gsk

ANALYSIS OF FINANCIAL STATEMENT

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GLAXOSMITHKLINE PAKISTAN LIMITED:GlaxoSmithKline (GSK) is a world leading research-based pharmaceutical company, engaged in manufacturing and marketing of ethical specialties, other pharmaceutical, animal health and consumer products. With a powerful combination of skills and resources, it provides a platform for delivering strong growth in today's rapidly changing global healthcare environment.Headquartered in the UK, the company is one of the industry's leading companies with leadership in four major therapeutic areas - antibiotics, central nervous system (CNS), respiratory and gastro-intestinal/metabolic. In addition, it is a leader in vaccines and also has a growing portfolio of oncology products.

GlaxoSmithKline Pakistan Limited came into existence after the merger of Smith Kline and French of Pakistan Limited and Beecham Pakistan (Private) Limited with Glaxo Wellcome Pakistan Limited in 2002. It is listed on the Karachi and Lahore stock exchanges. GSK has a large portfolio of products ranging tablets, toothpaste, inhalers and complex capsules in over 28,000 different pack sizes and presentations. Nine of its products are amongst the top 15 brands in the country.

GSK sells its prescription medicines primarily to wholesale drug distributors, hospitals, government entities and other institutions. These products are dispensed to the public by pharmacies. It also exports it good quality products, which make around 2% of GSK's sales. Major export markets include Afghanistan, Sri Lanka, Syria and Greece. In 2008, the export business grew by 13% (2007: 19%) and amounted to Rs. 289 million (2007: Rs. 256 million). Major markets included Afghanistan, Sri Lanka and Syria.

GSK PAKISTAN SUCCESS STORY:GSK leads the industry in value, volume and prescription market shares.VALUEGSK LEAD THE WAY IN PAKISTANGSK maintains the largest value share of the Pakistani Pharmaceutical Industry.We are proud to have 3 of our brands in the top 10 products list by value share.Our leading product by value is “AUGMENTIN”.VOLUMETHEIR BRANDS STAND OUT FROM THE CROWDHas greatest percentage of industry volume share.7 out of top 10 products by volume share belong to the GSK family.Leading Product by volume is “BETNOVATE”.PRESCRIPTIONGSK REIGNS OVER THE MARKETLeaders in prescription share.Panadol maintains its position as our leading prescription product.4 of GSK’s brands make the top 10 list of prescribed products.

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VISIONGlaxoSmithKline’s vision is exciting:

“The opportunity to make a difference to the lives of billions of people”

Their value system and operating principles provide the necessary guidance on how they work at GlaxoSmithKline. The key to their success is their desire and passion to pursue GlaxoSmithKline’s vision. They take pride in their commitment to produce products that benefit patients and improve the quality of people’s lives.

MISSIONGlaxoSmithKline has a challenging and inspiring mission: to advance the quality of human lives by enabling people to, “DO MORE, FEEL BETTER. LIVE LONGER”. This mission drives them in their purpose to develop innovative medicines and products that help millions of people. They have a legacy of great science, and what they do helps people live healthier, happier lives around the world, every single day.

STRATEGIC PRIORITIESBy focusing their business around their five strategic priorities, they’re confident that they can fulfill their promises to the world.

Grow a diversified global businessThey are reducing risk by broadening and balancing their portfolio, diversifying new product areas, while also fully capturing opportunities for their products across all geographic boundaries.Deliver more products of valueTransforming R&D to ensure that they not only deliver the current pipeline of new pharmaceuticals, vaccines and Consumer Healthcare products, but that they are also able to sustain this flow of new products for years to come.Building trustThey see building trust as a fundamental platform. Essentially, without trust, they don’t have a business.Create a culture of individual empowermentEmpowerment is the key to achieving their goals and they ensure that their employees receive the tools and inspiration they need to make decisions with confidence and accountability.Simplify the operating modelThey are simplifying their operating model to ensure that it is fit for purpose and able to support their business in the most efficient and effective way.

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CSR AT GSK

Community interests are at the heart of the GSK business model. GSK provides donations, medicines, time and equipment, to non-profit organizations to help improve health and education. They support programs that are innovative, sustainable, and bring real benefits to those most in need.

Every member of the GSK family strives to contribute their time, talents, and ideas to make a real and meaningful contribution towards improving the quality of human life. They cross borders and boundaries, share with, and learn from one another. They contribute to the health and well being of people with enthusiasm and vigor.

GSK Pakistan CSR Initiatives

SERVING FROM THE HEARTGSK Pakistan’s vision and mission subscribe to improving the quality of human life by enabling people to do more, feel better and live longer. Today, it is the largest pharmaceutical company in the country and is proactively responding to the changing operating environment, creating a balanced business model to deliver sustainable growth.

To implement its CSR program, GSK Pakistan maintains strong partnerships with non-government organizations such as Pakistan National Forum on Women’s Health (PNF), Concern for Children Trust, and The Trust for Health and Medical Sciences. The Company has been one of the largest corporate donors for the National Commission for Human Development (NCHD).

The Islamabad-based Pakistan Centre for Philanthropy (PCP) awarded a Corporate Philanthropy Award Certificate to GSK Pakistan in 2008, in recognition of its support for social development causes. According to the PCP report, GSK is among the top 15 companies, and the only pharmaceutical company leading corporate donations in Pakistan.

GSK supports various health, women and social development, education and relief programs at the grass root level. Some of the key initiatives include:

HEALTH & SOCIAL DEVELOPMENTCenter of Nursing ExcellenceGSK approved a grant of £ 250,000 to support the development of a Center of Nursing Excellence in Karachi in 2008. This three-year project, in collaboration with the Pakistan

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National Forum on Women’s Health (PNF) and the Pakistan Nursing Council (PNC), aims at improving the quality of nursing training to develop teaching capabilities of the nursing faculty across Pakistan. The Centre was formally inaugurated on 18 November 2008.

The first batch of 31 students graduated in April 2009 and the second batch graduated in November 2009. It is estimated that a single well-trained nursing teacher could eventually impact the care of approximately 40,000 patients each year by teaching an average of 100 new nurses. GSK will provide funding and support for the project for three years after which it will become self-sustained.

The Trust for Health and Medical SciencesGSK supports the Trust for Health and Medical Sciences which has been running a charitable clinic in the Landhi area of Karachi since the early 1980s and charges a nominal fee for treating patients. Since 1983, around two million patients have been treated and the clinic has matured into a large set up with multiple medical facilities. More than 90,000 patients receive medical attention annually, and the clinic has recently started treatment and counseling for heroin addicts.

Concern for Children TrustThe Concern for Children (CFC) has been promoting preventive and primary healthcare and education for children in Pakistan since 1997. With GSK’s support, CFC has set up three computer literacy projects for low-income schools across Karachi. Approximately 8,000 children have benefited from these facilities so far. CFC is developing a project in Mohammadi –Machhar – Colony, a shanty settlement along the Karachi port. A mother and child healthcare centre is also being set up to provide primary, pre-natal, anti-natal services and health information and education to 8,000-10,000 mothers and children each year. GSK has donated PKR 4 million for this project, and also provides medicines for the free healthcare camps organized by CFC in different parts of the country.

RELIEFInternally Displaced PersonsThe military operation against extremists in the Swat, Buner and Lower Dir districts of the Malakand region of North West Frontier Province (NWFP) forced more than 2.5 million people to flee their homes — the second biggest internal displacement in the world after Rwanda, according to the UN. GSK Pakistan has donated bulk stocks of necessary antibiotics, analgesic, painkillers, anti-diarrhoeal and skin ointments for primary and tertiary medical relief to the IDPs. Medicines worth PKR 8 million were donated to the National Disaster Management Authority (NDMA), the National Commission for Human Development (NCHD), Sarhad Rural Support Programme (SRSP), and the Holy Family Hospital in Rawalpindi.

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FINANCIAL STATEMENTS AND

CALCULATIONS

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14

BALANCE SHEET(RUPEES ‘000)

2004 2005 2006 2007 2008 2009

SHARE CAPITAL AND RESERVESShare Capital 873,840 1,092,300 1,365,375 1,706,718 1,706,718 1,706,718

Reserves 4,674,314 5,645,662 6,171,543 6,410,923 6,648,173 6,397,381

Total shareholder's equity 5,548,154 6,737,962 7,536,918 8,117,641 8,354,891 8,104,099

NON-CURRENT LIABILITIES

Staff retirement benefits-staff gratuity

149,069 158,469 66,057 23,192 20,802 58,894

Deferred taxation 75,987 97,385 137,041 262,458 312,270 320,435

Total non-current liabilities 225,056 255,854 203,098 285,650 333,072 379,329

CURRENT LIABILITIES

Trade and other payables 953,829 894,170 1,598,432 1,698,374 1,867,275 2,524,426

Taxation 138,151 372,525 105,374 62,844 70,387 -

Total current liabilities 1,091,980 1,266,695 1,703,806 1,761,218 1,937,662 2,524,426

Total Liabilities 1,317,036 1,522,549 1,906,904 2,046,868 2,270,734 2,903,755

CONTINGENCIES AND COMMITMENTSTOTAL LIABILITIES AND EQUITY

6,865,190 8,260,511 9,443,822 10,164,509 10,625,625 11,007,854

NON-CURRENT ASSETS

Fixed Assets-property, plant and equipment

1,433,626 1,503,102 1,774,449 2,236,720 2,415,255 2,600,814

Long-term Loans 47,699 39,568 35,786 53,755 61,666 61,299

Long-term Deposits 7,248 7,008 6,808 6,808 6,788 7,027

Investments 406,730 191,674 96,425 346,824 171,855 168,687

Total Non-Current Assets 1,895,303 1,741,352 1,913,468 2,644,107 2,655,564 2,837,827

CURRENT ASSETS

Stores and spares 53,980 52,877 64,996 107,199 116,084 129,239

Stock-in-trade 1,632,308 1,972,953 2,195,407 2,277,175 3,494,054 4,061,840

trade debts 33,407 64,881 84,697 116,847 1,016,968 996,915

Loans and advances 50,074 62,781 64,589 81,039 119,242 91,315

Trade deposits and prepayments 44,518 62,592 76,420 84,348 93,377 87,754

Accrued profit 21,625 66,624 189,829 109,851 80,596 21,503

Refunds due from Government - - 39,430 14,898 15,468 15,436

Other Receivables 79,918 56,107 49,416 378,071 153,864 129,156

Taxation-payments less provision - - - - - 252,744

Investments - 196,045 99,100 98,229 155,511 644,889

Cash and bank balances 3,054,057 3,984,299 4,666,470 4,252,745 2,724,897 1,739,236

Total Current Assets 4,969,887 6,519,159 7,530,354 7,520,402 7,970,061 8,170,027

TOTAL ASSETS 6,865,190 8,260,511 9,443,822 10,164,509 10,625,625 11,007,854


INCOME STATEMENT(RUPEES '000)

2004 2005 2006 2007 2008 2009

NET SALES 8,866,959 9,416,881 10,088,247 10,610,882 13,403,224 14,719,132

COST OF GOODS SOLD 5,361,319 5,570,494 6,221,581 6,658,753 9,547,619 11,173,470

GROSS PROFIT 3,505,640 3,846,387 3,866,666 3,952,129 3,855,605 3,545,662

SELLING,MARKETING AND DISTRIBUTION EXPENSES

1,038,073 901,671 1,053,388 1,210,818 1,328,925 1,673,809

ADMINISTRATIVE EXPENSES 351,440 362,287 436,821 486,721 520,216 588,814

OTHER OPERATING EXPENSES

155,818 225,186 221,662 223,912 208,355 138,585

OTHER OPERATING INCOME 187,577 350,402 496,390 639,415 1,279,790 436,615

OPERATING PROFIT 2,147,886 2,707,645 2,651,185 2,670,093 3,077,899 1,581,069

FINANCIAL CHARGES 28,601 13,246 19,316 11,550 76,859 14,348

PROFIT BEFORE TAXATION 2,119,285 2,694,399 2,631,869 2,658,543 3,001,040 1,566,721

TAXATION 648,000 880,731 966,906 988,018 1,045,853 632,791

PROFIT AFTER TAXATION 1,471,285 1,813,668 1,664,963 1,670,525 1,955,187 933,930

CASH FLOW STATEMENT(RUPEES '000)

2004 2005 2006 2007 2008 2009

CASH FLOW FROM OPERATING ACTIVITIESCash generated from operations 2,247,245 2,354,569 3,087,966 2,512,355 633,333 2,083,606

Staff gratuity paid(-ve) 80,530 21,721 129,550 91,020 44,827 40,384

Taxes paid(-ve) 387,513 620,626 1,196,524 906,476 982,457 953,131

Increase/Decrease in long-term loans to employees

7,791 8,131 3,782 (17,969) (7,911) 367

Increase/Decrease in long-term deposits 716 240 200 - 20 (239)

Net cash from/used in operating activities 1,787,709 1,720,593 1,765,874 1,496,890 (401,842) 1,090,219

