Module Code: MAN00012M

Module Title: Financial Management

Module Leader: Vasileios Georgiou
Open/Closed Assessment: Open
Maximum Word Count: 2,500
Release Date: Spring Term Week 3
Submission Deadline: Summer Term Week 2
Weighting: 100%

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Contents
Executive Summary.........................................................................................................................................3
Introduction........................................................................................................................................................4
Main areas of AstraZeneca annual report 2019.........................................................................................5
Assessment of Financial Performance of AstraZeneca for the year 2017, 2018 and 2019.............6
Profitability:....................................................................................................................................................6
Efficiency........................................................................................................................................................8
Liquidity........................................................................................................................................................10
Gearing and Interest Cover Ratio............................................................................................................10
Funding options for future sustainability.................................................................................................11
Expanding options from internal resources.........................................................................................12
Expanding options from Internal resources.........................................................................................12
Beyond Budgeting Techniques...................................................................................................................13
Beyond Budgeting techniques that AstraZeneca can use...............................................................13
Conclusion.......................................................................................................................................................14
References........................................................................................................................................................16
Appendix 1........................................................................................................................................................17

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 Executive Summary

This writeup evaluates the financial performance of the leading company of a health care

sector named AstraZeneca. The company operated globally with the stock ticker of AZN in

London Stock exchange and a primary listing company. This report will evaluate its financial

performance by calculating the performance indicators of profitability, efficiency, liquidity and

gearing ratios. With the help of evaluated data this paper will suggest the funding options and

the adaptation of beyond budgeting techniques and principles. In the end this paper will

conclude the findings and suggestions.

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Introduction

AstraZeneca is British-Swedish multinational firm that deals in a healthcare sector located in

Cambridge London. The majorly products are for oncological, cardio, gastrointestinal,

respiratory and infection. The company founded in 1999 and the recent number of employees

working are more than 70600. The company is listing at the primary level in London stock

exchange and a part of FTSE-100 index (“AstraZeneca,” 2021). It is a patient centered

company and strategically focused in science and innovation techniques and have vision to

cater emerging markets according to global standards. From its acquisition in 1999 the

company was constantly engaged in expanding the business and with the development and

approvals of new and innovative drugs, it got place in different regions of the world do

perform acquisitions globally. The purpose of writing this report is to understand the financial

performance of AstraZeneca for three consecutive years from 2017 to 2019 by critically

analyzing its annual report of 2019. The main area to work is the calculation of financial ratios

through four major areas of Profitability, efficiency, liquidity and gearing of AstraZeneca to

understand the company’s financial performance, identifying the funding options for the

expansion of business in emerging markets and to evaluate the consequences of beyond

budgeting techniques. Before identifying the funding options this report will provide some

comments on the financial performance of the company in the years from 2017 to 2019 and

then further elaborate the expansions in emerging market through funding options selected

from external and internal sources.

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Main areas of AstraZeneca annual report 2019

The annual report communicates the company’s previous year financial performance and its

functions and operations. It is usually floated to the shareholders and the stakeholders for a

public disclosure of company’s financial performance. The main areas of the AstraZeneca

annual report are its Financial statements, strategic reports and corporate governance

sections (“AstraZeneca_AR_2019.pdf,” n.d.). The Financial statements section includes its

audit reports, Preparation of financial statements, accounting policies, and consolidated

statements whereas the strategic reports area includes the new business expansion plans

and business reviews (Hayes, n.d.). The key stake holders of the company are the

investment companies such as PRIMECAP Management Co, Wellington Management Co,

Capital Research and Management Co, Fidelity Management and Research Co, T. Rowe

Price Associates, Inc., Fisher Asset Management LLC, GQG Partners LLC, Jennison

Associates LLC, Invesco Advisors and Arrow street Capital LP (“AZN - AstraZeneca PLC

Shareholders - CNNMoney.com,” n.d.). As the stakeholders represents the ownership in the

company they use the annual reports for the projection of future business revenues, Return

on Investments, future market expansions and investment decisions. AstraZeneca annual

report 2019 shows its financial highlights in four of its therapy products which are oncological,

cardiovascular, respiratory and other infection diseases on the front part of the report. In the

node of catering to emerging market they focus to penetrate in China and other profitable

markets like Brazil and Russia [page no.22 of (“AstraZeneca_AR_2019.pdf,” n.d.)] with the

innovation of new and effective medicines that keep the power of accessibility and

affordability.

