments.
From 2007-2009 GSKPs dividend cover remained higher and it has been able to maintain it
more or less for four years. Only in 2006 was dividend cover for Abbott almost 3 times higher
than GSKP. In 2007 there was a decrease in the ratio from 1.2 to 1 because PAT increased by
a small 0.4% whereas dividend increased by 19%. In 2008 the ratio increased due to increase
in PAT by 17% with no change in dividend and in 2009 with no change in dividend the ratio
decreased due to decrease in PAT by 52%.
In 2009 N.P margin declined severely but GSKP paid dividends because shareholders expect
consistent dividend policy from the company. If a company cut dividends it sends signals in the
stock market that its future prospects are weak and shareholders start selling their shares which
puts a downward effect on the total market value of the company. This is signaling effect.

(Ref: Text book BPP F9, Second edition 2008, Chapter 13: Dividend policy)
(Ref: GSK Pakistan Annual report 2007+2008+2009)
(Ref: Abbott Pakistan Annual report 2008+2009)

25 | P a g e

Earnings per Share (EPS):

It is the portion of a company's profit allocated to each outstanding share of common stock.
(Ref: http://www.investopedia.com/terms/e/eps.asp)

EPS (in Rs)

14
12

12.1

10.2

11.5

10
8

9.76

8.43

9.79

GSK Pakistan

5.5

Abbott

3.51

2
0
2006

2007

2008

2009

In 2006/07 GSKP maintained its EPS around Rs 9.7 but Abbotts EPS was higher in both years.
In 2007 GSKPs EPS slightly increased from 2006 because of a minor increase in PAT by 0.4%
and swift increase in 2008 to Rs 11.5 as PAT increased by 17%. Whereas in 2009 PAT
decreased by 52% reduced the EPS to Rs 5.5. The ordinary shares outstanding at the year end
remained same for three years. The reasons for increase and decrease in PAT have been given
in NPM ratio.
(Ref: GSK Pakistan Annual report 2007+2008+2009)
(Ref: Abbott Annual report 2008+2009)

26 | P a g e

SWOT Analysis:
Strengths:
Market leader and Diversified:
GSKP leads the industry in value, volume and prescription. Its 3 of the brands are in top10
product list by value, 7 by volume and 4 by prescription. It is also diversified into consumer
health care products which have equally contributed towards the companys growth.

R&D facility:
The highly established R&D centre ensures that it doesnt only provide new pharmaceutical and
health care products but sustain its flow in the future. It has over 150 projects in clinical
development-one of the largest pipelines in the industry. It has played a leading role by
providing expertise, sharing practices and delivered training systems to other countries.

CSR Initiatives:
The CSR initiatives taken for various health, women, education, social development and relief
programs at grass root levels reflect GSKPs attitudes towards contributing to the environment
and investing in society at large. This has built reputation and credibility of the company over the
years among various stakeholders.
(Ref: http://www.brandsynario.com/local-news/81_gsk-pakistan-s-services-acknowledged.aspx)

Motivated and Diversified workforce:

GSKP employees hard work, dedication and culture of respect and integrity and constant
struggle for continuous improvement have made it a success story. The diversified work force
brings different experience to the work place.

Well developed Infrastructure:

GSKP has a Ministry of health approved Penicillin facility. It follows policy of Zero Waste, Zero
Accidents and Zero Injuries by adhering to national environment quality standards and invested
substantially in safety equipments for its employees safety. GSKs Global Manufacturing and
Supply capabilities in Pakistan comprises of the best quality processes and procedures
associated with the production and supply of full-scale commercial manufacturing.
(Ref: GSK Pakistan Annual report 2007+2008+2009)

27 | P a g e

Weaknesses:

Increasing cost of production:

GSKP didnt exercise tighter controls over its cost of production when compared to Abbott. From
2007-2009 COGS has increased by a greater % than sales increase. COGS represent a
significant % of the total sales. This is unsustainable and calls for attention of the management
of the company.

(Ref: GSK Pakistan Annual report 2007+2008+2009)

Lack of aggressive marketing in Consumer health care brands:

The consumer health care products arent aggressively marketed in the Pakistani market as
international brands like Colgate and Close-up which are more popular among the youth and
middle age.