CASH FLOW FROM INVESTING ACTIVITIESFixed capital expenditure(-ve) 172,411 264,555 471,772 646,101 475,032 494,178

Proceeds from sale of operating assets 105,509 61,707 26,404 36,385 907,993 53,573

Investments purchased(-ve) - - - 346,394 - -

Investments encashed (406,794) - 200,000 100,000 100,000 175,000

Return received on investments 4,459 25,000 25,000 32,147 39,200 24,172

Net cash from/used in investing activities (469,237) (177,848) (220,368) (823,963) 572,161 (241,433)

CASH FLOW FROM FINANCING ACTIVITIESDividend paid(-ve) 510,376 612,503 869,186 1,086,652 1,698,167 1,189,558

Net (decrease)/increase in cash and cash equivalents

808,096 930,242 676,320 (413,725) (1,527,848) (340,772)

Cash and cash equivalents at the beginning of the year

2,245,961 3,054,057 3,990,150 4,666,470 4,252,745 2,724,897

Cash and cash equivalents at the end of the year 3,054,057 3,984,299 4,666,470 4,252,745 2,724,897 2,384,125

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PERCENTAGE CHANGE-BALANCE SHEET (%)

2005 2006 2007 2008 2009SHARE CAPITAL AND RESERVESShare Capital 25.00 25.00 25.00 - -Reserves 20.78 9.31 3.88 3.70 (3.77)Total shareholder's equity 21.45 11.86 7.71 2.92 (3.00)NON-CURRENT LIABILITIESStaff retirement benefits-staff gratuity 6.31 (58.32) (64.89) (10.31) 183.12Deferred taxation 28.16 40.72 91.52 18.98 2.61Total non-current liabilities 13.68 (20.62) 40.65 16.60 13.89CURRENT LIABILITIESTrade and other payables (6.25) 78.76 6.25 9.94 35.19Taxation 169.65 (71.71) (40.36) 12.00 (100.00)Total current liabilities 16.00 34.51 3.37 10.02 30.28Total Liabilities 15.60 25.24 7.34 10.94 27.88CONTINGENCIES AND COMMITMENTS - - - - -TOTAL LIABILITIES AND EQUITY 20.32 14.32 7.63 4.54 3.60

NON-CURRENT ASSETSFixed Assets-property, plant and equipment 4.85 18.05 26.05 7.98 7.68Long-term Loans (17.05) (9.56) 50.21 14.72 (0.60)Long-term Deposits (3.31) (2.85) - (0.29) 3.52Investments (52.87) (49.69) 259.68 (50.45) (1.84)Total Non-Current Assets (8.12) 9.88 38.18 0.43 6.86CURRENT ASSETSStores and spares (2.04) 22.92 64.93 8.29 11.33Stock-in-trade 20.87 11.28 3.72 53.44 16.25trade debts 94.21 30.54 37.96 770.34 (1.97)Loans and advances 25.38 2.88 25.47 47.14 (23.42)Trade deposits and prepayments 40.60 22.09 10.37 10.70 (6.02)Accrued interest 208.09 184.93 (42.13) (26.63) (73.32)Refunds due from Government - - (62.22) 3.83 (0.21)Other Receivables (29.79) (11.93) 665.08 (59.30) (16.06)Taxation-payments less provision - - - - -Investments - (49.45) (0.88) 58.31 314.69Cash and bank balances 30.46 17.12 (8.87) (35.93) (36.17)Total Current Assets 31.17 15.51 (0.13) 5.98 2.51TOTAL ASSETS 20.32 14.32 7.63 4.54 3.60

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PERCENTAGE CHANGE-INCOME STATEMENT (%)

2005 2006 2007 2008 2009NET SALES 6.20 7.13 5.18 26.32 9.82COST OF GOODS SOLD 3.90 11.69 7.03 43.38 17.03GROSS PROFIT 9.72 0.53 2.21 (2.44) (8.04)SELLING,MARKETING AND DISTRIBUTION EXPENSES

(13.14) 16.83 14.95 9.75 25.95

ADMINISTRATIVE EXPENSES 3.09 20.57 11.42 6.88 13.19OTHER OPERATING EXPENSES 44.52 (1.56) 1.02 (6.95) (33.49)OTHER OPERATING INCOME 86.80 41.66 28.81 100.15 (65.88)OPERATING PROFIT 26.06 (2.09) 0.71 15.27 (48.63)FINANCIAL CHARGES (53.69) 45.83 (40.21) 565.45 (81.33)PROFIT BEFORE TAXATION 27.14 (2.32) 1.01 12.88 (47.79)TAXATION 35.92 9.78 2.18 5.85 (39.50)PROFIT AFTER TAXATION 23.27 (8.20) 0.33 17.04 (52.23)

PERCENTAGE CHANGE-CASH FLOW STATEMENT (%)

2005 2006 2007 2008 2009CASH FLOW FROM OPERATING ACTIVITIESCash generated from operations 4.78 31.15 (18.64) (74.79) 228.99Staff gratuity paid (73.03) 496.43 (29.74) (50.75) (9.91)Taxes paid 60.16 92.79 (24.24) 8.38 (2.98)(Increase)/Decrease in long-term loans to employees 4.36 (53.49) (575.12) (55.97) (104.64)Decrease in long-term deposits (66.48) (16.67) (100.00) - (1,295.00)Net cash from operating activities (3.75) 2.63 (15.23) (126.85) (371.31)CASH FLOW FROM INVESTING ACTIVITIESFixed capital expenditure 53.44 78.33 36.95 (26.48) 4.03Proceeds from sale of operating assets (41.51) (57.21) 37.80 2,395.51 (94.10)Investments purchased - - - (100.00) -Investments encashed (100.00) - (50.00) - 75.00Return received on investments 460.66 - 28.59 21.94 (38.34)Net cash used in investing activities (62.10) 23.91 273.90 (169.44) (142.20)CASH FLOW FROM FINANCING ACTIVITIESDividend paid 20.01 41.91 25.02 56.28 (29.95)Net (decrease)/increase in cash and cash equivalents 15.12 (27.30) (161.17) 269.29 (77.70)Cash and cash equivalents at the beginning of the year

35.98 30.65 16.95 (8.87) (35.93)

Cash and cash equivalents at the end of the year 30.46 17.12 (8.87) (35.93) (12.51)

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COMMON SIZE-BALANCE SHEET (%)

2004 2005 2006 2007 2008 2009SHARE CAPITAL AND RESERVESShare Capital 12.73 13.22 14.46 16.79 16.06 15.50Reserves 68.09 68.35 65.35 63.07 62.57 58.12Total shareholder's equity 80.82 81.57 79.81 79.86 78.63 73.62NON-CURRENT LIABILITIESStaff retirement benefits-staff gratuity 2.17 1.92 0.70 0.23 0.20 0.54Deferred taxation 1.11 1.18 1.45 2.58 2.94 2.91Total non-current liabilities 3.28 3.10 2.15 2.81 3.13 3.45CURRENT LIABILITIESTrade and other payables 13.89 10.82 16.93 16.71 17.57 22.93Taxation 2.01 4.51 1.12 0.62 0.66Total current liabilities 15.91 15.33 18.04 17.33 18.24 22.93Total Liabilities 19.18 18.43 20.19 20.14 21.37 26.38CONTINGENCIES AND COMMITMENTS

- - - - - -

TOTAL LIABILITIES AND EQUITY 100.00 100.00 100.00 100.00 100.00 100.00

NON-CURRENT ASSETSFixed Assets-property, plant and equipment

20.88 18.20 18.79 22.01 22.73 23.63

Long-term Loans 0.69 0.48 0.38 0.53 0.58 0.56Long-term Deposits 0.11 0.08 0.07 0.07 0.06 0.06Investments 5.92 2.32 1.02 3.41 1.62 1.53Total Non-Current Assets 27.61 21.08 20.26 26.01 24.99 25.78CURRENT ASSETSStores and spares 0.79 0.64 0.69 1.05 1.09 1.17Stock-in-trade 23.78 23.88 23.25 22.40 32.88 36.90trade debts 0.49 0.79 0.90 1.15 9.57 9.06Loans and advances 0.73 0.76 0.68 0.80 1.12 0.83Trade deposits and prepayments 0.65 0.76 0.81 0.83 0.88 0.80Accrued interest 0.31 0.81 2.01 1.08 0.76 0.20Refunds due from Government - - 0.42 0.15 0.15 0.14Other Receivables 1.16 0.82 0.72 5.51 2.24 1.17Taxation-payments less provision - - - - - 2.30Investments - 2.37 1.05 0.97 1.46 5.86Cash and bank balances 44.49 48.23 49.41 41.84 25.64 15.80Total Current Assets 72.39 78.92 79.74 73.99 75.01 74.22TOTAL ASSETS 100.00 100.00 100.00 100.00 100.00 100.00

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COMMON SIZE-INCOME STATEMENT (%)

2004 2005 2006 2007 2008 2009NET SALES 100.00 100.00 100.00 100.00 100.00 100.00COST OF GOODS SOLD 60.46 59.15 61.67 62.75 71.23 75.91GROSS PROFIT 39.54 40.85 38.33 37.25 28.77 24.09SELLING,MARKETING AND DISTRIBUTION EXPENSES

11.71 9.58 10.44 11.41 9.91 11.37

ADMINISTRATIVE EXPENSES 3.96 3.85 4.33 4.59 3.88 4.00OTHER OPERATING EXPENSES 1.76 2.39 2.20 2.11 1.55 0.94OTHER OPERATING INCOME 2.12 3.72 4.92 6.03 9.55 2.97OPERATING PROFIT 24.22 28.75 26.28 25.16 22.96 10.74FINANCIAL CHARGES 0.32 0.14 0.19 0.11 0.57 0.10PROFIT BEFORE TAXATION 23.90 28.61 26.09 25.05 22.39 10.64TAXATION 7.31 9.35 9.58 9.31 7.80 4.30PROFIT AFTER TAXATION 16.59 19.26 16.50 15.74 14.59 6.35

RATIO ANALYSIS

2004 2005 2006 2007 2008 2009Liquidity RatiosCurrent 4.55 5.15 4.42 4.27 4.11 3.24Quick 3.06 3.59 3.13 2.98 2.31 1.63

Asset Management RatiosInventory Turnover 49.90 53.76 62.60 68.67 55.62 67.17Days Sales Outstanding 1.36 2.48 3.02 3.96 27.31 24.38Fixed Assets Turnover 6.18 6.26 5.69 4.74 5.55 5.66Total Assets Turnover 1.29 1.14 1.07 1.04 1.26 1.34

Debt Management RatiosTotal debt to total assets 0.19 0.18 0.20 0.20 0.21 0.26Times Interested Earned 75.10 204.41 137.25 231.18 40.05 110.19

Profitability RatiosProfit margin on sales 16.59 19.26 16.50 15.74 14.59 6.35Basic Earning Power (BEP) 31.29 32.78 28.07 26.27 28.97 14.36Return on Total Assets (ROA) 21.43 21.96 17.63 16.43 18.40 8.48Return on Common Equity (ROE)

26.52 26.92 22.09 20.58 23.40 11.52

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DU PONT CHARTS FROM 2005-2009

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MODIFIED DU PONT CHART

FOR THE YEAR 2005


FOR THE YEAR 2006

21

ROE=26.92%

ROA=21.96% EM= 1.23

PM=19.26% TATO=1.14

SALES=9416881000 NI=1813668000

TOTAL COST=7603213000 SALES=9416881000

SALES=9416881000 TA=8260511000

CA=6519159000 NCA=1741352000

ROE=22.09%

ROA=17.63% EM=1.25

PM=16.5% TATO=1.07

SALES= 10088247000 NI=1664963000

TOTAL COST=8423284000 SALES= 10088247000

SALES= 10088247000 TA=9443822000

CA=7530354000 NCA=1913468000



FOR THE YEAR 2007


FOR THE YEAR 2008

22

ROE=23.4%

ROA=18.4% EM=1.27

PM=14.59%TATO=1.26

SALES= 13403224000 NI=1955187000

TOTAL COST=11448037000 SALES= 13403224000

SALES= 13403224000 TA=10625625000

CA=7970061000 NCA=2655564000

ROE=20.58%

ROA=16.43% EM=1.25

PM=15.74% TATO=1.04

SALES=10610882000 NI=1670525000

TOTAL COST=8940357000 SALES= 10610882000

SALES= 10610882000 TA=10164509000

CA=7520402000 NCA=2644107000



FOR THE YEAR 2009

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ROE=11.52%

ROA=8.48% EM=1.36

PM=6.35% TATO=1.34

SALES= 14719132000 NI=933930000

TOTAL COST=13785202000 SALES= 14719132000

SALES= 14719132000 TA=11007854000

CA=8170027000 NCA=2837827000


RATIO ANALYSIS

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LIQUIDITY RATIOS:

Liquidity ratios are ratios that show the relationship of a firm’s cash and other current assets to its current liabilities. There are two types of liquidity ratios current ratio and quick ratio. Following is the analysis of GSK’s liquidity ratios.

