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ACKNOWLEDGEMENT Through this we would like to thanks Almighty ALLAH, The most merciful, for providing us the skills and strength to fulfill a task, which could not have seen and achieved without His blessings. Now, we can move forward but with great thanks and appreciation to those who have supported and encouraged us in this project. This report would not have seen its completion without the guidance from our senior teacher, MR. Ali Dhamani. We can never forget your support and advices that you have given us. We also like to thank our seniors who gave us their responses, and helped us to accomplish this task.

LETTER OF TRANSMITAL MR. Ali Dhamani Course Instructor IQRA UNIVERSITY Defense view Dear Sir, This is the final analysis report based on the company GLAXOSMITHKLINE, as requested it is being submitted to you on JULY 16, 2012. In this report we have tried to find and give our interpretations on the ratios of the company and its overall position for the last three yearWe hope that the material we collected and presenting satisfies the purpose of the report which is given to us.

__________________ Muhammad Ali Jafri

______________________ Muhammad Ammar Alam

__________________ Nazish Minhas

______________________ Syed Jaffer Abbas Abidi

__________________ Ayesha Nadeem

______________________ Saba Aslam

GlaxoSmithKline (GSK)
COMPANY PROFILE

GlaxoSmithKline (GSK) is a world leading research-based pharmaceutical company with a powerful combination of skills and resources that provides a platform for delivering strong growth in today's rapidly changing healthcare environment. Mission GSK's mission is to improve the quality of human life by enabling people to do more, feel better and live longer. Strategic Intent GSK's strategic intent is to be the indisputable leader in the industry. Spirit of GSK Our company spirit describes how we need to behave if we are to achieve our goal. "We undertake our quest with the enthusiasm of entrepreneurs, excited by the constant search for innovation. We value performance achieved with integrity. We will attain success as a world class leader with each and every one of our people contributing with passion and an unmatched sense of urgency." Headquartered in the UK and with operations based in the US, the company is one of the industry leaders, with 6.3% per cent of the world's pharmaceutical market. GSK has a leadership position in anti-infectives, respiratory and vaccines and has a growing portfolio of oncology products. The company also has a Consumer Healthcare portfolio comprising over-the-counter (OTC) medicines, oral care products and nutritional healthcare drinks, all of which are among the market leaders.

Question 1

No Accounting standards difference was being found in three of the companies, all of them are following IFRS and IASB standards.

Question 2
ACTIVITY RATIOS
Indus. Avg GSK 2009 2010 2011 2011 Account receivable turnover (Days) 25.5 15.7 5.4 5.17 (By comparing from 2009 to 2011 you can see the very positive trend as it is reduce from 25.5 to 5.4 which is very closely in line with the industry average)

Indus. Avg GSK 2009 2010 2011 2011 Inv. Turnover (days) 66 68 67 66.89 (Inventory Turnover went a little high in 2010 as compare to 2009 but in 2011 it has taken the other way round and has gone with the industry avg. so its a positive sign) Indus. Avg GSK 2009 2010 2011 2011 Payable turnover (days) 33 34 30 24.92 Payable turnover is higher the better as it is easy payoff the debt more quickly so in comparing with the industry avg. it is relatively high although it decrease from 2009 to 2011 but still its a very positive sign) Indus. Avg GSK 2009 2010 2011 2011 Fixed Assets turnover(times) 4.4 4.5 4.6 3.22 (It is using its fixed assets efficiently as you can see it is way much highier than the industry avg. and fixed asset turnover is higher the better) Indus. Avg GSK 2009 2010 2011 2011 Total asset turnover (times) 1.2 1.3 1.4 1.28 (total asset turnover is high just a bit high from industry avg, although from 2009-2011 it has raised up which means company should update its asset technology. But still its a positive point in regards to industry avg)

9 MARKET RATIO

GSK Earnings Per Share (Rupees)

2009 5.2

2010 4.4

Indus. Avg 2011 2011 4.8 7.29

Earnings per share are calculated by dividing net income by the number of shares outstanding). The higher the EPS, the higher the share price. GSK has an EPS of 4.80 with industry average of 7.29 in 2011 which is decreasing trend, higher EPS is better. GSK has EPS of 4.4 with industry average 5.43 in 2010 which is decreasing trend, higher EPS is better. GSK has EPS of 5.2 with industry average 3.2 in 2009 which is increasing trend, this is better. As compare to other companies like Highnook trends are same as GSK in 2011, 2010 and 2009 EPS with industry average and Abbott Company has increased trends as compare to GSK and High-nook EPS in 2011, 2010 and 2011 with their industry averages.
GSK Price to earnings (times) 2009 20.9 2010 20 Indus. Avg 2011 2011 14.1 3.84