28 | P a g e

Opportunities:
Increasing overall and urban population:
Pakistan is facing a situation of increasing population. Urban population is growing with people
migrating from villages to cities and emigrating from neighboring countries. Increasing
healthcare facilities are required for them. Increasing vehicles required for increasing population
has created noise and air pollution and increased respiratory and lung diseases.
(Ref: http://www.dailytimes.com.pk/default.asp?page=2007\06\28\story_28-6-2007_pg7_9)
(Ref: http://healthnwfp.gov.pk/downloads/draft%20health%20policy.pdf, pg 11)

Price inelastic demand for GSKPs products:

Medicines are necessity. They dont have substitutes but there are substitutes for GSKP
medicines with other companys medicines. Besides substitutability price elasticity depends on
brand image, addictive properties, quality and accessibility of information regarding the product.
Depending on creating attributes of GSKPs medicines this economic theory suggest that they
might have inelastic demand and an opportunity to increase revenues by increasing their prices,
if government allows in future, without decreasing the quantity demanded (sales volume) by
more than proportional change.
(Ref: Colin Bamford, Keith Brunskill, Gordon Chain, Sue Grant, Stephen Munday, Stephen
Walton, (First Published 2002 Third Printing 2003), Economics, Chapter 2 The price system, the
Press Syndicate of the University of Cambridge.)

Acquisition of Bristol Myers Squibb (Pvt) Ltd:

The merger plan (March 2010) between GSKP and BMSP will increase product portfolio in
antibiotics, vitamins and dermatology which are complementary to GSKPs current product
portfolio and will provide opportunities in cardiovascular and oncology. Its sales revenue in 2007
of Rs 1.5 Bn and trade marks of over $36.5 Mn will add tremendously to companys strength.
(Ref: http://www.gsk.com/media/pressreleases/2008/2008_pressrelease_10146.htm)
(Ref: GSK Pakistan Annual report 2009)

Brand recognition:
People have become brand conscious now which presents an opportunity for GSKP to increase
customer loyalties and improve customer relationships in regards with healthcare products. It
should also increase awareness about its medicines and their efficacy and effectiveness in rural
areas as well because print and electronic media has expanded widely in Pakistan.

29 | P a g e

Threats:
Increasing Competition/Switching costs:
The Pharmaceutical industry is divided equally among multinationals and local companies. The
market is becoming highly genericized and people choosing the low priced generic medicines
with no switching costs. The threat is also from well established international brands for
consumer health care products.

Ref: http://www.pk.all-biz.info/news/index.php?newsid=391
Ref: http://www.shvoong.com/medicine-and-health/1810555-importance-pharmaceutical-industry/)

Adverse Macroeconomic Environment/ Highly regulated environment::

The adverse macroeconomic factors increased the cost of production along with strict regulatory
requirements (no price adjustments) is unsustainable and poses significant threats to the
companys ability to earn favorable margins and a threat to the going concern assumption of the
business as a whole.

30 | P a g e

Conclusion:
As I have performed financial and business analysis (2007-2009) this brings me to the part
where I draw conclusions about performance of the company.
GSKP showed increasing sales trend but faced increasing cost of production because of
adverse macroeconomic factors. The resulting decreasing G.P margin can be justified as there
were no adjustments allowed in selling prices by the Government. The company was unable to
effectively offset this by increased sales volume, simplification and rationalization in
manufacturing and commercial operations. Therefore any increase in selling prices in future will
have a favorable impact on G.P margins. The N.P margin showed declining trend due to
operating expenses that increased by a greater % than the increase in G.P margin. ROE was
good in 2007/08 which in 2009 declined majorly due to large increase in operating expenses in
addition with investments by the company on new products.
The liquidity position pointed towards substantial cash and bank balance in 2007. They were
used to make necessary investments in business and pay dividends. They declined by 36%
consecutively in 2008/09 being a reason for declining current and quick ratio. The stock figure
contributed on average 40% of the total current asset and continuously increased. Both these
issues should be considered by GSKPs management. Trade debts increased sharply in 2008
with minimal decline in 2009 and might become irrecoverable if not paid promptly. Average
figures suggest working capital management seems in-disciplined in 2008 with increasing
debtor and decreasing creditor days but without average figures creditor days increased with
increasing debtor days.
The I.C ratio is high for both companies and suggests that financial charges are easily covered
by PBIT of the companies though it declined sharply in 2009 for GSKP due to high operating
expenses.
GSKP is able to pay dividend at least once as it has maintained good history of dividend
payments. Despite N.P margin severely declined in 2009 it paid dividends due to signaling
effect.
The EPS increased in 2008 and declined in 2009 reflecting changes in PAT as there were no
changes in ordinary shares.
The declining margins and returns with increasing debtor days needs to be seen in relation to
macroeconomic and regulatory environment along with strengths and opportunities available to
the company to overcome threats and weaknesses in future.