CURRENT RATIO:

Current ratio measures the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. As we can see in the following graph that current ratio of GSK increased in the year 2005 but after that it started decreasing. The major decrease is in the year 2009 that is it decreased from 4.11 times to 3.24 times which make a difference of 0.87 times.

2004 2005 2006 2007 2008 20090

1

2

3

4

5

6

4.555.15

4.42 4.274.11

3.24

CURRENT RATIO

current ratio (times)

Figure 1

Following is the year wise analysis of current ratio; different reasons are highlighted using percentage change analysis of the statements.

YEAR 2005:

In 2005 current ratio of GSK increased by 0.6 times, that is, last year it was 4.55 times however it increased to the value of 5.15 times this year. Reasons of increase are as follows:

• Current assets increased by 31.17% Accrued interest increased by 208.09% Stock-in-trade increased by 20.87%

Raw and packaging material increased by 28.9% In transit raw and packaging material increased by 26.66%

Finished goods increased by 15.31%

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Finished goods in transit increased by 49.22% Provision for slow moving and obsolete items decreased by 61.83%

because of which the overall impact on stock-in-trade was increasing Trade debts increased by 94.21%

Trade debts to other parties increased by 145.94% Provision for doubtful debts decreased by 84.18%

Loans and advances increased by 25.38% Loans due from employees increased by 11.15% Advances to executives increased by 250.65% Advances to supplier increased by 94.81%

Trade deposits and prepayments increased by 40.6% Trade deposits increased by 126.25% Prepayments to other parties increased by 250.48%

Cash and bank balances increased by 30.46% Net cash used in investing activities (outflow) decreased by 62.1% Net cash and cash equivalents from this year’s activities increased by

15.12%• Current liabilities increased by 16%

Taxation increased by 169.65% Trade and other payables decreased by 6.25%

Payables due to different parties and their respective decreases are as follows

Creditors: 33.16% Bills payable: 32% Royalty and technical fee payable: 42.34% Advances from customers: 59.5% Payables due to others: 24.92%

Although current liabilities have also increased with the increase in current assets however the percentage change in current assets is more than that of current liabilities. Therefore, we can conclude from above observations that GSK is in a good position in terms of their current assets since they are 5.15 times more than their current liabilities.

YEAR 2006

In year 2006 we can see that there is a current ratio decreased by 0.73 times, that is, it was 5.15 times in 2005 whereas it is 4.42 times in year 2006. Following are the reasons of this decrease:

Current assets increased by 15.51%• Stores and spares increased by 22.92%

Stores increased by 26.64%

26


Spares increased by 17.41% There is a very slight increase of 0.01% in provision for slow moving and

obsolete items Stock-in-trade increased by 11.28%

Finished goods increased by 42.86% Finished goods in transit increased by 122.08%

• Trade debts increased by 30.54% Trade debts due from related parties increased by 54.72% Trade debts due from other parties increased by 29.34%

• Trade deposits and prepayments increased by 17.12% Staff pension fund increased by 36.37% Prepayments to other parties increased by 82%

• Accrued interest increased by 184.93%

• Other receivables increased by 58.35% Customs duty and sales tax refundable (considered good) increased by

7.47% Due from related parties increased by 224.37% in which major increase

was due to GSK Services Unlimited, UK (281.6%), GSK Limited, Bangladesh (2005: nil, 2006: 22045K) and GSK Export Limited, UK (26.28%)

Claims recoverable from suppliers increased by 179.1% Receivables due from other parties increased by 63.01%

• Investments-available for sale decreased by 49.45%

• Cash and bank balances increased by 17.12% Cash from operating activities (inflow) increased by 2.63% Net cash and cash equivalent from this year’s activities decreased by

27.3% Current liabilities increased by 34.51%

• Trade and other payables increased by 78.76% Dues to associated companies increased 100% , that is it was nil in 2005

however this year it was 56.09 million Payables due to different parties and their respective increases are as

follows Creditors: 43.61% Bills payable: 114.5% Accrued liabilities: 73.5% Royalty and technical fee payable minus due to associated parties:

44.44% Advances from customers: 52.32%

27


Contractors’ earnest/ retention money: 104.94% Workers’ welfare fund: 17.78% Unclaimed dividend: 31.98%

Although there was an increase in current assets but when compared with the increase of current liabilities it is much less. But still GSK has 4.42 times more current assets than their current liabilities.

YEAR 2007

In 2007 current ratio of GSK decreased by 0.15 times that is last year it was 4.42 times however it is only 4.27 times. Reasons of decrease are as follows:

Current assets decreased by 0.13%• Stock-in-trade increased by 3.72%

Raw material increased by 27.46% Raw material in-transit was 26.35% of total raw material which

was 27.94% last year• Accrued interest decreased by 42.13%

• Investments decreased by 0.88%

• Refunds due from government which was under the head of other receivables last year with the title of customs duty and sales tax decreased by 62.22%

• Cash decreased by 8.78% Cash from operating activities decreased by 15.23% Cash used in investing activities increased by 273.9% (outflow) Net cash generation decreased by 161.17%

• Current liabilities increased by 3.37% Trade and other payables increased by 6.25%

Payables due to different parties and their respective increases are as follows

Accrued liabilities: 29.87% Royalty and technical fee payable: 59.98% Advances from customers: 35.69% Contractors’ earnest/ retention money: 17.8% Unclaimed dividend: 29.4%

Although there is an increase in sales but due to non-recovery of loans and advances, trade debts and other receivables there has been a negative effect on cash and cash equivalents of the company.

28


Due to increase in current liabilities and decrease in current assets the overall affect on current ratio is negative when compared with the ratio of last year. But still GSK is in a good position because they have enough current assets to pay off their current liabilities.

YEAR 2008

Current ratio of GSK decreased by 0.16 times, that is, it was 4.27 times last year however in 2008 it was 4.11 times. Following are the reasons of decrease in 2008’s current ratio:

Current assets increased by 5.98% Stores and spares increased by 8.29% Stock-in-trade increase by 53.44%

Raw and packing material increased by 76.62% Raw and packing materials in transit increased by 106.18%

Work in process increased by 69.93% Finished goods increased by 32.75%

Trade debts increased by 770.34% Due from other parties increased by 839.36% Provision for doubtful debts increased only by 58.59%, which when

compared with increase in new debts is much less Collection policy strengthened because maximum aggregate amount due

from related parties at the end of any month during the year was Rs. 12.53 million (2007: Rs. 12.81 million)

Loans and advances increased by 47.14% Advances to employees increased by 14.97% Advances to suppliers increased by 120.36%

Trade deposits and prepayments increased by 10.7% Prepayments increased by 36.21% Balances held in margin were nil in 2007 but increased to Rs. 18476 in

2008 Refunds due from Government increased by 3.83% Investments increased by 58.31%

Current liabilities increased by 10.02% Trade and other payables increased by 9.94%


Creditors: 15.96% Bills payable to associated companies: 89.58% Royalty and technical fee payable: 19.48%

29


Advances from customers: 133.55% Taxes deducted at source and payable to statutory authorities:

210.74% Worker’s welfare fund: 25.43% Central research fund: 12.89% Unclaimed dividend: 34.4% Payable to provident fund: was nil last year increased to Rs. 9462K

Taxation increased to 12%

Although there was increase in many of the accounts in currents assets but due to decrease in accrued interest (26.63%), other receivables (59.3%) and cash and bank balances (35.93%) there was a lesser increase in current assets as compared to current liabilities. Due to this difference in percentage changes the current ratio decreased as compared to last year’s. But still current assets are 4.11 times more than that of current liabilities which means it is still in a good liquidity position.

YEAR2009

In 2009 there was a dramatic decrease in current ratio which decreased by 0.87 times. Last year current ratio of GSK was 4.11 times however in 2009 it was 3.24 times. Following are the reasons due to which there was decrease in current ratio of 2009:

Current assets increased by 2.51% Stores and spares increased by 11.33%

Increase in stores and spares was just a little, 0.01%, but due to 68.86% decrease in provision for slow moving and obsolete items the resultant value of stores and spares was higher than last year’s

Stock-in-trade increased by 16.25% Work in process increased by 21.84% Finished goods increased by 47.8%

Finished goods in transit increased by 68.91% Investments increased by 314.69%. Since yield on these bills was good so GSK

invested Rs. 0.645million on these. Current liabilities increased by 30.28%

Trade and other payables increased by 35.19% Payables due to different parties and their respective increases are as

follows Credit payable from associated companies: was nil last year,

amounted Rs. 878641K in 2009 Credit payable from other parties: 77.42%

30


Royalty and technical fee payable to associated companies: 29.72%

Accrued liabilities: 6.11% Advances from customers: 22.86% Taxes deducted at source and payable to statutory authorities:

18.97% Unclaimed dividend: 15.4% Payables to other parties: 163.77%

Increase in current assets was minimal when compared to increase in current liabilities. Components that were resistant to the increase in current assets were:

Trade debts which reduced by 1.97% Loans and advances decreased by 23.42% Trade deposits and prepayments decreased by 6.02% Accrued interest decreased by 73.32% Refunds due from government 0.21% Other receivables decreased by 16.06% Cash and bank balances decreased by 36.1

Though increase in current assets was low comparative to current liabilities but still GSK is in a good liquidity position because its current assets are still 3.24 times of their current liabilities.

RELATIONSHIP BETWEEN CURRENT ASSETS AND CURRENT LIABILITIES:

As from above analysis we can see that GSK has got enough current assets to cover up their current obligations however there is a decreasing trend in their current ratio (figure 1). This decreasing trend could be because current assets are declining and/or current liabilities are increasing.

2004 2005 2006 2007 2008 2009

cur-rent liabil-ities (Rs '000)

1091980 1266695 1703806 1761218 1937662 2524426

cur-rent as-sets (Rs '000)

4969887 6519159 7530354 7520402 7970061 8170027

15000002500000350000045000005500000650000075000008500000

current liabilities (Rs '000)current assets (Rs '000)

31


From the above graph we can see that current assets as well as current liabilities both are on increasing trend and that current assets are increasing with good rate. But in year 2009 we can see an abrupt increase in current liabilities due to which the current ratio of 2009 was least of all ratios. But still from this graph we can see that GSK is in quite a good liquidity position because it still has more current assets than current liabilities.

QUICK RATIO:

Quick ratio is a measure of the firm’s ability to pay off short term obligations without relying on the sale of inventory or other non-liquid current assets. GSK considers its stock-in-trade as least liquid current assets; on the basis of this consideration GSK’s quick ratio in the year 2005 there was a quite an increase in quick ratio however after that quick ratio of GSK started decreasing.

2004 2005 2006 2007 2008 20090

0.5

1

1.5

2

2.5

3

3.5

4

3.06

3.59

3.132.98

2.31

1.63

quick ratio(times)

quick ratio(times)

As we know that quick ratio considers quick assets and current liabilities and we have discussed the components of current assets and current liabilities in current ratio’s portion we will discuss the non-quick asset that is stock-in-trade and will see that how deducting that component from current assets bring change in GSK’s liquidity position. Following is the year wise analysis of quick ratio; different reasons are highlighted using percentage change analysis of the statements.

YEAR 2005

In the year 2005 quick ratio of GSK was 3.59 times however its current ratio was 5.15 times that is by excluding stock-in-trade from its current assets its liquidity dropped down by 1.56 times. Reasons of this decrease are:

Stock-in-trade increased by 20.87% Raw and packaging material increased by 28.9%

In transit raw and packaging material increased by 26.66% Finished goods increased by 15.31%

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Finished goods in transit increased by 49.22% Provision for slow moving and obsolete items decreased by 61.83% because of

which the overall impact on stock-in-trade was increasing Stock-in-trade was 30.26% of total current assets which made it second most valued

current asset during year 2005

As we see from above analysis that stock-in-trade consumed most of the current assets portion because of which after deducting it from current assets our numerator decreased with a greater proportion and quick ratio was much less when compared with current assets. But still after deducting stock-in-trade from current assets GSK has enough quick assets to pay off their current liabilities.

YEAR 2006

We have seen a decrease in current ratio of year 2006 this same phenomenon was with quick ratio of 2006. Quick ratio of 2006 was 0.46 times less than that of 2005. Quick ratio of this year was 1.29 times less than current ratio of the same year. The reasons of this difference are as follows:

Stock-in-trade increased by 11.28% Finished goods increased by 42.86%

Finished goods in transit increased by 122.08% Stock-in-trade were 29.15% of total current assets

This analysis shows that stock-in-trade was one of the most valued component of total current assets thus after deducting it we get a reduced ratio. But still GSK is in a good liquidity position.

YEAR 2007

Quick ratio of 2007 decreased by 0.15 times that is it was 3.13 times last year whereas this year it was 2.98 times. Following are the reasons of change in stock in trade:

• Stock-in-trade increased by 3.72% Raw material increased by 27.46%

Raw material in-transit was 26.35% of total raw material which was 27.94% last year

• Stock-in-trade is 30.28% of total current assets

As we see from above analysis that stock-in-trade consumed most of the current assets portion because of which after deducting it from current assets our numerator decreased with a greater proportion and quick ratio was much less when compared with current assets. But still after

33


deducting stock-in-trade from current assets GSK has enough quick assets to pay off their current liabilities.