There are three main financial statements that the company forms which are: The Income

statement, balance sheet and cash flow statement. These Financial statements are

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presented in Appendix 1 (all the figures are in thousands)

https://finance.yahoo.com/quote/AZN/financials/

Assessment of Financial Performance of AstraZeneca for the year 2017, 2018 and 2019

AstraZeneca Financial performance is measured by evaluating the four key areas that are:

Profitability, Efficiency, Liquidity and Gearing.

Profitability:

The profitability ratios include the calculations of the ratios that provides the picture of

company’s ability to generates its sales by the utilizations of its resources. These ratios are

named as ROCE (Return on Capital employed), Operating profit margin, Gross Profit margin

and ROSF (Return on Shareholder Funds).

1. Calculation for ROCE for the years 2017,2018 and 2019

ROCE is the return on capital employed. It is a profitability ratio through which companies

calculate the profit by the use of its capital. The basic formula to calculate ROCE is to divide

EBIT with the Capital employed x 100. Where

EBIT= earnings before interest and tax and

Capital employed = Current Assets – Current Liabilities

Breakdown 2019 2018 2017

EBIT 2,950,000 3,359,000 2,940,000

Capital employed 14,596,000 14,044,000 16,642,000

ROCE 20.2% 23.9% 17.66%

Appendix 1

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The profit percentage generated by the use of capital got increased in 2018 but declines in

2019. This indicates that it depends on earnings before interest and tax. When the sales

increases the ratio of ROCE increases.

2. Operating Profit Margin

The operating profit margin is a that part of profitability ratio which is calculated by dividing

the operating income with the revenue multiplied by 100. The calculations are as under:

Breakdown 2019 2018 2017

Total Operating Income 2,924,000 3,387,000 3,677,000

Total Revenues 24,384,000 22,090,000 22,465,000

Operating Profit margin 11.99% 15.33% 16.37%

Appendix 1

Calculations shows that the operating profit margin ratio was declining from 2017 to 2019.

3. Gross Profit Margin

The gross profit margin ratio is the part of profitability ratio which is calculated by dividing the

gross profit by the revenue and then multiplied by 100.the calculations are as under:

Breakdown 2019 2018 2017

Gross Profit 19,463,000 17,154,000 18,147,000

Total Revenues 24,384,000 22,090,000 22,465,000

Gross profit margin ratio 79.8% 77.6% 80.77%

Appendix 1

The gross profit margin got decline in 2018 but again increased in 2019.

4. ROSF

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ROSF is the return on stake holders fund. It is calculated by dividing Net profit after tax on

common stockholders by ordinary share capital plus revenue and then multiplied by 100. The

calculations are as under:

Breakdown 2019 2018 2017

Net Income after tax on common stockholders 1,335,000 2,155,000 3,001,000

Ordinary share capital + Revenue 1,312,000 + 1,276,039 + 1,266,222+

24,384,000 22,090,000= 22,465,000 =
= 23,366,039 23,731,222
25,696,000
ROSF 5.19% 9.2% 12.64%

Appendix 1

The return on ordinary share capital defines the profit margin ratio that the stakeholders have

for their ordinary share capital. The percentage share is continuingly declining from 2017 10

2019.

Efficiency

1. Average Inventory turnover period

The average inventory turnover period represents the inventories that have significant impact

of investments in business. For some business-like manufacturing of products, the stock

represents the total assets (“Appendix 5,” n.d.). The average turnover period is the number of

days the assets are being held. The formula to calculate this ratio is: Average Inventory

turnover= Common stock equity/ cost of revenue multiplied by 365 days.