The Price-Earnings Ratio is calculated by dividing the current market price per share of the stock by earnings per share (EPS). The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are willing to pay a high price for a dollar of current earnings obviously expect high earnings in the future). GSK has P/E 14.1 with industry average 3.84 in 2011 trend is increasing, higher is better, P/E 20 with industry average 5.31 in 2010 trend is increasing, higher is better and P/E 20.9 with industry average 7.72 in 2009 which is increasing trend, higher is better. As compare to other companies like High- nook trends are same as GSK in 2011, 2010 and 2009 P/E with industry average and Abbott Company has increased trends as compare to GSK and High-nook P/E in 2011, 2010 and 2011 with their industry averages.

10 Indus. Avg 2009 2010 2011 2011 91.30% 108.10% 104.80% 31.68%

GSK Divident Payout

The Payout Ratio is simply the percentage of net profit paid to shareholders as dividends. The Payout Ratio also determines how much net profit is left in the business for future growth (1 - Payout Ratio). GSK give 91.30% dividend which is high with industry average 85.28% to their stockholders for short-term investors for the growth of company in 2011. GSK give 108.10% dividend which is high with industry average 41.41% to their stockholders for short-term investors for the growth of company in 2010. GSK give 104.80% dividend which is high with industry average 31.68% to their stockholders for short-term investors for the growth of company in 2009. As compare to other companies like High-nook they also give high dividends with industry average in 2011, 2010 and 2009 to their stockholders for the future growth. Abbott gives low dividend in 2011 and 2010 for long-term investors but high dividend in 2009.

GSK Divident Yield

2009 4.60%

2010 6.20%

Indus. Avg 2011 2011 7.50% 5.53%

The Dividend Yield is the financial ratio that expresses the dividends per share in relation to the share price. It is expressed as a percentage and can be viewed as the annual cash return of an investment in a business. GSK gives 7.50% dividend above the industry average 5.53% because they believe in expansion of the company in 2011. GSK gives 6.20% dividend above the industry average 5.56% because they believe in expansion of the company in 2010. GSK gave 4.60% dividend below the industry average 6.87% because they believe in expansion of the company in 2009. As compare to other companies like High-nook they give high dividends as compare to their industry averages in 2011, 2010 and 2009 for short-term investors to their stockholders. Abbott gives low dividends as compare

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to industry averages in 2011 and 2010 but gives high dividend in 2009 as compare to industry average for long-term investors for the expansion of company.
PROFITABLITY RATIOS

Indus. Avg GSK 2009 2010 2011 2011 Gross profit margin 25.30% 25.70% 26.80% 22.35% by comparing from 2009 to 2011 we can see a positive trend that is gross prfit margin is incresing and is relatively higher than the industry average while it is lower than highnoon and abbott Indus. Avg 2011 2011 5.20% 5.28%

GSK Net profit to sales

2009 6.20%

2010 5.60%

the net profit is lower than last year and slightly lower than the industry average.it always remained greater than highnoon and lower than abbott. Indus. Avg GSK 2009 2010 2011 2011 Effective taxs rate 38.98% 45.23% 48.99% 27.42% the trend is increasing but it is lower than the industry average.it has always remained higher than highnoon but shows fluctuation in comparision to abbott. Indus. Avg GSK 2009 2010 2011 2011 Cash flow margin (times) 0.0804 0.1286 0.00583 0.09 cash flow margin has increased in 2010 compared to gsk margin and industry average as well while it again decreased in 2011,it is relatively lower than the industry average.

Indus. Avg GSK 2009 2010 2011 2011 Operating profit margin 10.50% 10.30% 10.50% 6.82% by comparing from 2009 to 2011 there is a decrese in 2010 while in 2009 and 2011 it remains constant the trend is positive while the industry average is lower than the companies operating profit margin. The trend in highnoon is lower than gsk while in abbott the percentage is similar in 2009 but lower than gsk in 2010 and 2011.

12 Indus. Avg GSK 2009 2010 2011 2011 Return on Total assets 9.82% 7.14% 7.38% 10.48% the trend is incresing while it is lower than the industry average and competitors.

GSK Return on Equity

2009 9.80%

2010 9.80%

Indus. Avg 2011 2011 10.30% 15.87%

the return on equity is higher than last year but lower than industry industry average.the reason it is lower than the industry average is probably because of less use of leverage. Indus. Avg GSK 2009 2010 2011 2011 Cash return on Assets 0.1272 0.2252 0.00822 0.16 lower than last year and lower than the industry average.it is better in 2010 and 2009 while it is lower in 2011 from highnoon and abbott.