YEAR 2008

Quick ratio of year 2008 decreased by 0.67 times however current ratio decreased by 0.16 times. The reasons of this decrease are as follows:

Stock-in-trade increase by 53.44% Raw and packing material increased by 76.62%

Raw and packing materials in transit increased by 106.18% Work in process increased by 69.93% Finished goods increased by 32.75%

Stock-in-trade were 43.84% of total current assets

As we see from above analysis that stock-in-trade consumed most of the current assets portion because of which after deducting it from current assets our numerator decreased with a greater proportion and quick ratio was much less when compared with current assets. But still after deducting stock-in-trade from current assets GSK has enough quick assets to pay off their current liabilities.

YEAR 2009

This year saw a sharp decrease in quick ratio. Quick ratio declined 0.68 times and the difference between current ratio and quick ratio was 1.61 times. The reasons of this are as follows;

Stock-in-trade increased by 16.25% Work in process increased by 21.84% Finished goods increased by 47.8%

Finished goods in transit increased by 68.91% This year stock-in-trade was 49.71% of total current assets that is they were almost half

of the total current assets

As we can see that stock-in-trade were almost half of the total current assets, therefore, after deducting it from current assets our quick assets decreased to half of the value of current assets this resulted in a declined quick ratio. Quick ratio of 2009 was 1.63 times which is quite dangerous for GSK since it is very near to getting its quick assets equal to its current liabilities. But for now it is safe since it has 1.63 times more quick assets than its current liabilities.

TREND IN STOCK-IN-TRADE

Stock-in-trade shows a continuous increasing trend from 2004 to 2009. However in 2009 there is a dramatic increase in stock-in-trade and major portion of stock-in-trade was finished good.

34


2004 2005 2006 2007 2008 20090

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

finished goodswork in processraw and packaging material

As we can see from above graph that raw and packaging material and work in process shows a mixed trend while finished goods show an increase from 2004 to 2006 then a slight decrease in 2007 then again an increase onwards.

The overall stock-in-trade value showed a continuous increase over the five year period as shown in following graph.

2005 2006 2007 2008 2009

stock-in-trade(%) 20.87 11.28 3.72 53.44 16.25

current assets(%) 31.17 15.51 -0.310000000000002

5.98 2.51

-5

5

15

25

35

45

55

stock-in-trade(%)current assets(%)

35


This above graph shows the percentage change in stock-in-trade and current assets. As we can see that percentage change in current assets was more than that of stock-in-trade from 2005 to 2006 but after that the percentage change in stock-in-trade increased in 2007 where percentage change in current assets was negative but still stock-in-trade increased by 3.72%. In 2008 there was a sharp increase in stock-in-trade which was much higher when compared with the increase of current assets. In 2009 the percentage change in stock-in-trade was again more than current assets. Thus the growth rate of stock-in-trade is better than the growth rate of current assets.

36


ASSET MANAGEMENT RATIOS

Asset management ratios are a set of ratios that measures how effectively a firm is managing its assets. When a company acquires its assets, they must borrow or obtain capital from other sources. If a firm has too many assets, its cost of capital will be too high; hence its profits will be depressed. On the other hand, if assets are too low, profitable sales will be lost. Ratios that analyze the different types of assets are described in this section.

EVALUATING INVENTORIES: THE INVENTORY TURNOVER RATIO

Inventory turnover ratio tells us that how many times during the year our inventory is turned over or how many trips does our inventory take in order to recognize the amount of sales of that year. Excess inventory is unproductive and it represents an investment with a low or zero rate of return. GSK consider average finished goods inventory and COGS to calculate its inventory turnover

2004 2005 2006 2007 2008 2009

Average FG (Rs. '000)

732943.5 820393 1067053 1252777.5

1454877.5

2056219.5

COGS (Rs. '000)

5361319 5570494 6221581 6658753 9547619 11173470

1000000

3000000

5000000

7000000

9000000

11000000

Average FG (Rs. '000)COGS (Rs. '000)

From the above graph we can see that there is an increasing trend in both average finished goods inventory and COGS. Inventory turnover ratio will tell us that whether this increased average finished goods inventory is being effective in sales or not.

37


2004 2005 2006 2007 2008 20090

10

20

30

40

50

60

70

80

49.953.76

62.668.67

55.62

67.17

inventory turnover ratio (days)

inventory turnover ratio (days)

Inventory turnover ratio shows an increasing trend in this five year period (except for 2008 in which it declined). The reason of this increase can be decrease in COGS and/or increase in average finished goods inventory. But since we have seen in the previous graph that both of these components of this ratio are increasing we can conclude that the increase in average finished goods inventory is high relative to COGS that is, GSK is keeping more inventory than required and is turning it over after a very long period.

Following is the year wise analysis of inventory turnover.

YEAR 2005

Inventory turnover ratio in 2005 increased by 3.86 days which means that inventory is being turned over after 53.76 days. Following are the reasons of increase in inventory turnover.

Finished goods increased by 15.31% and was 44.54% of total stock-in-trade Average finished goods increased 11.99% (Rs. 87,449,500) Finished goods in transit increased by 49.22%

COGS increased by 3.9%. Last year it made 60.46% of net sales however this year it reduced to 59.15%

Increase in COGS was due to following COGM accounts Raw and packing material consumed Manufacturing charges to third party Fuel and power Insurance Repairs and maintenance Travelling and entertainment Vehicle running Depreciation/amortization Impairment loss

38


Canteen expenses Laboratory expenses Communication and stationery

Another reason of increase in COGS was increase in purchase of finished goods

Since the average finished goods increased with higher proportion than COGS, therefore, ITO increased. This means that GSK is holding more finished goods inventory with them.

YEAR 2006

Inventory turnover increased to 62.6 days. The reasons of this increase are as follows.

Finished goods increased by 42.86% and were 57.18% of total stock-in-trade Finished goods in transit increased by 122.08% Average finished goods inventory increased by 30.07% (Rs. 246,660,000)

COGS increased by 11.69% and it was 61.67% of net sales Increase in COGS was due to following COGM accounts

Raw and packing material consumed Stores and spares consumed Salaries, wages, benefits and staff welfare Fuel and power Rent, rates and taxes Royalty and technical fee Insurance Repairs and maintenance Travelling and entertainment Vehicle running Depreciation/amortization Impairment loss Provision for slow moving and obsolete stock Provision for slow moving and obsolete stores and spares Canteen expenses Laboratory expenses Other expenses

Increase in COGS was because of increase in purchase of finished goods

Since the average finished goods increased with higher proportion than COGS, therefore, ITO increased. This means that GSK is holding more finished goods inventory with them.

YEAR 2007

39


In 2007 ITO increased to 68.67 days. This means that finished goods take 68.67 days in stock before being turned over. Reasons of this increased ITO are as follows.

Finished goods decreased by 0.41% and were 54.9% of total stock-in-trade Finished goods in transit increased by 10.93% Average finished goods increased by 17.41% (Rs. 185,724,500)

Increase in COGS was 7.03% and it was 62.75% of net sales Increase in COGS was due to increase in following COGM accounts

Raw and packing material consumed Manufacturing charges to third party Fuel and power Royalty and technical fee Insurance Repairs and maintenance Training expenses Vehicle running Depreciation/amortization Provision for slow moving and obsolete stock Canteen expenses Laboratory expenses Other expenses Security expenses

Increase in COGS was also due to increase in purchase of finished goods

Though finished goods inventory decreased this year but since the opening stock was good enough, therefore, when taken average it was more than last year’s average because of which ITO of this year was more than ITO of last year.

YEAR 2008

Inventory turnover declined in this year. It came down to 55.62 days. Following are the reasons of decline.

Finished goods increased by 32.75% and was 47.5% Finished goods in transit decreased by 37.75% Average finished goods inventory increased by 16.13% (Rs. 202,100,000)

COGS increased by 43.38% and was 71.23% of net sales Increase in COGS was because of increase in following COGM accounts

Raw and packing material consumed Manufacturing charges to third party Salaries, wages and other benefits

40


Fuel and power Royalty and technical fee Repairs and maintenance Vehicle running Depreciation/amortization Provision for slow moving and obsolete stock-raw material Canteen expenses Laboratory expenses Other expenses

Increase in COGS was also due to increase in purchase of finished goods and provisions for obsolete and slow moving items (finished goods)

Since the percentage change in COGS was more than change in average finished goods inventory, therefore, ITO of 2008 decreased.

YEAR 2009

In 2009 there was an increase in ITO of GSK. It increased by 11.55 days that is it increased up to 67.17 days. Following are the reasons of this increase.

Finished goods increased by 47.8% and was 60.39% of total stock-in-trade Finished goods in transit increased by 68.91% Average finished goods inventory increased by 41.33%

COGS increased by 17.03% and was 75.91% of total sales Raw and packing material consumed Manufacturing charges to third party Stores and spares consumed Salaries, wages and other benefits Fuel and power Rent, rates and taxes Royalty and technical fee Insurance Travelling and entertainment Depreciation/amortization Provision for slow moving and obsolete stock-raw and packing materials Canteen expenses Laboratory expenses Security expenses

As in above reasons we can see that due to high margin in increase in average finished goods inventory the ITO of GSK in 2009 increased.

41


EVALUATING RECEIVABLES: THE DAYS SALES OUTSTANDING

The days sales outstanding indicates the average length of time a firm must wait after making a sale before it receives cash. It depends on the credit policy of the firm when to collect the cash of the sales made on credit. The trend of GSK’s DSO from 2004 to 2009 is illustrated in following graph.

2004 2005 2006 2007 2008 20090

5

10

15

20

25

30

1.362.48 3.02 3.96

27.31

24.38

DSO (days)

DSO (days)

From the above graph we can see that GSK’s had an increasing DSO from 2005. However in 2008 it shot to up to 27.31days which is highest during the five year period. Then in 2009 it got down to 24.38 days which is still quite high, this increase during the past five years could be due to loosened collection policies of GSK. Increase in DSO is either due to decrease in sales and/or increase in account receivables (trade debts). Following is a year wise analysis of GSK’s DSO with a support of percentage change and common size analysis.

YEAR 2005

In 2005 there was an increase in DSO. It increased by 1.12 days. Following are the reasons of this increase.

Trade debts increased by 94.21% and was 0.79% of total assets Trade debts to other parties increased by 145.94% Provision for doubtful debts decreased by 84.18%

Net sales increased by 6.2% Local sales increased by 6% Exports increased by 19.65%

As from above reasons we can conclude that, due to increase in sales, trade debts of GSK increased. But when increases of both are compared we see that trade debts increased with more proportion than sales because of which DSO of GSK increased during the year.

42


YEAR 2006

In 2006 DSO increased to 3.02 days. Reasons of increase are as follows.

Trade debts increased by 30.54% and were 0.9% of total assets Trade debts due from related parties increased by 54.72% Trade debts due from other parties increased by 29.34%


Here we can see that margin of increase in trade debts was more than margin of increase in sales this caused an increase in DSO in 2006.

YEAR 2007

In 2007 the DSO went up to 3.96 days. The reasons of increase are as follows.

Trade debts increased by 37.96% and it was 1.15% of total assets Trade debts to related parties increased by 91.3% (Rs. 4,355,000) Trade debts to others increased by 34.78% (Rs. 27,795,000)

Net sales increased by 5.18% Local sales increased by 5.02% Exports increased by 19.44%

Though there was an increase in net sales but the increase in trade debts caused an increase in DSO of this year.

YEAR 2008

In 2008 DSO of GSK jumped up to 27.31%. This means that GSK is making a lot of sales on credit. The reasons of this increase are as follows.

Trade debts increased by 770.34% and were 9.57% of total assets Due from other parties increased by 839.36% (Rs. 904,170,000) Provision for doubtful debts increased only by 58.59% (Rs. 1,701,000), which

when compared with increase in new debts is much less Collection policy strengthened because maximum aggregate amount due from

related parties at the end of any month during the year was Rs. 12.53 million (2007: Rs. 12.81 million)

Net sales increased by 26.32% Local sales increased by 27.25% Exports increased by 13%

43


As from these observations we can conclude that increase in DSO was not because of loosened collection policy but it was due to increase in sales. These reasons indicate that most of the sales were made on credit rather than cash.

YEAR 2009

In 2009 there was a decrease in DSO. It came down from 27.31 days to 24.38 days. Following are the reasons of this decrease.

Trade debts decreased by 1.97% and were 9.06% of total assets Trade debts due from other parties decreased by 2.62% (Rs. 26,519,000) Provision for doubtful debts increased by 242.31% (Rs. 11,156,000) Trade debts of Rs. 0.44 million (2008: Rs. 0.12 million) have been written off

against the provision during the year Net sales increased by 9.82%

Local sales increased by 9.49% Exports increased by 34.78%

Since there was an increase in net sales and decrease in trade debts, therefore, DSO in 2009 decreased.