(Ref: http://www.pide.org.pk/pdf/highlights/inflation.pdf)

31 | P a g e

In few years large number of competitors has emerged in the market but GSKP continues to be
the leader because it belongs to a large professional group GSK plc, UK. GSKPs aim is to
deliver products of value and sustain it for years to come. Brands in pharmaceutical and
consumer health have contributed towards growth and further research and advertisement will
help counter the threats from its competitors. It believes simplifying the operating model will
improve information flow, increase work productivity and bring cost efficiency which is important
due to the price restrictions. Quality is equally important because of the sensitive nature of the
product it deals with as reflected in the statement by its CEO. It is an equal opportunity
employer investing on its employees and providing opportunities to grow in their field of
expertise which ultimately will improve performance standards and achieve excellence. GSKPs
CSR initiatives are commendable and praiseworthy. It has received many awards for it and truly
fulfills its role as a good corporate citizen.

(Ref: GSK Pakistan Annual report 2007+2008+2009)

32 | P a g e

Future Prospects:
GSKP is in stages of developing products aimed at improving the quality of human life. Pakistan
is a developing country where the health sector requires extensive contribution. GSKP can play
its role in its development.
It is maintaining growth of mature brands and equally spending on new products so they are
launched once the mature brands reach their decline stage. A number of new products in the
area of Oncology, Respiratory and Antibacterial are under registration and launch.
GSKPs acquisition of BMSP will broaden its current product portfolio along with BMSP strong
financials will help it achieve something remarkable and ground breaking in future.
Presently Pakistan is hit with ravaging floods. Various life taking diseases are affecting people
severely. GSKP is providing food, medicines and vaccines and doing utmost it can to help the
victims of the flood.

(Ref: http://www.gsk.com/community/humanitarian-relief-pakistan.htm)
(Ref: GSK Pakistan Annual report 2007+2008+2009)

End of Report

33 | P a g e

Appendix
GlaxoSmithKline SOCI Extract
Rs (000)
Sales
Cost of sales
Gross Profit
Selling, marketing & distribution expenses
Administrative expenses
Other operating expenses
Other operating income
Operating profit
Financial charges
Profit before taxation
Taxation
Profit after taxation

2007
10,610,882
-6,658,753
3,952,129
-1,210,818
-486,721
-223,912
639,415
2,670,093
-11550
2,658,543
-988,018
1,670,525

2008
13,403,224
-9,547,619
3,855,605
-1,328,925
-520,216
-208,355
1,279,790
3,077,899
-76,859
3,001,040
-1,045,853
1,955,187

2009
14,719,132
-11,173,470
3,545,662
-1,673,809
-588,814
-138,585
436,615
1,581,069
-14,348
1,566,721
-632,791
933,930

2008
7,123,412
-4,991,510
2,131,902
-1,369,133
-255,737
-65,051
105,545
547,526
-2,704
544,822
-200,842
343,980

2009
8,450,118
-5,987,872
2,462,246
-1,137,813
-165,455
-132,246
141,890
1,168,622
-2,525
1,166,097
-340,421
825,676

Abbott SOCI Extract

Rs (000)
Sales
Cost of sales
Gross Profit
Selling, marketing & distribution expenses
Administrative expenses
Other operating expenses
Other operating income
Operating profit
Financial charges
Profit before taxation
Taxation
Profit after taxation

2007
6,584,454
-3,856,736
2,727,718
-850,376
-123,478
-179,859
173,394
1,747,399
-3,202
1,744,197
-559,435
1,184,762