Breakdown 2019 2018 2017

Common stock equity 13,127,000 12,468,000 14,960,000

Cost of revenue 4,921,000 4,963,000 4,318,000

Average turnover period 974 days 917 days 1265 days

Taken from Appendix 1

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 2. Average settlement period for receivables

The average settlement period indicates that how long it takes to the customer to pay its

debts. The ratio is calculated as: Average settlement period = Issuance of debts/ Repayment

of debts and then multiplied by 365 days.

Breakdown 2019 2018 2017

Issuance of Debts 500,000 2,971,000 1,988,000

Repayment of Debts -1,500,000 -1,498,000 -1,414,000

Average Settlement period 121 days 723days 513 days

Appendix 1

3. Average settlement period for payables

The average settlement period of payables shows that in how much time the business will

pay to its creditors. The ratio is calculated as: Average settlement period for creditors = credit

trade/ credit purchase and then multiplied by 365 days. As there is no information given on

credit accounts in (“AstraZeneca_AR_2019.pdf,” n.d.) so we leave this calculation.

4. Sales revenue to Capital employed ratio

This ratio indicates that how efficiently the long-term capital employed produce to increase

the sales revenue of the businesses. The ratio is calculated as: Sales to Capital employed

ratio= Sales / Capital employed

Breakdown 2019 2018 2017

Total revenue 24,384,000 22,090,000 22,465,000

Capital employed (total equities) 14,596,000 14,044,000 16,642,000

Sales revenue to capital employed 1.67 1.57 1.35

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Appendix 1

Liquidity

1. Current Ratio:

The current ratio of the business compares the liquid assets (that assets which will soon be

transform into cash) with the current liabilities. The current ratio is calculated by using the

formula: Current ratio= Current Assets / current liabilities

Breakdown 2019 2018 2017

Assets 61,377,000 60,651,000 63,354,000

Liabilities 46,781,000 46,607,000 46,712,000

Current Ratio 1.31 1.30 1.36

Appendix 1

2. Acid test Ratio

Acid test ratio indicates more rigorous test for liquidity. It is the most common debate that

stock in hand is cannot be converted into cash on early basis there for this ratio is calculated

as: Acid test Ratio = (Current Assets- common Stock) / Current liabilities

Breakdown 2019 2018 2017

Current Assets – Common Stock 48,250,000 48,183,000 48,394,000

Current Liabilities 46,781,000 46,607,000 46,712,000

Acid Test Ratio 1.031 1.033 1.036

Appendix 1

Gearing and Interest Cover Ratio

1. Gearing

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The role of gearing enters into the business when it asked for investments from outsiders. It

is a common practice because business requires loans for its expansions and growth. When

the business borrows large amount of investments then they commit to pay the interest

amount on the capital repayments. Gearing ratio is calculated as: Gearing ratio = long term

liabilities / (share capital + long term Liabilities) x 100

Breakdown 2019 2018 2017

Long-term liabilities 675,000 0 5000

Share capital + long -term liability 31,354,000 -31,581,000 -32,757,000

Gearing 2.1% 0% 0.02%

Appendix 1

2. Interest Cover Ratio

The Interest cover ratio indicates the level of profit available to cover the interest payable.

This can be evaluated as: EBIT/ Interest payable

Breakdown 2019 2018 2017

EBIT 2,950,000 3,359,000 2,940,000

Interest Payable 1402000 1366000 713000

Interest Cover Ratio 2.104 2.46 4.1

Appendix 1

Funding options for future sustainability

From the above statistics and figures it is cleared that the business has been slowing down in

2019 as compared to 2018 and 2019. For future sustainability there is a need for the

identification of the resources for the expansion of business from the internal and external

sources of the company.

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Expanding options from internal resources

1. Expanding in Physical Locations

AstraZeneca is constantly involved in the expansion of business from the time of its formation

and have captured most of the markets in Europe, America, and bigger Asian countries. It is

now to think out of the box. Moving in developing countries with the low cost and affordable

drugs becomes the competitive advantage for the company (Tannoury and Attieh, 2017). Due

to involvement in developing countries the company can save its expenses from low cost

labor, low charges on utilities, major research on new drugs and the availability of customers

to increase the revenues.