44


TREND IN SALES AND TRADE DEBTS

As we have observed in above analysis that an increase in trade debts and/or decrease in net sales cause an increase in DSO.

2004 2005 2006 2007 2008 2009

trade debts 33407 64881 84697 116847 1016968 996915

net sales 8866959 9416881 10088247 10610882 13403224 14719132

1000000

3000000

5000000

7000000

9000000

11000000

13000000

15000000

trade debtsnet sales

As from this graph we can see that both sales and trade debts have got an increasing trend (except for 2009 where trade debts decreased). From this we can also conclude that whenever there is an increase in sales we have an increase in trade debts too.

EVALUATING FIXED ASSETS: THE FIXED ASSETS TURNOVER

Fixed assets turnover indicates that how effectively the firm uses its plants and equipment in order to make its sales. Following graph illustrates the trend of GSK’s fixed asset turnover.

2004 2005 2006 2007 2008 20090

1

2

3

4

5

6

76.18 6.26

5.69

4.74

5.55 5.66

fixed assets turnover (times)

fixed assets turnover (times)

Fixed assets turnover ratio of GSK shows a mixed trend. Following is a detailed year wise analysis of GSK’s fixed asset turnover with a support of percentage change analysis and common size analysis.

45


YEAR 2005

In 2005 fixed asset turnover increased a little bit by 0.08 times. The ratio tells us that GSK’s sales are 6.26 times of its fixed assets. Reasons of this increase are as follows.

Fixed assets increased by 4.85% Capital work in progress increased by 269.63%

Civil work increased by 432.84% (Rs. 39,375,000) Plant and machinery increased by 190.54% (Rs. 63,613,000) Office equipments increased by 697.15% (Rs. 4,162,000) Advances to contractors and suppliers increased by 799.83% (Rs.

28,226,000) Fixed assets were 18.2% of total assets this year while last year they were 20.88%


Since sales increased with high percentage than fixed assets, therefore, FATO in 2005 was more than in 2004.

YEAR 2006

In 2006 there was a slight decrease in FATO of GSK. Last year it was 6.26 times however this year it was 5.69 times. Reasons are discussed below.

Fixed assets increased by 18.05% Operating assets increased by 2.66% (Rs. 35,147,000)

Net additions (additions-disposals) in operating assets were (total amounted to Rs. 155,892,000)

Buildings on freehold land Rs. 113,000 Buildings on leasehold land Rs. 6,221,000 Plant and machinery Rs. 86,504,000 Furniture and fixtures Rs. 3,623,000 Vehicles Rs. 21,664,000 Office equipments Rs. 37,767,000

Capital work in progress increased by 128.69% (Rs. 236,200,000) Civil work increased by 143.23% (Rs. 69,427,000) Plant and machinery increased by 176% (Rs. 170,719,000) Furniture and fixtures increased by 739.47% (Rs 11,484,000) Office equipments increased by 72.81% (Rs. 3,465,000)

Fixed assets increased to 18.79% of total assets in 2006 Net sales increased by 7.13%

46


Local sales increased by 7% Exports increased by 16.51%

Since increase in fixed assets was more than sales therefore fixed asset turnover of GSK declined from the previous year’s FATO.

YEAR 2007

In 2007 there was a decrease in FATO by 0.95 times that is it came down to 4.74 times. This decrease in FATO has following reasons.

Fixed assets increased by 26.05 Operating assets increased by 44.66%

Following net additions (additions-disposals) were made during the year (total amounted to Rs. 704,008,000)

Building on freehold land Rs. 142,000 Building on leasehold land Rs. 208,405,000 Plant and machinery Rs. 371,362,000 Furniture and fixtures Rs. 22,668,000 Vehicles Rs. 38,284,000 Office equipments Rs. 63,147,000

Fixed assets increased to 22.01% of total assets Net sales increased by 5.18%


Although there was an increase in sales during the year but increase in fixed asset was more than sale that’s why FATO of this year was less than last year’s.

YEAR 2008

In year 2008 GSK saw an increase in FATO by 0.81 times that is it increased up to the level of 5.55 times which means GSK started utilizing its fixed assets more efficiently. Following are the reasons of increase in FATO.

Fixed assets increased by 7.98% Operating assets increased by 14.41%

Net additions (additions-disposals) during the year are as follows (total amounted to Rs. 352,890,000)

Buildings on leasehold land Rs. 5,103,000 Plant and machinery Rs. 252,619,000 Furniture and fixtures Rs. 8,955,000

47


Vehicles Rs. 65,594,000 Office equipments Rs. 48,286,000

Fixed assets were 22.73% of total assets Net sales increased by 26.32%

Local sales increased by 27.25% Exports increased by 13%

From above reasons we can conclude that since the increase in sale was higher than increase in fixed asset, therefore, FATO of this year was higher than the previous year.

YEAR 2009

GSK’s FATO increased by 0.11 times that is, GSK started using its fixed assets more efficiently and was generating more sales using their fixed assets. Following are the reasons of increase in FATO of 2009.

Fixed assets increased by 7.68% Operating assets increased by 4.51%


Buildings on leasehold land Rs. 39,181,000 Plant and machinery Rs. 135,277,000 Furniture and fixtures Rs. 244,000 Vehicles Rs. 18,420,000 Office equipments Rs. 35,556,000

Capital work in progress increased by 48.78% Civil work increased by 231.2% (Rs. 70,422,000) Furniture and fixtures increased by 683% (Rs. 6,400,000) Office equipments increased by 248.83% (Rs. 17,620,000) Advances to supplier increased by 98.98% (Rs. 7,744,000)

Fixed assets were 23.63% of total assets Net sales increased by 9.82%


Since increase in sales was more than increase in fixed asset therefore this year’s FATO increased and showed that firm is making more sales than increasing its fixed assets.

TRENDS IN SALES AND FIXED ASSETS

48


As we have seen in above analysis that whenever there is a higher percentage change in sales than fixed assets, there is an increase in the FATO of that year. From the graph below we can see the relationship in trend of sales, fixed assets and FATO.

2004 2005 2006 2007 2008 2009

sales(%) 0 6.2 7.13 5.18 26.32 9.82

fixed assets(%) 0 4.85 18.05 26.05 7.98 7.68

FATO(times) 6.18 6.26 5.69 4.74 5.55 5.66

2.5

7.5

12.5

17.5

22.5

27.5

sales(%)fixed assets(%)FATO(times)

From this graph we can see that in year 2005 percentage change of sales is slightly greater than percentage change in fixed assets which resulted in a greater FATO from the last year. From 2006 to 2007 we see a phenomenal increase in fixed assets because of which our FATO dropped during these years. Then in 2008 and 2009 we see a greater increase in sales because of which the FATO of these years increased. Thus we can conclude that GSK is making good use of their fixed assets in order to make their sales.

TOTAL ASSETS TURNOVER

This ratio measures the turnover of all the firm’s assets. Following graph illustrates GSK’s TATO’s trend.

2004 2005 2006 2007 2008 20090

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.29

1.139999999999991.07 1.04

1.261.34

TATO

TATO

49


TATO of GSK shows an interesting trend. From 2004 to 2007 TATO keeps on decreasing which might be due to decrease in sales and/or increase in total assets. This decrease in TATO shows that company is not utilizing its total assets to their optimum level to generate their sales. In 2008 and 2009 there is an increase in TATO which shows that GSK has started using its total assets efficiently to generate its sales. Following is an in depth analysis of GSK’s year wise TATO with a support of percentage change analysis and common size analysis.

YEAR 2005

TOTA in 2005 decreased by 0.15 times that is last year it was 1.29 times and in 2005 it was 1.14 times. This means that they are making sales 1.14 times of their total assets. Following are the reasons of this decrease.

Total assets increased by 20.32% Current assets increased by 31.17%

Total current assets were 78.92% of total assets Accrued interest increased by 208.09% and was 0.81% of total assets Stock-in-trade increased by 20.87% and was 23.88% of total assets



Provision for slow moving and obsolete items decreased by 61.83% because of which the overall impact on stock-in-trade was increasing


Loans and advances increased by 25.38% and was 0.76% of total assets Loans due from employees increased by 11.15% Advances to executives increased by 250.65% Advances to supplier increased by 94.81%

Trade deposits and prepayments increased by 40.6% and was 0.76% of total assets

Trade deposits increased by 126.25% Prepayments to other parties increased by 250.48%

Cash and bank balances increased by 30.46% and was 48.23% of total assets

Net cash used in investing activities (outflow) decreased by 62.1%

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Net cash and cash equivalents from this year’s activities increased by 15.12%

Non-current assets decreased by 8.12% Non-current assets were 21.08% Fixed assets increased by 4.85% and were 18.2% of total assets

Capital work in progress increased by 269.63% Civil work increased by 432.84% (Rs. 39,375,000) Plant and machinery increased by 190.54% (Rs.

63,613,000) Office equipments increased by 697.15% (Rs. 4,162,000) Advances to contractors and suppliers increased by

799.83% (Rs. 28,226,000) Long-term loans decreased by 17.05% and were 0.48% of total assets Long-term deposits decreased by 3.31% and were 0.08% of total assets Investments decreased by 52.87%

Pakistan investment bonds decreased by 4.67% In addition to this decrease, current portion of investments

amounted to Rs. 196,045,000 (nil in 2004) because of which there was a decreased impact on non-current investments


Since increase in total assets was more than net sales because of which total asset turnover of GSK was less this year when compared with last year’s TATO.

YEAR 2006

In 2006 TATO of GSK dropped down by 0.07 times. Last year it was 1.14 times and in 2006 it was 1.07 times. Following are the reasons of this decrease in TATO.


Current assets were 79.74% of total assets Stores and spares increased by 22.92% and were 0.69% of total assets

Stores increased by 26.64% Spares increased by 17.41% There is a very slight increase of 0.01% in provision for slow

moving and obsolete items Stock-in-trade increased by 11.28% and was 23.25% of total assets

Finished goods increased by 42.86%

51


Finished goods in transit increased by 122.08% Trade debts increased by 30.54% and were 0.9% of total assets

Trade debts due from related parties increased by 54.72% Trade debts due from other parties increased by 29.34%

Trade deposits and prepayments increased by 17.12% and were 0.81% of total assets

Staff pension fund increased by 36.37% Prepayments to other parties increased by 82%

Accrued interest increased by 184.93% and were 2.01% of total assets Other receivables increased by 58.35% and they were 1.295 of total assets

Customs duty and sales tax refundable (considered good) increased by 7.47%

Due from related parties increased by 224.37% in which major increase was due to GSK Services Unlimited, UK (281.6%), GSK Limited, Bangladesh (2005: nil, 2006: 22045K) and GSK Export Limited, UK (26.28%)


Investments-available for sale decreased by 49.45% and were 1.05% of total assets

Cash and bank balances increased by 17.12% and were 49.41% of total assets

Cash from operating activities (inflow) increased by 2.63% Net cash and cash equivalent from this year’s activities decreased

by 27.3% Non-current assets increased by 9.88%

Non-current assets were 20.26% of total assets Fixed assets increased by 4.85% and were 18.79% of total assets



799.83% (Rs. 28,226,000) Long-term loans decreased by 9.56% and were 0.38% of total assets Long-term deposits decreased by 2.85% and were 0.07% of total assets Investments decreased by 49.69% and were 1.02% of total assets

Pakistan investment bonds decreased by 49.57%

52



As we can see from above analysis that increase in total assets was more than increase in sales because of which we saw a decrease in TATO.

YEAR 2007

In 2007 GSK again saw a decrease in its TATO. Last year TATO was 1.07 times but in 2007 it was 1.04. Following are the reasons of decrease in TATO.

Total assets increased by 7.63% Current assets decreased by 0.13%

Total current assets were 73.99% of total assets Stock-in-trade increased by 3.72% and was 22.4% of total assets

Raw material increased by 27.46% Raw material in-transit was 26.35% of total raw material

which was 27.94% last year Accrued interest decreased by 42.13% and was 1.08% of total assets Investments decreased by 0.88% and were 0.97% of total assets Refunds due from government which was under the head of other

receivables last year with the title of customs duty and sales tax decreased by 62.22%. They were 0.15% of total assets

Cash and bank balances decreased by 8.78% and were 41.84% of total assets

Cash from operating activities decreased by 15.23% Cash used in investing activities increased by 273.9% (outflow) Net cash generation decreased by 161.17%

Non-current assets increased by 38.18% Non-current assets were 26.01% of total assets Fixed assets increased by 26.05 and were 22.01% of total assets

Operating assets increased by 44.66% Following net additions (additions-disposals) were made

during the year (total amounted to Rs. 704,008,000) Building on freehold land Rs. 142,000 Building on leasehold land Rs. 208,405,000 Plant and machinery Rs. 371,362,000 Furniture and fixtures Rs. 22,668,000 Vehicles Rs. 38,284,000 Office equipments Rs. 63,147,000

53


Long-term loans increased by 50.21% and were 0.53% of total assets Investments increased by 259.68% and these were 3.41% of total assets

Pakistan investment bonds increased by 127.62% (Rs. 249,528,000)

Since there was no increase in current portion of investments but only 0.88% decline the overall situation of investments was much better


As we can see from above analysis that increase in total assets was more than increase in sales because of which we saw a decrease in TATO.