34 | P a g e

GlaxoSmithKline & Abbott SFP Extracts

Rs (000)
Share Capital and Reserves
Share Capital
Reserves
Total equity
Non-Current Liabilities
Staff retirement benefit - staff
gratuity
Deferred taxation
Current Liabilities
Trade and other payables
Taxation

Non-Current Assets
Fixed Assets - property, plant and
equipment
Long term loans to employees
Long term deposits
Investments - available for sale
Current Assets
Stores and spares
Stock -in- trade
Trade debts
Loans and advances
Trade deposits and prepayments
Accrued return
Refunds due from government
Other receivables
Taxation - payments less provision
Investments - available for sale
Cash and bank balances

GlaxoSmithKline SFP Extract

2007

2008

2009

1,706,718
6,410,923
8,117,641

1,706,718
6,648,173
8,354,891

1,706,718
6,397,381
8,104,099

23,192
262,458
285,650

20,802
312,270
333,072

58,894
320,435
379,329

1,698,374
62,844
1,761,218
2,046,868

1,867,275
70,387
1,937,662
2,270,734

2,524,426
2,524,426
2,903,755

10,164,509

10,625,625

11,007,854

2,236,720
53,755
6,808
346,824
2,644,107

2,415,255
61,666
6,788
171,855
2,655,564

2,600,814
61,299
7,027
168,687
2,837,827

107,199
2,277,175
116,847
81,039
84,348
109,851
14,898

116,084
3,494,054
1,016,968
119,242
93,377
80,596
15,468

129,239
4,061,840
996,915
91,315
87,754
21,503
15,436

378,071

153,864

98,229
4,252,745
7,520,402

155,511
2,724,897
7,970,061

129,156
252,744
644,889
1,739,236
8,170,027

10,164,509

10,625,625

11,007,854

35 | P a g e

Rs (000)
Share capital and Reserves
Share capital
Reserves
Total equity

Abbott SFP Extract

2007

2008

2009

979,003
2,710,270
3,689,273

979,003
2,589,509
3,568,512

979,003
2,259,457
3,238,460

Non-Current liability
Deferred taxation

110,414

100,606

119,627

Current liabilities
Trade and other payables

881,681

1,380,592

1,606,489

992,095

1,481,198

1,726,116

4,681,368

5,049,710

4,964,576

1,516,821
25,892
4,393
5,133
1,552,239

1,560,835
23,580
4,393
5,773
1,594,581

1,662,785
31,779
4,393
6,434
1,705,391

Total equity and liabilities

Non-Current Assets
Fixed Assets - property, plant and
equipment
Long term loans and advances
Long term deposits
Long term prepayments

Current Assets
Stores and spares
Stock -in-trade
Trade debts
Loans and advances
Trade deposits and short term
prepayments
Accrued profit
Other receivables
Taxation recoverable
Other financial assets
Cash and bank balances
Total Current Assets

47,875
1,363,508
128,817
33,369

47,747
1,696,200
172,825
21,316

69,097
1,675,000
234,185
41,277

101,988
5,576
197,280
154,598
600,000
496,118
3,129,129

164,785
6,594
35,465
258,708

90,634
1,425
81,053
295,730

1,051,489
3,455,129

770,784
3,259,185

Total Assets

4,681,368

5,049,710

4,964,576

36 | P a g e

Ratios:

Ratios
Sales growth (%)
G.P Margin (%)
N.P Margin (%)
ROE (%)
Current ratio (times)
Acid test ratio (times)
Debtor turnover (days)*
Creditor turnover (days)*
Interest cover (times)**
Dividend cover (times)
EPS

Glaxo Smith Kline Pakistan Ratios

2007
2008
2009
5 26.3158331 9.8178468
37.245999 28.7662506 24.088798
15.743507 14.5874381 6.3450073
20.578947 23.4017057 11.524168
4.2700006 4.11323595
3.23639
2.977046 2.31000402 1.6273747
3.4664206
15.438169 24.969791
25
17
27
-280.4348
-318.26821 -143.18359
1
1.2
1.1
9.787938 11.4558293 5.4720815