2. Using the power of employees

One of the most significant business power is its employees. Although AstraZeneca is

dealing with 70600 employees around the globe. The internal factors of the company depend

on the strengths and weaknesses of the company. When the employees are highly motivated

and committed the powers of utilizing internal resources increases resulting in business

developments through ideas and innovations (Contributor, n.d.).

Expanding options from Internal resources

1. Internationalization

Catering sustainable development through internationalization is one of an effective way of

funding options. Going for research and developments in the emerging markets will increase

the new product variants in more categories than oncological, cardio, gastrointestinal,

respiratory and infection. In recent scenario of declining financial performances the company

should weigh up the exact market place to reserve the high sales volumes by visualizing the

actual needs of the customers (Milanesi et al., 2020).

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 2. Going Green

The future success of every business depends on how well it contributes towards the

sustainable environment. Reducing the residual, securing the water footprints and reduction

in floatable chemical material in the air and making the recyclable product packages may

results in the development of sustainable image of the company. Although as mentioned on

page number 267 of (“AstraZeneca_AR_2019.pdf,” n.d.) the company is involved in low

greenhouse gas emission in reduction is water usage but delivering these techniques in the

emerging markets will be the major step in environmental sustainability as the world shares

the same sky (Chaturvedi et al., 2017).

Beyond Budgeting Techniques

Beyond Budgeting is a leadership principle in which the companies take bold decisions on

the budgeting rather than following and taking care about the short term financial target

setups. The purpose of beyond budgeting is to inspire people for the cause of increasing

profit through fare values and abrupt decisions rather than following the complex procedures

and policies of the company. It provides transparency, autonomy and responsibility over the

organization. In modern pharmaceutical firms it is an adopted agile management tool for

future forecasting.

Beyond Budgeting techniques that AstraZeneca can use

Beyond budgeting is the process which abandon the complex budgeting process (Radonić,

2018). So, to abandon them there requires some techniques to replace the traditional

process. There are no specific techniques developed yet but some of the practices have

proven to be efficient and effective in past. These include:

1. Changing in forecasting and gaining competitive advantage

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The budgeting forecast should be developed on monthly or on quarterly basis rather than

projecting for the whole year. This will reduce time and increase efficiency. The use of BB

techniques in AstraZeneca will not only result in time and cost reduction but adopting the

agile management tool will create a competitive advantage in the pharmaceutical industry.

With the use of short term performance indicators the company can be able to effective

predict the future forecast by evaluating the short term budget goals

(“gupea_2077_22617_1.pdf,” n.d.).

2. Company’s Target based on KPIs.

KPIs are the key performance indicators of the firm. The targets that the company sets are

purely depending on its financial indicators derived from financial ratios. Pharmaceutical

companies usually set targets on quarterly or annual basis. By targeting them on quarterly

basis it provides the room for improvement for the rest of year. If a company combines both

of the traditional budgeting and beyond budgeting creating a hybrid budgeting process have

posed a better success rates (Libby and Lindsay, 2010). In R&D the KPIs are the significant

indicators for the short term and long-term performances and the company evaluates its

profits and bonus of employees on the individual basis at the end of the year. This creates a

demotivation among the employees as the performance are evaluated once a year. By the

use of agile management tools, the sets targets on decentralized basis and run the process

in a better way (“gupea_2077_22617_1.pdf,” n.d.).

Conclusion

This report focusses on the financial performance of AstraZeneca a pharmaceutical company

operating globally in different regions of the world and have been a primary listing company in

London stock exchange. While calculating the financial performance through profitability

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ratios, efficiency, Liquidity and gearing ratios, this paper examines that the company face

decline in the performance in 2019 when comparing to the previous years of 2018 and 2019.