YEAR 2008

In year 2008 GSK was able to improve its situation in terms of TATO. This year TATO increased from 1.04 times to 1.26 times. Following are the reasons of increase.

Total assets increased by 4.54% Current assets increased by 5.98% Current assets were 75.01% of total assets

Stores and spares increased by 8.29% and were 1.09% of total assets Stock-in-trade increase by 53.44% and were 32.88% of total assets



Trade debts increased by 770.34% and were 9.57% of total assets Due from other parties increased by 839.36% Provision for doubtful debts increased only by 58.59%, which

when compared with increase in new debts is much less Collection policy strengthened because maximum aggregate

amount due from related parties at the end of any month during the year was Rs. 12.53 million (2007: Rs. 12.81 million)

Loans and advances increased by 47.14% and were 1.12% of total assets Advances to employees increased by 14.97% Advances to suppliers increased by 120.36%


Prepayments increased by 36.21%

54


Balances held in margin were nil in 2007 but increased to Rs. 18476 in 2008

Refunds due from Government increased by 3.83% and were 0.15% of total assets

Investments increased by 58.31% and were 1.46% of total assets Non-current assets increased by 0.43 Non-current assets were 24.99% of total assets

Fixed assets increased by 7.98% and were 22.73% of total assets Operating assets increased by 14.41%


Buildings on leasehold land Rs. 5,103,000 Plant and machinery Rs. 252,619,000 Furniture and fixtures Rs. 8,955,000 Vehicles Rs. 65,594,000 Office equipments Rs. 48,286,000

Long-term loans increased by 14.72% and were 0.58% of total assets Long-term deposits decreased by 0.29% and were 0.06% of total assets Investments decreased by 50.45% and were 1.62% of total assets

Pakistan investment bonds decreased by 26.44% Since current portion of investments increased by 58.31% because

of which the resultant investments decreased from the last year Net sales increased by 26.32%


Since the percentage change in sales was more than percentage change in total assets, therefore, the resultant TATO increased comparatively to last year.

YEAR 2009

Again this year GSK saw an improved TATO. In 2008 GSK’s TATO was 1.26 times and in 2009 it increased up to 1.34 times. Following are the reasons of increase.


Stores and spares increased by 11.33% and were 1.17% of total assets

55


Increase in stores and spares was just a little, 0.01%, but due to 68.86% decrease in provision for slow moving and obsolete items the resultant value of stores and spares was higher than last year’s

Stock-in-trade increased by 16.25% and were 36.9% of total assets Work in process increased by 21.84% Finished goods increased by 47.8%

Finished goods in transit increased by 68.91% Investments increased by 314.69%. Since yield on these bills was good so

GSK invested Rs. 0.645million on these. They were 5.86% of total assets Components that were resistant to the increase in current assets were:

Trade debts which reduced by 1.97% Loans and advances decreased by 23.42% Trade deposits and prepayments decreased by 6.02% Accrued interest decreased by 73.32% Refunds due from government 0.21% Other receivables decreased by 16.06% Cash and bank balances decreased by 36.17%

Non-current increased by 6.86% Non-current assets were 25.78% of total assets





Long-term loans decreased by 0.6% and were 0.56% of total assets Long-term deposits increased by 3.52% and were 0.06% of total assets Investments were 1.53% of total assets


56


As we can see from this analysis that increase in sales was more than increase in total assets because of which the TATO of GSK increased in 2009.

TREND OF TOTAL ASSETS AND SALES

As we have seen that if there is an increase in sales and/or decrease in total assets the TATO of the company increases. Following graph shows the impact of the change in sales and total assets on TATO.

2004 2005 2006 2007 2008 2009

sales(%) 0 6.2 7.13 5.18 26.32 9.82

total assets(%) 0 20.32 14.32 7.63 4.54 3.6

TATO(times) 1.29 1.13999999999999

1.07 1.04 1.26 1.34

2.5

7.5

12.5

17.5

22.5

27.5

sales(%)total assets(%)TATO(times)

As we can observe in above graph that whenever there is more change in total assets TATO of GSK is decreasing and when there is an increase in sales it starts increasing.

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DEBT MANAGEMENT RATIOS

Measures the extent to which the firm uses debt financing, or financial leverage. Debt financing has three important implications: (1) by raising funds through debt, stockholders can maintain control of firm while limiting their investment. (2) Creditors look to the equity, or owner-supplied funds, to provide a margin of safety, so the higher the proportion of the total capital that was provided by stockholders, the less the risk faced by creditors. (3) If the firm earns more on investments financed with borrowed funds than it pays in interest, the return on the owners’ capital is magnified, or “leveraged”.

Firm with relatively high debt ratios have higher expected returns when the economy is normal, but they are exposed to risk of loss when the economy goes into recession. Therefore, decisions about the use of debt require firms to balance higher expected returns against increased risk. Ratios that tell the position of firm’s debt financing are described below.

HOW THE FIRM IS FINANCED: TOTAL DEBT TO TOTAL ASSETS

Debt ratio measures the percentage of funds provided by creditors. Creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditors’ losses in the event of liquidation. Stockholders, on the other hand, may want more leverage because it magnifies expected earnings. The graph below shows GSK’s debt ratio from 2004 to 2009.

2004 2005 2006 2007 2008 20090

5

10

15

20

25

30

19.18 18.4320.19 20.14

21.37

26.38

debt ratio(%)

debt ratio(%)

From this graph we can see that GSK has seen a decline in its debt ratio in 2005 but after that its debt ratio has been increasing with a slightest decline in 2007. This means that GSK’s debts are increasing with faster pace when compared to its assets.

Following section includes a detailed five year analysis of GSK’s debt ratios with a support of percentage change and common size analysis.

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YEAR 2005

Debt ratio of GSK dropped down by 0.75% in the year 2005. It was 19.18% last year however in 2005 it was 18.43%. Reasons of this decline are as follows.

Total debt increased by 15.6% Total debts were 18.43% of total assets Non-current liabilities increased by 13.68% and were 3.1% of total assets

Staff retirement benefits increased by 6.31% and were 1.92% of total assets

Deferred taxation increased by 28.16% and were 1.18% of total assets Current liabilities increased by 16% and were 15.33% of total assets

Taxation increased by 169.65% and were 4.51% of total assets Trade and other payables decreased by 6.25% and were 10.82% of total

assets Payables due to different parties and their respective decreases are

as follows Creditors: 33.16% Bills payable: 32% Royalty and technical fee payable: 42.34% Advances from customers: 59.5% Payables due to others: 24.92%







Loans and advances increased by 25.38% and was 0.76% of total assets Loans due from employees increased by 11.15% Advances to executives increased by 250.65%

59


Advances to supplier increased by 94.81% Trade deposits and prepayments increased by 40.6% and was 0.76% of

total assets Trade deposits increased by 126.25% Prepayments to other parties increased by 250.48%


Net cash used in investing activities (outflow) decreased by 62.1% Net cash and cash equivalents from this year’s activities increased

by 15.12% Non-current assets decreased by 8.12%

Non-current assets were 21.08% Fixed assets increased by 4.85% and were 18.2% of total assets






Since the percentage change in total assets is greater than total debts, therefore, the debt ratio of GSK decreased from last year. This means that GSK has increased its assets with more proportion than its liabilities. Another thing that we conclude from this analysis is that total liabilities are 18.43% of total assets which means GSK has enough assets to pay off its liabilities or they can get more financing to run their operations.

YEAR 2006

60


In 2006 we see an increase in GSK’s debt ratio. It increased from 18.43% to 20.19%. Following are the reasons of increase.

Total liabilities increased by 25.24% Total liabilities were 20.19% of total assets Non-current liabilities decreased by 20.62% and were 2.15% of total assets

Staff retirement benefits decreased by 58.32% and were 0.7% of total assets

Deferred taxation increased by 40.72% and was 1.45% of total assets Current liabilities increased by 34.51% and were 18.04% of total assets

Trade and other payables increased by 78.76% and were 16.93% of total assets

Dues to associated companies increased 100% , that is it was nil in 2005 however this year it was 56.09 million


Creditors: 43.61% Bills payable: 114.5% Accrued liabilities: 73.5% Royalty and technical fee payable minus due to associated

parties: 44.44% Advances from customers: 52.32% Contractors’ earnest/ retention money: 104.94% Workers’ welfare fund: 17.78% Unclaimed dividend: 31.98%







61

















Since the percentage change in total liabilities is greater than total assets, therefore, the debt ratio of GSK increased from last year. This means that GSK has increased its liabilities with more proportion than its assets. Another thing that we conclude from this analysis is that total

62


liabilities are 20.19% of total assets which means GSK has enough assets to pay off its liabilities or they can get more financing to run their operations.

YEAR 2007

Debt ratio of GSK dropped down from 2.19% to 2.14%. Reasons of this minimal decrease are as follows.

Total liabilities increased by 7.34% Total liabilities were 20.14% of total assets Non-current liabilities increased by 40.65% and were 2.81% of total assets


Deferred taxation increased by 91.52% and were 2.58%of total assets Current liabilities increased by 3.37% and were 17.33% of total assets



Accrued liabilities: 29.87% Royalty and technical fee payable: 59.98% Advances from customers: 35.69% Contractors’ earnest/ retention money: 17.8% Unclaimed dividend: 29.4%







Cash from operating activities decreased by 15.23% Cash used in investing activities increased by 273.9% (outflow)

63


Net cash generation decreased by 161.17% Non-current assets increased by 38.18%

Non-current assets were 26.01% of total assets Fixed assets increased by 26.05 and were 22.01% of total assets






Since the percentage change in total assets is greater than total debts, therefore, the debt ratio of GSK decreased from last year. This means that GSK has increased its assets with more proportion than its liabilities. Another thing that we conclude from this analysis is that total liabilities are 20.14% of total assets which means GSK has enough assets to pay off its liabilities or they can get more financing to run their operations.

YEAR 2008

In 2008 there was an increase in debt ratio of GSK. Its debt ratio increased from 20.14% to 21.37%. Reasons of this increase are as follows.



Deferred taxation increased by 18.98% and it was 2.94% of total assets Current liabilities increased by 10.02% and were 18.24% of total assets


64



Creditors: 15.96% Bills payable to associated companies: 89.58% Royalty and technical fee payable: 19.48% Advances from customers: 133.55% Taxes deducted at source and payable to statutory

authorities: 210.74% Worker’s welfare fund: 25.43% Central research fund: 12.89% Unclaimed dividend: 34.4% Payable to provident fund: was nil last year increased to Rs.

9462K Taxation increased to 12%










Prepayments increased by 36.21% Balances held in margin were nil in 2007 but increased to Rs.

18476 in 2008

65


Refunds due from Government increased by 3.83% and were 0.15% of total assets

Investments increased by 58.31% and were 1.46% of total assets Non-current assets increased by 0.43 Non-current assets were 24.99% of total assets






of which the resultant investments decreased from the last year

Since the percentage change in total liabilities is greater than total assets, therefore, the debt ratio of GSK increased from last year. This means that GSK has increased its liabilities with more proportion than its assets. Another thing that we conclude from this analysis is that total liabilities are 21.37% of total assets which means GSK has enough assets to pay off its liabilities or they can get more financing to run their operations.

YEAR 2009

In 2009 had debt ratio of 26.38% which was highest during this five year period. Reasons of this increase are as follows.


Staff retirement benefits increased by 183.12% and they were 0.54% of total assets

Deferred taxation increased by 2.62% and were 2.91% of total assets Current liabilities increased by 30.28% and were 22.93% of total assets

Trade and other payables increased by 35.19%

66



Credit payable from associated companies: was nil last year, amounted Rs. 878641K in 2009

Credit payable from other parties: 77.42% Royalty and technical fee payable to associated companies:

29.72% Accrued liabilities: 6.11% Advances from customers: 22.86% Taxes deducted at source and payable to statutory

authorities: 18.97% Unclaimed dividend: 15.4% Payables to other parties: 163.77%


Stores and spares increased by 11.33% and were 1.17% of total assets Increase in stores and spares was just a little, 0.01%, but due to

68.86% decrease in provision for slow moving and obsolete items the resultant value of stores and spares was higher than last year’s



GSK invested Rs. 0.645million on these. They were 5.86% of total assets Increase in current assets was minimal when compared to increase in

current liabilities. Components that were resistant to the increase in current assets were:



Fixed assets increased by 7.68% and were 23.63% of total assets

67



during the year (total amounted to Rs. 226,317,000) Buildings on leasehold land Rs. 39,181,000 Plant and machinery Rs. 135,277,000 Furniture and fixtures Rs. 244,000 Vehicles Rs. 18,420,000 Office equipments Rs. 35,556,000


Long-term loans decreased by 0.6% and were 0.56% of total assets Long-term deposits increased by 3.52% and were 0.06% of total assets Investments were 1.53% of total assets

Since the percentage change in total liabilities is greater than total assets, therefore, the debt ratio of GSK increased from last year. This means that GSK has increased its liabilities with more proportion than its assets. Major increase in liabilities due to staff retirement benefits (2008: Rs. 20,802,000; 2009: Rs. 58,894,000). Another thing that we conclude from this analysis is that total liabilities are 26.38% of total assets which means GSK has enough assets to pay off its liabilities or they can get more financing to run their operations.