Abbott Pakistan Ratios

2007
2008
11.3
8
41.42663917
29.9281
17.99332185 4.828866
32.11369828 9.639312
3.549048919 2.502643
2.002562151
1.27404
9.36 7.727991
21
-545.721112
-202.487
0.67
0.7
12.10171981 3.513575

2009
18.62459
29.1386
9.771177
25.49595
2.028763
0.986116
8.79033
22
-462.821
0.7
8.433845

* Average figures have been taken as per the formula below for both the companies for
comparison purposes.
** Exchange losses have been excluded from GSK Pakistan financial charges when calculating
I.C ratio as there are no exchange losses in Abbott's financial charges for comparison purposes.
I.C ratio is not negative but because of the using the spread sheet as the financial charges had
a negative sign.

I have made the SOCI and SFP extracts on Microsoft Excel 2007 and used the spread sheet
formulas for additions, subtractions, multiplication and division. For example G.P was calculated
by using the formula =SUM (J3+J4). Sales was in the row J3 and Cost of goods sold was in
the row J4. I added both the figures because I put a negative sign for cost of goods sold. This
formula was inserted in the row J5. Operating profit was calculated by deducting total operating
expenses from gross profit. For this I used the formula =SUM (J5+J6+J7+J8+J9) as the
operating expenses were negative so they were added. I calculated the ratio G.P margin by
going back to previous sheet and using the formula by =SUM (sheet1!K3 sheet1!J3/sheet1!J3*100).

37 | P a g e

Ratio Formulas:

Ratio
Sales growth (%)
G.P Margin (%)
N.P Margin (%)
ROE (%)
Current ratio (times)
Acid test ratio (times)
Debtor turnover (days)
Creditor turnover (days)
Interest cover (times)
Dividend cover (times)
EPS

Formula
{(Current year sales - Last year sales) / Last year sales}*100
(Gross profit / Sales)*100
(Net profit / Sales)*100
(PAT / Equity)*100
(Current assets / Current liabilities)
{(Current assets - Stock in trade) / Current liabilities}
{(Opening trade debts + Closing trade debts) / 2} / Sales} * 365
{(Opening Creditors + Opening BP*+ Closing creditors + Closing BP)/2}/COGS}*365
{(Operating profit - exchange losses) / (financial charges - exchange losses)}
(PAT / Dividends including bonus shares)
(PAT / No of Ordinary shares outstanding at the year end)

*BP= bills payable.

38 | P a g e

Skill and learning statement (SLS):

This is an important part of RAP where I will discuss my experience of undertaking it and
particularly what I learned out of this experience and how it has enhanced my communication
skills and questioning abilities and how it added value to my present skills and will help me in
future.

The SLS answers these questions?

What did I learn from the meetings with the project Mentor?
How did I answer my research questions?
Did I demonstrate any communication skills?
Has undertaking RAP helped me in understanding the world of accountancy
better and will this project help me in my future employment?

What did I learn from the meetings with the project mentor?
My project mentor was Mr. Fahim Ahmed, who is an ACCA teacher. The reason for choosing
Mr. Fahim was his helpful personality which I knew as a result of the past experience of
studying with him. His role in the RAP is of utmost importance.

Before the meetings an orientation class was held in which an introduction about the B.sc
program was given. Mr. Fahim gave an information pack which contained the guidelines for the
RAP. He briefly discussed different research topics and companies and limitations in gathering
information about local companies.

39 | P a g e

Meeting 1:
My first meeting was held with Mr. Fahim on 31st July 2010, two weeks after the orientation
meeting. Before the meeting, I was deciding and discussing the topic and the company with my
father, uncle and cousin. In the first meeting I communicated my topic and company to Mr.
Fahim. He asked me reasons for choosing this topic and company for which I gave him answer
as provided in the RAP. In this meeting we discussed about competitor, information gathering
sources, research aims and the framework and time table for completion of RAP. Though this
was the first meeting was an important one as my mentor explained me the approach and
structure to take for the RAP.