LIQUIDITY RATIOS Indus. Avg 2011 2011 2.4 2.15

GSK Currnet Ratios (times)

2009 2.8

2010 2.7

The company is in a more liquid position then industry avg. and would be able to pay off short term liabilities than its competitors.
Indus. Avg GSK 2009 2010 2011 2011 Quick or Asset test ratios (times) 1.5 1.5 1 0.91 (As quick test ratio does not include less liquid item like inv. Our quick asset ratio is much more better then industry avg. although it has decrease from 2009 to 2011) Indus. Avg GSK 2009 2010 2011 2011 Cashflow liquidity 1.7796 1.2809 0.5211 0.78 lower than last year and lower than industry average which shows a weak liquidity position.

13 Indus. Avg GSK 2009 2010 2011 2011 Avg. collection Period (days) 3.3027 5.59 5.366 24.92 average collection period is lower than last year and very low than the industry average which shows a strick credit policy of the company.

Indus. Avg GSK 2009 2010 2011 2011 Days Inv. Held 143.19 91.42 121.24 106.71 days inventory held incresed from last year and even greater than the industry average which shows that the firm has inefficiency in with respect to its inventory on hand.

Indus. Avg GSK 2009 2010 2011 2011 Days payable outstanding 82.497 89.0044 83.93 69.34 lower than last year much higher than industry average which means that company is taking too high time in paying its bills.

Indus. Avg GSK 2009 2010 2011 2011 Cash conversion or net rate cycle (days) 63.8957 8.0056 42.576 55.1 higher than last year and lower than industry average which indicate that the company is taking less time in converting the firms cash investment in inventory back into cash than the industry trend,which is a positive sign.

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Question 3
No lawsuits for GSK pharma in Pakistan could be find through the internet or through our sources although a very famous recent case for gsk Usa have been found of the avandia tablet, breaking the highest fined record of Pfizer

GlaxoSmithKline settles record healthcare fraud case

UK-based pharmaceutical firm GlaxoSmithKline (GSK) has reached a $3bn settlement for what US government officials have labelled as the largest healthcare fraud case in US history. The case related to allegations that the company broke US laws relating to the marketing and development of pharmaceuticals, whilst also failing to provide safety data regarding its diabetes medication Avandia. GSK was found to have marketed its antidepressant Paxil to patients less than 18 years old, despite it being approved for use in adults only, whilst also advertising Wellbutrin for uses it was not approved for, such as weight loss. "GSK was found to have marketed its antidepressant Paxil to patients less than 18 years old, despite it being approved for use in adults only." The investigation also found GSK to have engaged in providing illegal kickbacks, such as meals and spa treatments, to doctors to promote the drug, whilst the company also distributed a medical journal article labelled as misleading by the US Justice Department. GSK has agreed to plead guilty to three misdemeanour criminal counts, one for each of the drugs, with the company agreeing to pay $1bn in criminal fines and $2bn in civil fines. Deputy US Attorney General James Cole labelled the agreement as "unprecedented in both size and scope," adding that the fine represents a "clear warning to any company that chooses to break the law." GlaxoSmithKline CEO, Sir Andrew Witty, said that whilst the acts had occurred in a different era of GSK, the company had learnt from its mistakes. "We have fundamentally changed our procedures for compliance, marketing and selling. When necessary, we have removed our employees who have engaged in misconduct. In the last two years, we have reformed the basis on which we pay our sales representatives and we have enhanced our ability to 'claw back' remuneration of our senior management," Witty added. The settlement surpasses the $2.3bn settlement made by Pfizer in 2009 after it was found to have improperly marketed 13 drugs.

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Question 4 GlaxoSmithKline
Current price = 65.45 Earnings= 4.5 Price to earnings ratio =65.45/4.5 = 14.544 In order to earn 1 rupee of profit GSK ask its creditors to pay 14.544 rupees.

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Abbott Laboratories
Current price =125 Earnings= 17 Price to earnings ratio =125/17 = 7.35 In order to earn 1 rupee of profit Abbott ask its creditors to pay 7.35 rupees.

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HIghnoon Laboratories
Current price = 35.60 Earnings= 5.08 Price to earnings ratio =35.60/5.08 = 7.00 In order to earn 1 rupee of profit Highnoon ask its creditors to pay 7 rupees.

So comparing the three of them in regards to price to earnings ratio GSK ask for a very huge amount compare to its competitors in fact the twice as its competitors so its feasible to sell out its share right now.