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ABILITY TO PAY INTEREST: TIMES INTEREST EARNED

This ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs. Failure to meet this obligation can bring legal action by the creditors. Earnings before interest and taxes are taken in numerator because interest is paid with pre-tax earnings; ability to pay current interest is not affected by taxes. TIER will increase if there is an increase in EBIT and/or decrease in financial cost.

2004 2005 2006 2007 2008 20090

50

100

150

200

250

75.1

204.41

137.25

231.25

40.05

110.19

TIER (times)

TIER

GSK’s TIER shows a mix trend. Highest TIER was in year 2007; this showed that GSK had EBIT 231.25 times of their finance cost. Following is an in depth analysis of five year TIER of GSK with a support of percentage change and common size analysis.

YEAR 2005

TIER of GSK increased by 129.31 times. Reasons of this increase are as follows:

EBIT increased by 26.06% and it was 28.75% of net sales Net sales increased by 6.2%


COGS increased by 3.9%. last year it made 60.46% of net sales however this year it reduced to 59.15%

Selling, marketing and distribution expenses decreased by 13.14%. last year it was 11.71% of net sales; in 2005 it was 9.58% of net sales

Other operating income increased by 86.8% Financial charges decreased by 53.69% and were 0.32% of net sales

Major decline was in account of exchange loss. Last year it amounted to Rs. 17,423,000 however this year it was nil

Other accounts had minor increases which are as follows:

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Amortization of premium on investments increased by Rs. 1,504,000 Interest on worker’s profits participation fund increased by Rs. 255,000 Bank charges increased by Rs. 309,000

Since there was a positive change in EBIT and negative in financial cost, therefore, we see a positive outcome in TIER.

YEAR 2006

In 2006 TIER declined by 67.16 times. The reasons of this decline are as follows.

EBIT decreased by 2.09% and it was 26.28% of net sales Net sales increased by 7.13%


COGS increased by 11.69% and it was 61.67% of net sales Sales, marketing and distribution expenses increased by 16.83% and they were

10.44% of net sales Administrative expenses increased by 20.57% and they made 4.33% of net sales

Financial charges increased by 45.83% and were 0.19% of net sales With other accounts in financial charges declining there was 100% increase in

exchange loss’s account that is by Rs. 8,469,000

As we can see from above analysis that percentage change in EBIT was less than financial charge because of which TIER of this year was less than last year’s.

YEAR 2007

In 2007 there was a phenomenal increase in TIER. From 137.25 times it increased to 231.18%. Following are the reasons of this increase.



Increase in COGS was 7.03% and it was 62.75% of net sales Increase in operating income was 28.81% and it was 6.03% of net sales

Financial charges decreased by 40.21% and was only 0.11% of net sales Amortization of premium on investments decreased by 67.02% Exchange loss declined by 75.96%

As we can see in this analysis that EBIT has not increased by such a great proportion but since there is a big decline in financial charges, therefore, there is a dramatic increase in TIER.

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YEAR 2008

In 2008 GSK saw an incredible decline in its TIER. In 2007 it was 231.18 times however in 2008 it came down to 40.05 times. Following are the reasons of this major decline.



COGS increased by 43.38% and was 71.23% of net sales Gross profit decreased by 2.44% Other operating expenses decreased by 6.95% Other operating income increased by 100.15%

Financial charges increased by 565.45% Exchange loss increased by Rs. 65,364,000 Bank charges increased by Rs. 381,000

From this analysis we can see that although there was an increase in EBIT but increase in financial charges due to exchange loss was more than that because of which GSK saw a decline in its TIER.

YEAR 2009

GSK recovered its TIER in 2009. Its TIER increased from 40.05 times to 110.19 times. Following are the reason of increase.

EBIT decreased by 48.63% and was 10.74% of net sales Net sales increased by 9.82%


COGS increased by 17.03% and was 75.91% of total sales Selling, marketing and distribution expenses increased by 25.95% and was

11.37% of sales Administrative expenses increased by 13.19% and was 4% of net sales Other operating income decreased by 65.88% and was 2.97% of net sales

Financial charges decreased by 81.33% Exchange loss decreased by 95.1% Interest on WPPF and amortization of premium on investments accounts got nil.

As we can see in this analysis that there is a decline in both EBIT and financial charges but decline in financial charges is more because of which resultant TIER increased.

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TREND IN EBIT AND FINANCIAL CHARGES

As we have seen that if there is an increase in EBIT and/or decrease in financial charges the TIER of the company increases. Following graph shows the impact of the change in sales and total assets on TIER.

2004 2005 2006 2007 2008 2009

EBIT(%) 0 26.06 -2.09 0.7100000000000

01

15.27 -48.63

financial charges(%)

0 -53.69 45.83 -40.21 565.45 -81.33

TIER(times) 75.1 204.41 137.25 231.18 40.05 110.19

-150

-50

50

150

250

350

450

550

650

EBIT(%)financial charges(%)TIER(times)

As we can observe in above graph that whenever there is more change in financial charges, TIER of GSK is decreasing and when there is an increase in EBIT it starts increasing.

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PROFITABILITY RATIOS

These are a group of ratios that show the combined effects of liquidity, asset management, and debt on operating results.

PROFIT MARGIN ON SALES

This ratio measures net income per dollar of sales. GSK shows a declining trend in profit margins.

2004 2005 2006 2007 2008 20090

5

10

15

20

25

16.59

19.26

16.5 15.7414.59

6.35

profit margins

profit margins

Profit margin on sales showed an increase in 2005 however after that it started declining. 2009 saw a major decline in this five year period. Following is a detailed analysis of profit margin of GSK during these five years with a support of percentage change and common size analysis.

YEAR 2005

In 2005 profit margins of GSK increased by 2.67%. Following are the reasons of this increase.

Net income increased by 23.27% Net sales increased by 6.2%






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Other accounts had minor increases which are as follows: Amortization of premium on investments increased by Rs.

1,504,000 Interest on worker’s profits participation fund increased by Rs.

255,000 Bank charges increased by Rs. 309,000

EBIT increased by 26.06% and it was 28.75% of net sales Taxation increased by 35.92% and was 9.35% of net sales

Taxation for current year increased by Rs. 246,005,000 Deferred taxation increased by Rs. 6,276,000

As we can see that increase in net income is more than increase in sales because of which there is an increased profit margin in 2005. Major contribution to this increase is decreased financial charges and selling, marketing and distribution expenses and increased other operating income.

YEAR 2006

In 2006 GSK saw a decreased profit margin. Following are the reason of this decrease.

Net income decreased by 8.2% and was 16.5% Net sales increased by 7.13%



10.44% of net sales Administrative expenses increased by 20.57% and they made 4.33% of net sales Financial charges increased by 45.83% and were 0.19% of net sales

With other accounts in financial charges declining there was 100% increase in exchange loss’s account that is by Rs. 8,469,000

EBIT decreased by 2.09% and it was 26.28% of net sales Taxation increased by 9.78% and it was 9.58% of net sales

Tax for the current year increased by Rs. 69,373,000 Deferred tax increased by Rs. 11,802,000

Since there is a negative change in net income and positive in sales, therefore, profit margin of GSK decreased. Major components which caused this decrease were increased COGS, administrative expenses, financial charges, taxation and selling, marketing and distribution expenses.

YEAR 2007

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In 2007 there was another decline in profit margin of GSK. Following are the reasons of this decline.

Net income increased by only 0.33% and was 15.74% of net sales Net sales increased by 5.18%


Increase in COGS was 7.03% and it was 62.75% of net sales Increase in operating income was 28.81% and it was 6.03% of net sales EBIT increased by 0.71% and it was 25.16% of net sales Financial charges decreased by 40.21% and was only 0.11% of net sales

Amortization of premium on investments decreased by 67.02% Exchange loss declined by 75.96%

Taxation increased by 2.18% and was 9.31% of net sales Deferred taxation increased by Rs. 86,539,000

As we observed that there was an increase in net income however increase in net sales was more because of which profit margin declined in 2007.

YEAR 2008

In 2008 profit margin declined from 15.74% to 14.59%. Reasons of decline are as follows.

Net income increased by 17.04% and was 14.59% of net sales Net sales increased by 26.32%


COGS increased by 43.38% and was 71.23% of net sales Gross profit decreased by 2.44% Other operating expenses decreased by 6.95% Other operating income increased by 100.15% EBIT increased by 15.27% and it was 22.96% of net sales Financial charges increased by 565.45%

Exchange loss increased by Rs. 65,364,000 Bank charges increased by Rs. 381,000

Taxation increased by 5.85% and was 7.8% of net sales Taxation for current year are Rs. 112,054,000

Though net income of GSK recovered really well but the percentage change was less than net sale’s percentage change because of which profit margin decreased from last year’s.

YEAR 2009

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In 2009 GSK saw the biggest decline in its profit margin. It came down from 14.59% to 6.35%. Following are the reasons of this decline.

Net income declined by 52.23% and was 6.35% of net sales Net sales increased by 9.82%



11.37% of sales Administrative expenses increased by 13.19% and was 4% of net sales Other operating income decreased by 65.88% and was 2.97% of net sales EBIT decreased by 48.63% and was 10.74% of net sales Financial charges decreased by 81.33%

Exchange loss decreased by 95.1% Interest on WPPF and amortization of premium on investments accounts

got nil. Taxation declined by 39.5% and was 4.3% of net sales

Taxation fro current year declined by Rs. 320,000,000 Deferred taxation declined by Rs. 53,062,000

Because of decreased net income even after increase in sales there was a decrease in profit margin of 2009. This decline was due to increased COGS, administrative expenses and selling, marketing and distribution expenses.

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BASIC EARNING POWER (BEP)

This ratio indicates the ability of the firm’s assets to generate operating incomes. This ratio shows the raw earning power of the firm’s assets, before the influence of taxes and leverage. BEP of GSK shows a mix trend.

2004 2005 2006 2007 2008 20090

5

10

15

20

25

30

3531.29

32.78

28.0726.27

28.97

14.36

BEP

BEP

As we can see in above graph in 2005 BEP increase but it then declined in 2006 and 2007. Then it again sees an increase in 2008 and then a sharp decline in 2009. Following is a detailed analysis of GSK’s BEP for five years with a support of percentage change and common size analysis.

YEAR 2005

In 2005 BEP of GSK increased from31.29% to 32.78%. Following are the reasons on this increase.





Other operating income increased by 86.8% Total assets increased by 20.32%

Current assets increased by 31.17% Total current assets were 78.92% of total assets Accrued interest increased by 208.09% and was 0.81% of total assets

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Stock-in-trade increased by 20.87% and was 23.88% of total assets Raw and packaging material increased by 28.9%

In transit raw and packaging material increased by 26.66% Finished goods increased by 15.31%

Finished goods in transit increased by 49.22% Provision for slow moving and obsolete items decreased by

61.83% because of which the overall impact on stock-in-trade was increasing








Non-current assets were 21.08% Fixed assets increased by 4.85% and were 18.2% of total assets





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In addition to this decrease, current portion of investments amounted to Rs. 196,045,000 (nil in 2004) because of which there was a decreased impact on non-current investments

As we can see from above analysis that increase in EBIT is more than increase in total assets that’s why there is an increase in BEP. The ratio can be interpreted as; GSK is generating its operating income by utilizing 32.78% of its total assets.

YEAR 2006

In 2006 there was a decline in BEP of GSK that is in 2005 BEP was 32.78% and in 2006 it was 28.07%. Following are the reasons of decline.

EBIT decreased by 2.09% and it was 26.28% of net sales Net sales increased by 7.13%



10.44% of net sales Administrative expenses increased by 20.57% and they made 4.33% of net sales





Finished goods increased by 42.86%o Finished goods in transit increased by 122.08%





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Capital work in progress increased by 269.63%o Civil work increased by 432.84% (Rs. 39,375,000)

o Plant and machinery increased by 190.54% (Rs.

63,613,000)o Office equipments increased by 697.15% (Rs. 4,162,000)

o Advances to contractors and suppliers increased by



Since there is a negative change in EBIT and an increase in total assets, therefore, the BEP ratio in 2006 was less than 2005. Thus in 2006 GSK was generating its operating profit by utilizing 28.07% of its total assets.

YEAR 2007

In 2007 there was again a decline in BEP ratio. Reasons for the decline are as follows.