Meeting 2:
Soon after my first meeting I started working on introduction and information gathering. In
second meeting held on 31st August 2010 I showed my work to Mr. Fahim. This meeting was
lengthy and important as we discussed different aspects of analysis like the ratios, comparisons
with competitor, SWOT, conclusion and future prospects, referencing, financial charts and the
use of spread sheets. I questioned him regarding problems I could face during the analysis and
how to overcome them. He pointed out ratios of GSKP in the Annual report which are calculated
based on companys own assumptions. He advised me to see their calculations and where
possible calculate them using your own assumptions. This gave clearer picture of the financial
performance of the company and enhanced my analytical capabilities.

Meeting 3:
The third meeting took place at 25th October 2010 in which I gave 10-12 minute presentation.
The presentation was a good experience as it gave me an opportunity to evaluate my
presentation skills. The knowledge gained in the RAP process was reflected in my answers to
questions posed by Mr. Fahim which made me more confident of the whole experience.
Additionally we discussed ratio analysis as I was exceeding the word limit and guided on
eliminating insignificant information. My mentor reviewed the spread sheet. He also reviewed
the project as a whole to see if I had kept the right structure. I enquired from him the best way to
present the RAP.

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In particular was the questioning ability that I enhanced during the meetings. I questioned my
mentor regarding approach for analysis, information relevancy, user expectations and how to
present the RAP to maximum facilitate user of the report. The meetings taught me asking right
questions help in proceeding with the work swiftly and minimized understanding gap about
particulars of the project. Therefore asking questions made me confident in my proceedings.
The other important thing I learned during the meetings was to listen attentively to my mentor as
he advised to write down questions during the discussion and ask them when he had finished
explaining his point. This was an important professional aspect to learn because often in
meetings interruptions are common which creates communication gap and wastes time.
Attentive listening improved my work productivity. Robert Baden Powell said If you make
listening and observation your occupation you will gain much more than you can by talk.
(Ref: http://3.brainyquote.com/quotes/keywords/listening_2.html)

Mr. Fahim, being a professional lecturer is keen on time strictness. I learned meeting the
deadlines is very important.
I learned to follow instructions as given by mentor and will help me in my practical life where I
will be taking directions from my supervisor.

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How did I answer my research questions?

From the start I remained honest with the project and did what ever it required. I gathered as
much information from different sources in limited amount of time and make as proper
references as possible. I did my best to stay within the word limit and explain the analysis
effectively. I am studying for my ACCA papers so I always had time limitations. I have no work
experience so my understanding of real organization issues is limited to this analysis.

I set specific research aims and objectives which I tried to achieve to the best of my knowledge
and ability. This analysis will help users understanding financial and business performance of
GSKP and help them in investment decisions. I explained the ratios, trends, movements and
their reasons which I re-emphasized and briefly discussed in conclusion. I have mentioned
effects of both the average and closing figures where applicable like debtor and creditor
turnover. In the financial analysis the macroeconomic factors affecting the company is
substantiated with a website (http://www.pide.org.pk/pdf/highlights/inflation.pdf). I referenced the
sources from where I have gathered information as it is important to acknowledge others work.
I have never undertaken a research work and never of such a magnitude as it required
tremendous amount of hard work, diligence and patience. There are always chances of errors in
such research projects and tried my best ability to minimize them as Alexander pope said to err
is human, to forgive is divine.
(Ref: http://www.brainyquote.com/quotes/quotes/a/alexanderp101451.html)

In my ratio analysis I have made some assumptions e.g. I.C ratio for comparability purposes. I
also used my experience of local environment and business conditions e.g. In my SWOT
analysis I have mentioned GSKP Consumer health care brands arent advertised aggressively
which I have experienced watching T.V.

I tried to perform best analysis possible as far as my knowledge and ability allowed me and from
what I have learned over the years through my study and experience and tried to answer as
research questions as properly as possible.

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Did I demonstrate any communication skills?