The income statement shows the increase in the Sales revenue and the gross profit but the

calculations for ROCE, gross profit margin, operating profit margin and ROSF are showing

the declining percentage in comparison to the previous two years. There will complex causes

of these declines and on the basis of results, this paper suggests some funding techniques

two from internal factors of the organization and two from the external resources of the

organization. The internal resources include expanding physical location by going in

emerging markets and secondly using the power of employees. From external sources this

paper suggests two funding options internationalization and environmental sustainability. In

the end this paper talks about the beyond budgeting the principles and technique and their

effect if the company adopts these agile budgeting tools. The two of the techniques that the

company use are Changing in forecasting and gaining the competitive advantage and the

other one is use of target based key performance indicators. This paper provides the

evidence that it is not suitable to totally abounded the traditional budgeting procedures but

the adoption of beyond budgeting principles and technique and developing its hybrid form

can results in better future success.

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References

Appendix 5: Financial Ratios, n.d. , in: Simple Tools and Techniques for Enterprise Risk Management. John
Wiley & Sons, Ltd, pp. 567–571. https://doi.org/10.1002/9781118467206.app5
AstraZeneca, 2021. . Wikipedia.
Astrazeneca PLC (AZN) Balance Sheet - Yahoo Finance [WWW Document], n.d. URL
https://finance.yahoo.com/quote/AZN/balance-sheet/ (accessed 3.13.21).
Astrazeneca PLC (AZN) Cash Flow - Yahoo Finance - Yahoo Finance [WWW Document], n.d. URL
https://finance.yahoo.com/quote/AZN/cash-flow/ (accessed 3.12.21).
Astrazeneca PLC (AZN) Income Statement - Yahoo Finance [WWW Document], n.d. URL
https://finance.yahoo.com/quote/AZN/financials?p=AZN (accessed 3.13.21).
AstraZeneca_AR_2019.pdf, n.d.
AZN - AstraZeneca PLC Shareholders - CNNMoney.com [WWW Document], n.d. URL
https://money.cnn.com/quote/shareholders/shareholders.html?symb=AZN&subView=institutional
(accessed 3.12.21).
Chaturvedi, U., Sharma, M., Dangayach, G.S., Sarkar, P., 2017. Evolution and adoption of sustainable practices
in the pharmaceutical industry: An overview with an Indian perspective. J. Clean. Prod. 168, 1358–
1369. https://doi.org/10.1016/j.jclepro.2017.08.184
Contributor, Pestle., n.d. Internal Factors that May Affect the Business Organization [WWW Document]. URL
https://pestleanalysis.com/internal-factors-affect-business-organization/ (accessed 3.13.21).
gupea_2077_22617_1.pdf, n.d.
Hayes, A., n.d. Annual Reports: What You Need to Know [WWW Document]. Investopedia. URL
https://www.investopedia.com/terms/a/annualreport.asp (accessed 3.12.21).
Libby, T., Lindsay, R.M., 2010. Beyond budgeting or budgeting reconsidered? A survey of North-American
budgeting practice. Manag. Account. Res. 21, 56–75. https://doi.org/10.1016/j.mar.2009.10.003
Milanesi, M., Runfola, A., Guercini, S., 2020. Pharmaceutical industry riding the wave of sustainability: Review
and opportunities for future research. J. Clean. Prod. 261, 121204.
https://doi.org/10.1016/j.jclepro.2020.121204
Radonić, M., 2018. Beyond budgeting: Gaining competitive advantage through strategic changes in budgeting
processes. Megatrend Rev. 15, 141–158. https://doi.org/10.5937/MegRev1802141R

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Tannoury, M., Attieh, Z., 2017. The Influence of Emerging Markets on the Pharmaceutical Industry. Curr. Ther.
Res. 86, 19–22. https://doi.org/10.1016/j.curtheres.2017.04.005