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Question 5
The company secret as far as the ratios are concerned is its Activity Ratios which are way better then the industry average and its the proper use of their Assets in the company operations. Apart from the ratios the other secret success factors is listed as follows

Research and Development at GSK Pakistan

Research and Development at GSK Pakistan has pioneered the clinical research environment within the country. GSK has trained many physicians on the Good Clinical Practice guidelines, which are the ethical and scientific fundamentals for conducting clinical research. Over the last decade, GSK's work hs not only provided value to our global R&D pipeline, but has also provided new treatment opportunities and benefits to patients, which otherwise were not accessible to the local population. GSK Pakistan has been a leader at the Regional R&D level since 2009, providing expertise, training and guidance as well as by sharing best practices with other countries of the region. Various members of our clinical research team have received numerous awards and recognition.

Some highlights:
Over 60 studies have been conducted in the domains of Compassionate Programs, Local, International, Regional, Collaborative Research and Investigator Sponsor Studies. Our studies have targeted therapy areas of Oncology, Cardio Vascular & Metabolism, Respiratory and Neuroscience Over 1,700 patients have participated in the studies conducted in Pakistan. GSK Pakistan has had a successful performance in Oncology R&D since 2006 and was on the list of top 10 highest recruiting countries in the year 2006 with over 25 Oncology trials in Pakistan.

Global Manufacturing and Supply

Global Manufacturing and Supply (GMS) is a very strong global manufacturing network in GlaxoSmithKline. There are 79 manufacturing sites spread over 33 countries across the globe, supported by central and global groups. GMS is focused on the fundamentals of manufacturing, quality, safety and continuous improvements.

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Question 6
Talking about the overall industry of the pharma we can say that its on a rapid growing phase reason being that its such a industry that the demand of the medical items and products would not fall down and the industry would ultimately grow day by day. On the other hand talking about GSK we see that it has gone stagnant as we see its profitability ratios the company really need to coupe up with this problem what it can do to tackle this is to create a local supply chain in order to cut cost and increase its profitability.

Question 7 & 8 FINANCIAL PROBLEMS AT GLAXOSMITHKLINE

DECLINE IN PROFITABILITY Adverse supply-side shocks (in the form of accelerated rupee depreciation, high inflation digits and soaring utility expenses) coupled with a non-existent bargaining power on the selling front have posed serious concerns as far as companys profitability goes. Costs have reportedly increased over the analyzed period leading to dwindling profit margins; gross profit (26.8% in 2011 as compared to 37.2% in 2007), operating profit (10.5% in 2011 as compared to 25.2% in 2007) and net profit (5.2% in 2011 as compared to 15.7% in 2007) despite the rise in sales (105% rise in 2011 as compared to 2007).
25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2007 2008 Sales (LHS - In PKR '000) Operating Profit Margin (RHS) 2009 2010 2011 Gross Profit Margin (RHS) Net Profit Margin (LHS) 40% 35% 30% 25% 20% 15% 10% 5% 0%

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CAPITAL STRUCTURE An overall glance of the companys capital structure depicts heavy reliance on equity and little (but growing) concentration of non-current liabilities. An unlevered balance sheet (with no interest-bearing liabilities) when looked at in conjunction with the industry dynamics (local production only meeting 70% of the overall national demand and companies now relying more on volumes than margins to retain their profitability levels) presents a case of broadening the asset base. The case becomes even more appealing keeping in mind the companys extraordinary coverage ratios (times interest earned and cash coverage ratio) and unmatched efficiency in terms of utilizing its assets, thus presenting an opportunity to stretch the gap between the leader and the followers. INCREASING COST OF GOODS SOLD The pharmaceutical industry is now facing a very serious challenge to manage business operations in a highly inflationary environment without general price relief. The rising trend in local and imported raw and packaging material costs, coupled with the continuous weakening of Rupee and soaring domestic inflation have put tremendous pressure on the profitability of GlaxoSmithKline despite all initiatives taken for cost containment and improvement in manufacturing/ commercial operations. This is clearly unsustainable for any business and there is an urgent need for the government to address this issue.

ACTIONS EXECUTED BY GLAXOSMITHKLINE SO FAR TO OVERCOME PROBLEMS

DECLINE IN PROFITABILITY Reacting to the fall in the profit margins, GSK has turned its focus towards enhancing volumetric sales by investing in a diverse product mix ensuring long term sustainable growth rates. In addition to actively increasing the quantum of local sales, GSK has been focusing on expanding its export revenues. For the year 2011, the export business grew by 22% with bulk of the sales made to Afghanistan, Sri Lanka and Syria.