I prepared the presentation on Microsoft power point 2007 which lasted about 10-12 minutes.
Before the presentation I practiced it in front of mirror and noted down all questions that could
be asked by my mentor. By doing this I learned to effectively answer questions covering every
aspect. I had prepared few notes which I used while giving the presentation. I started my
presentation with brief introduction on the company followed by important points on the
pharmaceutical industry and then covering financial and business analysis ending with
companys responsibilities and future prospects. I explained my ratio analysis through the use of
charts that I prepared using Microsoft Word and Microsoft Excel 2007. I particularly focused on
figures and trends that behaved abnormally and gave reasons for such behavior. My
presentation was more on the detail side and the questions posed by Mr. Fahim were
confidently answered by me. My mentor questioned about pharmaceutical industry, sources of
information, competitor figures and trends as its explanation enhanced my communication skills.
I observed during the meetings how my mentor would explain me certain aspects of the project
which I adopted and used while giving presentation to present my RAP in best possible manner.
My mentor advice me on how to further improve presentation skills like making gestures to
effectively communicate with the audience. This presentation enhanced my confidence and the
advices given by my mentor would be used for my later presentations.
The communication with Mr. Fahim on emails about the specifics of the project and constant
progress gave me a real life experience situation with a business client where constant
communication is a key to successful business strategy. This would help me in my career where
meetings will be held with real clients and presentations given.
I learned research like this enhances your answer giving capabilities as the research process
itself provides vast knowledge and one can confidently answer questions posed to him. The
gathering of knowledge from different sources and constant communication with mentor helps
confidence building which was reflected in my presentation to the mentor. These interpersonal
skills are very important to learn earlier where in practical life one has to be in constant
communication with seniors and clients and these skills decide ones success in the future.

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Has undertaking RAP helped me in understanding the world of

accountancy better and will this project help me in my future employment?

This research has provided me an advantage over students who will be starting their practical
life but will lack the added analytical capabilities that I have acquired through this project. Earlier
when teachers would explain practical life examples and refer to particulars of annual reports I
would have an understanding gap. But after analyzing real companys financial statements and
understanding their structure I am able to better comprehend what my teacher would try
explaining me.
Things I have learned in paper F7 and F9 I applied them as I have given their references. E.g. in
F9 I learned that company should have steady dividend policy to have steady share price and
cut in dividends give signaling effects of weak future prospects which I have mentioned in my
dividend cover ratio analysis.
In paper P3 I studied SWOT analysis therefore I was able to distinguish different components
like strengths, weaknesses, opportunities and threats for a real organization and by applying it
on GSK I was able to revise and relate to what I have learned theoretically.
At my school and early ACCA level, ratios analysis was limited to question scenarios, which
could be an ideal situation, for exam purposes. However when analyzing real company ratios
additional things have to be kept in mind e.g. in GSKP the reason for the decline in G.P and N.P
margin had been adverse macroeconomic factors. This involved connecting both accountancy
and economics knowledge.
I plan to practice audit and the important thing regarding auditing is to be comfortable to the
financial statements which RAP taught me. I have studied in my papers F8 and now P7 that
auditors as part of analytical procedures calculate ratios and compare them to prior years in
response to the assessed risk of material misstatement in the financial statements. So this has
prepared me for what I will be doing later in my employment and relate to what I have learned in
F8 and P7. Further my IT skills have considerably enhanced which will play a very important
role in my future employment.
Research like this requires patience and hard work. I had a fiasco relating my computer hard
disk which stopped working in the middle of my research but fortunately I was able to recover
the data. I learned that one shouldnt panic in these situations. This will help me in my future
employment since I have had the experience of such situation. I have learned to manage time
as apportioning time between RAP and exam preparation was always a difficult task. I will be
well equipped to apportion time when I will pursue further studies during my employment.
This RAP has improved my overall accountancy knowledge and has prepared me in advance
for all the later bigger more difficult research and analysis that I will undertake in my future
employment.

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Presentation

The business and financial performance

GSK Pakistan
over a three year period (2007-2009)

By Faisal Saleem

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Purpose of Presentation
About GSK Pakistan
Information Gathering
Techniques used in Analysis
Financial position of GSK Pakistan
SWOT Analysis
GSK Pakistan future prospects

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About GlaxoSmithKline Pakistan

GSKP Limited was created on Janu

2002 through the merger of SmithKlin
French of Pakistan Limited, Beecham
Pakistan (Private) Limited and Glaxo
Wellcome (Pakistan) Limited.
GSKP operates in mainly two indus
segments i.e. Pharmaceuticals (prescr
drugs and vaccines) and consumer he

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Pharmaceutical Industry Over