Appendix 1

Income Statement
Figures in thousands
Breakdown 12/30/2019 12/30/2018 12/30/2018
Total revenues 24,384,000 22,090,000 22,465,000
Cost of revenue 4,921,000 4,963,000 4,318,000
Gross Profit 19,463,000 17,154,000 18,147,000
Operating expenses 17,761,000 15,644,000 15,855,000
Operating Income 1,702,000 1,510,000 2,292,000
Net non-operating Interest Income -1,237,000 -1,228,000 -1,321,000
Pre-tax Income 1,548,000 1,993,000 2,227,000
Tax Provision -321,000 -57,000 -641,000
Net Income Common stock holders 1,335,000 2,155,000 3,001,000
Diluted Net Income available to 1,335,000 2,155,000 3,001,000
Common stockholders
Basic EPS 0.52 0.85 1.19
Diluted EPS 0.52 0.85 1.19
Basic Annual Share 2,602,000 2,534,000 2,534,000
Diluted Annual Share 2,602,000 2,534,000 2,534,000
Total Operating Income as reported 2,924,000 3,387,000 3,677,000
Rent expense Supplemental - 188,000 137,000
Total expenses 22,682,000 20,580,000 20,173,000
Net Income from operations 1,335,000 2,155,000 3,001,000
Normalized Income 364090 636250 1,875,910
Interest Income 165,000 138,000 29000
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 Interest expense 1,402,000 1,366,000 713,000
Net Interest Income -1,237,000 -1,228,000 -1,321,000
EBIT 2,950,000 3,359,000 2,940,000
EBITDA - - -
Reconciled cost of Revenue 4,921,000 4,936,000 4,318,000
Reconciled Depreciation 3,762,000 3,753,000 3,036,000
Net Income from continuing operations 1,335,000 2,155,000 3,001,000
Total unusual items excluding goodwill 1,229,000 1,875,000 1,398,000
Total unusual items 1,229,000 1,875,000 1,398,000
Normalized EBITDA 5,483,000 5,237,000 4,587,000
Tax rate for calculation 0 0 0
Tax effects of unusual items 258,090 365,250 263,910
(“Astrazeneca PLC (AZN) Income Statement - Yahoo Finance,” n.d.)

Balance Sheet
Figures in thousands
Breakdown 12/30/2019 12/30/2018 12/30/2018
Total Assets 61,377,000 60,651,000 63,354,000
Total Liabilities 46,781,000 46,607,000 46,712,000
Total equities 14,596,000 14,044,000 16,642,000
Total Capitalization 28,857,000 29,827,000 30,520,000
Common Stock Equity 13,127,000 12,468,000 14,960,000
Capital Lease Obligation (long-term liability) 675,000 0 5000
Net tangible Assets -1,937,000 -21,198,000 -23,053,000
Working Capital -2,554,000 -701,000 -3,233,000
Invested Capital (Shared capital) 30,679,000 31,581,000 32,762,000
Tangible Book Value -19,374,000 -21,198,000 -23,053,000
Total Debts 18,227,000 19,113,000 17,807,000
Net Debts 12,183,000 14,386,000 14,571,000
Share Issued 1,312,000 1,276,039 1,266,222
Ordinary Share Number 1,312,000 1,276,039 1,266,222
Treasury share number 0 0 0
(“Astrazeneca PLC (AZN) Balance Sheet - Yahoo Finance,” n.d.)
Cash Flows
Figures in thousands
Breakdown 12/30/2019 12/30/2018 12/30/2018
Operating Cash flow 2,969,000 2,618,000 3,578,000

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 Investing Cash flow -657,000 963,000 -2,328,000
Financing Cash flow -1,765,000 -2,044,000 -2,936,000
End cash position 5,223,000 4,671,000 3,172,000
Capital Expenditure -2,460,000 -1,371,000 -1,620,000
Issuance of Capital Stock 3,525,000 34000 43000
Issuance of Debt 500,000 2,971,000 1,988,000
Repayment of Debt -1,500,000 -1,498,000 -1,414,000
Free Cash Flows 509,000 1,247,000 1,958,000
(“Astrazeneca PLC (AZN) Cash Flow - Yahoo Finance - Yahoo Finance,” n.d.)

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