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CAPITAL STRUCTURE GlaxoSmithKline hasnt done anything to change their capital structure. INCREASING COST OF GOODS SOLD Since the rising cost of goods is unsustainable for any business, GSK will raise the general price level across the board for business survival. The criticality of the issue has been highlighted to the government and they are urging the government to take immediate steps to address the issue. In the last quarter of the year 2009, price increases on certain loss making products have been granted. But this has a small impact and the prices of the majority of pharmaceutical products remain unchanged since 2001. In the budget of FY09-10 the customs duty has been reduced from 25 percent and 10 percent to just 5 percent on import of 19 types of raw materials and active ingredients as well as chemicals. This will provide relief to the sector that was grappling with high cost of goods sold with major contributor being raw and packaging material.

SUGGESTIONS TO TACKLE PROBLEMS

DECLINE IN PROFITABILITY As far as profitability is concerned, it is not that easy to come up with ways of improving it if you are a pharmaceutical company working in Pakistan given the rising inflation and devaluation of currency making the raw materials (majority of which are being imported) more expensive and just to make the matter even worse, the government is not allowing any relief on increasing the prices so as to offset the increasing cost of goods sold. Having said this, one thing that GSK can do is try increasing its volume of sales probably through investing more in plant, machinery and capacity if they are already working on optimal level. Expansion in terms of asset base should also be complemented with more aggressive sales and marketing efforts in order to ensure that incremental production is translated into sales. In addition, the company should strive to achieve higher levels of efficiency to give a boost to it profitability margins via cost reduction.

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CAPITAL STRUCTURE Reorganization of capital structure is another domain GSK needs to emphasize upon. While negligible levels of debt save GSK from costs of financial distress but it also takes away companys ability to amplify its profitability. Being in an industry where business risk is almost non-existent (Healthcare being a necessity) and demand for products is consistent, GSK is in a prime position to take advantage of its unlevered balance sheet. Through a leveraged capital expansion, GSK will not only be able to fill the local demand-supply gap but can also venture into new export avenues. INCREASING COST OF GOODS SOLD Since bulk of the raw materials is being imported from international suppliers, we recommend GSK to either procure the required raw material from local sources or acquire the suppliers channels through backward integration.

CONCLUSION AND RECOMMENDATION

Over the analyzed period of 5 years; 2007-2011, GSK has undergone noticeable changes which directly impact the financial health of the company. From the standpoint of liquidity, the firm faces a deteriorating cash position, while inventory levels have heaped up (as evident from an increase in days sales in inventory). Similar to the case of stock-in-trade, receivables have also increased over the years as depicted by a galloping average collection period.
100% 80% 60% 40% 20% 0% 2007 Stock in Trade (LHS) Other Current Assets (LHS) 2008 2009 Trade Debts (LHS) Current Ratio (RHS) 2010 2011 Cash & Bank Balances (LHS) 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00

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While this corrosion in cash and higher levels of inventory and trade receivables have resulted in a depressing liquidity profile, GSK however still enjoys a good rapport in terms of its asset utilization (evident from its ability to maintain turnover ratios even in these testing times) and its direct contribution in subsiding the impact of rising costs on profitability (evident from the DuPont analysis).
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007 2008 2009 Net Profit Margin (LHS) 2010 2011 Total Assets Turnover (RHS) Return on Assets (LHS) 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

Profitability, on the other hand, remains a pressing issue owing to companys virtually nonexistent negotiable power over the selling prices of the products it deals in, thus making it susceptible to adverse supply-side shocks. These jolts may include (but not limited to) accelerated currency devaluation, rising inflationary rates, and high utility costs due to energy deficits An overall glimpse of the companys capital structure depicts heavy reliance on equity and little (but growing) concentration of non-current liabilities. An unlevered balance sheet (with no interest-bearing liabilities) when looked at in conjunction with the industry dynamics (local production only meeting 70% of the overall national demand and companies now relying more on volumes than margins to retain their profitability levels) presents a case of broadening the asset base. The case becomes even more appealing keeping in mind the companys extraordinary coverage ratios (times interest earned and cash coverage ratio) and unmatched efficiency in terms of utilizing its assets. Breakup of Liabilities (As on Capital Structure (As on December 31, 2011)
72%

December 31, 2011)

84.6% 5.0%

28% 0.5% 9.9%

Total Equity

Total Liabilities

Staff Retirement Benefits - Gratuity Deferred Taxation

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References:
http://www.gsk.com.pk http://www.pharmaceutical-technology.com/news/newsglaxosmithkline-settles-record-healthcarefraud-case/ http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C586002O0 http://www.gsk.com.pk/Research-and-Development/73/Research-and-Development-at-GSKPakistan.aspx