Pakistani Pharmaceutical industry is a $1.61 Bn market which

% with exports growing at 23% annually.
It employs about 162000 people directly and 1 Bn indirectly.
The industry has become highly genericized with about 75% g
25% research based brands.
There are 47000 registered products with 525 Pharmaceutica
including 30 operated by multinationals which have 53% of th
It is a highly regulated industry with Ministry of industries dec
pricing and registration granted by Central Licensing and Regis

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Information Gathering
Internet
GSK Pakistan official website (www.gsk.com.pk)
Annual reports
Study texts
Draft National health policy report 2009

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Techniques
for Analysis
Competitive ratio analysis.
Competitive trend analysis.
Graphical representation for trends and ratios.
SWOT Analysis.

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Financial Position

Increasing Sales Revenue trend with very sharp rise in 2008.

Increasing Cost of production due to adverse macroeconomi
Declining Gross profit margin and Net profit margin due to in
of
production with no price adjustments allowed by the g
Expenditure on New Penicillin facility.
Higher but declining Current ratio and Quick ratio.
Stable Dividend cover with good payout to shareholders.
Mixed trend in EPS.

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SWOT Analysis

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GSK Pakistan Responsibilities

A vision to have the opportunity to

difference to the lives of billion of peop
driving the mission to advance the qua
human life by enabling to do more, fee
and live longer.
Identify opportunities for productiv
efficiency through simplification and
standardization.
Deliver more products of value and
to sustain it for the years to come to im

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Future Prospects

GSK Pakistan has made good progress in sales performance.

Actively working on developing new products.
Maintaining growth of mature brands to create value for sha
to provide new and affordable health care to patients.
A number of new products in the area of Oncology, Respirato
Antibacterial are under registration and launch.
Merger between GlaxoSmithKline Pakistan and formerly Brist
Squibb Pakistan (Private) Ltd.

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Bibliography:
Official sources
GSK Pakistan Official website (http://www.gsk.com.pk/)
GSK Parent Company (http://www.gsk.com/)
GSK Pakistan Annual report 2007
GSK Pakistan Annual report 2008
GSK Pakistan Annual report 2009
Abbott Pakistan Official website (http://www.abbott.com.pk/)
Abbott Pakistan Annual report 2008
Abbott Pakistan Annual report 2009
Karachi stock exchange (www.kse.com.pk)

Regulatory sources
Pakistan Pharmaceutical manufacturer association
(http://www.ppma.org.pk/)

Ministry of health
(http://www.dcomoh.gov.pk/)

Ministry of population welfare

(http://www.mopw.gov.pk/)

Draft National Health Policy Report 2009 (Ministry of health, Pakistan).

(http://healthnwfp.gov.pk/downloads/draft%20health%20policy.pdf)

Pakistan Institute of Development Economics

(http://www.pide.org.pk/pdf/highlights/inflation.pdf)

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Acca Text books

Text Book Kaplan F7 Financial Reporting 2009/2010
Text Book Kaplan F9 Financial Management 2008/09
Text book BPP F9 Financial Management, Second edition 2008
Text Book BPP P3 Business Analysis

Other Books:
Colin Bamford, Keith Brunskill, Gordon Chain, Sue Grant, Stephen Munday, Stephen Walton,
(First Published 2002 Third Printing 2003), Economics, Chapter 2 The price system, the Press
Syndicate of the University of Cambridge.

News:
Daily times (http://www.dailytimes.com.pk/)
Brand Synario (http://www.brandsynario.com)

Other Sources:
All Biz (http://www.pk.all-biz.info/news/)
Pharma Biz (http://www.pharmabiz.com/article/detnews.asp?articleid=28358&sectionid=5)
Shvoong-Free books reviews/summaries and reviews (http://www.shvoong.com/)
Scribd (http://www.scribd.com/doc/29916204/Pharma-Industry-Pakistan)
Investopedia (http://www.investopedia.com/)
Inve
stor words (http://www.investorwords.com/)
Brainy quotes (http://www.brainyquote.com/)

Presentation images:
GSK logo (http://www.gsk.com.pk/)

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Slide one GSK Penicillin Facility (GSK Pakistan Annual report 2009)

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