EBIT increased by 0.71% and it was 25.16% of net sales

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Increase in COGS was 7.03% and it was 62.75% of net sales Increase in operating income was 28.81% and it was 6.03% of net sales













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This analysis shows that due to more increase in GSK’s total assets and comparatively less in EBIT there was a decline in BEP ratio. Thus, GSK is using only its 26.27% of total assets to generate its operating profit.

YEAR 2008

In 2008 there was an increase in BEP ratio of GSK. Following are the reasons of this increase.



COGS increased by 43.38% and was 71.23% of net sales Gross profit decreased by 2.44% Other operating expenses decreased by 6.95% Other operating income increased by 100.15%










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18476 in 2008 Refunds due from Government increased by 3.83% and were 0.15% of

total assets Investments increased by 58.31% and were 1.46% of total assets

Non-current assets increased by 0.43 Non-current assets were 24.99% of total assets







More increase in operating profit resulted in increased BEP ratio. In 2008 GSK was utilizing its 28.97% of total assets to generate its operating profit.

YEAR 2009

In 2009 there was a sharp decline in GSK’s BEP ratio. It dropped from 28.97% to 14.36%. Following are the reasons of this decline.

EBIT decreased by 48.63% and was 10.74% of net sales Net sales increased by 9.82%



11.37% of sales Administrative expenses increased by 13.19% and was 4% of net sales Other operating income decreased by 65.88% and was 2.97% of net sales

83














Long-term loans decreased by 0.6% and were 0.56% of total assets Long-term deposits increased by 3.52% and were 0.06% of total assets

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Investments were 1.53% of total assets

The decline in BEP ratio was not just because of increase in total assets, as total assets did not increased with a huge proportion, but this decline is due to decrease in operating profit of this year. Therefore, we conclude that GSK is increasing its assets but not utilizing them efficiently to generate its operating income.

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RETURN ON TOTAL ASSETS

This ratio indicates the ability of a firm’s assets to generate its net income. ROA for GSK saw a same trend as was in BEP. GSK saw an increase in 2005 after which it saw a decline in 2006 and 2007 there was a decline then in 2008 it recovered its ROA and then again there was a sharp decline in 2009. Thus we can conclude from here that trend in GSK’s net income and operating profit is same.

2004 2005 2006 2007 2008 20090

5

10

15

20

25

21.43 21.96

17.6316.43

18.4

8.48

ROA

ROA

Following is year wise analysis of GSK’s ROA with a support of percentage change and common size analysis.

YEAR 2005

In 2005 there was a slightest increase in ROA of GSK. The reasons of this increase are as follows.








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Amortization of premium on investments increased by Rs. 1,504,000

Interest on worker’s profits participation fund increased by Rs. 255,000

Bank charges increased by Rs. 309,000 EBIT increased by 26.06% and it was 28.75% of net sales Taxation increased by 35.92% and was 9.35% of net sales














Non-current assets were 21.08%

87


Fixed assets increased by 4.85% and were 18.2% of total assets Capital work in progress increased by 269.63%

Civil work increased by 432.84% (Rs. 39,375,000) Plant and machinery increased by 190.54% (Rs.





Since increase in net income was more than increase in total assets, therefore, the resultant ROA showed an increasing trend. Thus from this analysis we can say that GSK is generating its income with 21.96% contribution of its total assets.

YEAR 2006

In 2006 there was a decrease in ROA of GSK. It declined from 21.96% to 17.63%. Reasons of this decline are as follows.







Tax for the current year increased by Rs. 69,373,000

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Deferred tax increased by Rs. 11,802,000 Total assets increased by 14.32%

Current assets increased by 15.51% Current assets were 79.74% of total assets Stores and spares increased by 22.92% and were 0.69% of total assets



Finished goods increased by 42.86%o Finished goods in transit increased by 122.08%













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Capital work in progress increased by 269.63%o Civil work increased by 432.84% (Rs. 39,375,000)

o Plant and machinery increased by 190.54% (Rs.

63,613,000)o Office equipments increased by 697.15% (Rs. 4,162,000)

o Advances to contractors and suppliers increased by



Since there was a decrease in net income from last year because of which there was a decline in ROA in 2006.

YEAR 2007

In 2007 there was again a decrease in ROA of GSK. It dropped down from 17.63% to 16.43%. Following are the reasons of this decline.









which was 27.94% last year Accrued interest decreased by 42.13% and was 1.08% of total assets Investments decreased by 0.88% and were 0.97% of total assets

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Refunds due from government which was under the head of other receivables last year with the title of customs duty and sales tax decreased by 62.22%. They were 0.15% of total assets









Since increase in total assets was more than net income, therefore, the ROA declined in 2007.

YEAR 2008

In 2008 there was an increase in GSK’s ROA. It increased from 16.43% to 18.4%. Reasons of increase are as follows.



91















18476 in 2008 Refunds due from Government increased by 3.83% and were 0.15% of

total assets Investments increased by 58.31% and were 1.46% of total assets

Non-current assets increased by 0.43 Non-current assets were 24.99% of total assets

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As from above analysis we can see that increase in net income was more than increase in total assets because of which ROA of GSK increased during this year.

YEAR 2009

In 2009 there was a sharp decline in ROA of GSK. It dropped down from 18.4% to 8.48%. Reasons of this decline are as follows.







Taxation fro current year declined by Rs. 320,000,000 Deferred taxation declined by Rs. 53,062,000

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Long-term loans decreased by 0.6% and were 0.56% of total assets Long-term deposits increased by 3.52% and were 0.06% of total assets

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Investments were 1.53% of total assets

As we can see from above reasons that due to increase in operating expenditures and decrease in operating income, net income in 2009 of GSK declined with a very high percentage. This decline resulted in decreased ROA.

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RETURN ON COMMON EQUITY

This ratio measures the rate of return on common stockholders’ equity investment. Stockholders invest to get a return on their money, and this ratio tells how well they are doing in an accounting terms.

2004 2005 2006 2007 2008 20090

5

10

15

20

25

3026.52 26.92

22.0920.58

23.4

11.52

ROE(%)

ROE(%)

Again trend in ROE is same as in BEP and ROA. GSK had an increase in 2005 in ROE, decrease in 2006 and 2007, increase in 2008 and then a sharp decrease in 2009. Following is a detailed year wise analysis of ROE of GSK with a support of percentage change and common size analysis.

YEAR 2005

In 2005 there was an increase in ROE of GSK. Following are the reasons of increase.








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Amortization of premium on investments increased by Rs. 1,504,000

Interest on worker’s profits participation fund increased by Rs. 255,000

Bank charges increased by Rs. 309,000 EBIT increased by 26.06% and it was 28.75% of net sales Taxation increased by 35.92% and was 9.35% of net sales


Total shareholder’s equity increased by 21.45% and was 81.57% of total assets Share capital increased by 25% and was 13.22% of total assets

Shares allotted as bonus shares increased by 39.69% (Rs. 218,459,960) Reserves increased by 20.78% and were 68.35% of total assets

General reserves increased by 44.1% (Rs. 1,224,000,000)

Since increase in net income was more than increase in shareholders’ equity, therefore, the ROE of the firm increased in this year. This means that shareholders are getting 26.92% return on their investments.

YEAR 2006

In 2006 ROE decreased from 26.92% to 22.09%. The reasons of this decrease are as follows.







Tax for the current year increased by Rs. 69,373,000 Deferred tax increased by Rs. 11,802,000

Total shareholder’s equity increased by 11.86% and was 79.81% Share capital increased by 25% and was 14.46% of total assets

Shares allotted as bonus shares increased by 35.51% (Rs. 273,074,950)

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Reserves increased by 9.31% and was 65.35% of total assets Fair value reserves decreased by 68.23% Unappropriated profit increased by 40.47%

Since net income of GSK declined from previous year, therefore, ROE of this year decreased comparatively from last year.

YEAR 2007

In 2007 ROE of GSK decreased to 20.58%. The reasons of this decline are as follows.






Total shareholder’s equity increased by 7.71% and it was 79.86% of total assets Share capital increased by 25% and was 16.79% of total assets

Shares allotted as bonus shares increased by 32.76% (Rs. 341,343,690) Reserves increased by 3.88% and were 63.07% of total assets

Fair value reserve decreased by 68.46% (Rs. 2,498,000) Unappropriated profit increased by 13.17% (Rs. 236,881,000)

As we can see from above reasons that stockholder’s investment has increased with a more percentage during the year but net income has increased with a very less proportion because of which the ROE of 2007 decreased from the last year’s ROE. This means that investors are getting 20.58% return on their investment.

YEAR 2008

In 2008 GSK saw an increase in their ROE. It increased from 20.58% to 23.4%. Reasons of the increase are as follows.


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Total stockholder’s equity increased by 2.92% and it was 78.63% of total assets Capital reserve did not increased during the year but the amount was 16.06% of

total assets Reserves increased by 3.7% and were 62.57% of total assets

Unappropriated profit increased by 12.21%

Net income increased this year with higher percentage, with main contribution of other operating income, as compared to equity; this resulted in an increase in ROE for the year.

YEAR 2009

In 2009 GSK saw a sharp decline in its ROE. The reasons of decline are as follows.







Taxation for current year declined by Rs. 320,000,000

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Deferred taxation declined by Rs. 53,062,000 Total stockholder’s equity decreased by 3% and it was 73.62% of total assets

Share capital did not change for this year and it was 15.5% of total assets Reserves decreased by 3.77% and it was 58.12% of total assets

Unappropriated profit decreased by 11.42%

As in above reasons we can see that, both net income and stockholder’s equity decreased. However decrease in net income was much greater than decrease in stockholder’s equity because of which the ROE during the year declined with greater margin.

OVERALL PROFITABILITY OF GSK

Profitability of GSK has got a decreasing trend. The reasons of this trend are volatility in rupee currency and inflation.

2004 2005 2006 2007 2008 20090

5

10

15

20

25

30

35

PMBEPROAROE

During these five years major decline could be seen in year 2009. Following is an overview of 2009’s operation of GSK.Total turnover for the year 2009 grew by 9.8% (Rs.1.3 billion) to Rs 14.7 billion. Excluding large government tenders, underlying sales grew by 14.9%. Within the core pharmaceutical portfolio, there were strong performances from Antibiotics, Cardiovascular, Respirator y, Dermatology, Analgesics and Gastro Intestinal brands, with all achieving double digit growth.The Consumer Health Care business grew by 28.2% to Rs 298.6 million, with Eno and Iodex being the main growth drivers.Export sales maintained a positive trend and achieved double digit sales growth to Rs. 390.4 million.Gross margins in this year at 24.1%, declined by 4.7% compared to last year. Margins have been adversely affected due to the long-standing price freeze on majority of the products since 2001, increases in raw and packaging prices both locally and internationally, the continuous weakening of the rupee against foreign currencies particularly the US Dollar and also escalation of fuel,

100


power and utilities costs. The company absorbed these negative impacts to an extent through good sales growth, simplification and rationalization initiatives undertaken in manufacturing and commercial operations.Selling, marketing and distribution expenses last year were Rs. 1673.8 million increased by 26.0%. The increase over last year mainly reflected increased investment in core and new brands and increased freight cost due to rising oil prices and sales growth.Administrative expenses at Rs. 588.8 million increased by 13.2%. The increase was less than the general level of inflation, which impacted employment cost, traveling and accommodation. Increases in training expenses for employee development and increased legal costs also contributed to expense growth.Other operating income was recorded at Rs. 436.6 million, primarily comprising of investment income of Rs. 354.9 million. Overall, the increase in income stood at Rs. 0.3 million (excluding gain on sale of Korangi land last year). The investment income has declined by 8.9% as surplus funds reduced due to dividend payout and increase in cost of doing business. This was partly offset by higher interest rates earned on investments.Net profit after tax for the year was Rs. 933.9 million. Excluding the impact of the land sale in 2008, the decrease in profit is to the tune of 16%.The Board of Directors in its meeting held on March 03, 2010 proposed a final cash dividend of Rs. 5.0 (2008: Rs. 7.0) per share.

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FORECAST FOR THE YEAR 2010

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FORECAST FOR THE YEAR 2010

We took an interview with Mr. Najeeb Ahmed, financial accounting manager of GSK. He told us that GSK is planning to launch new products and had a merger with BMS and Stiefel; this would bring a positive impact on performance of GSK because of increased assets.

From all this information and considering historical performance of GSK we are forecasting sales growth of 24%. We are increasing other components of balance sheet and income statement by the average growth of past five years; however, we have taken taxation in income statement as average of five year common size percentage. Following is our pro-forma balance sheet and income statement for the year 2010 of GSK.

FORECAST FOR THE YEAR2010PROFORMA INCOME STATEMENT Rs. '000 % CHANGENET SALES 3532592 24%COST OF GOODS SOLD 1855913 16.61%GROSS PROFIT 1676678SELLING,MARKETING AND DISTRIBUTION EXPENSES

181943 10.87%

ADMINISTRATIVE EXPENSES 64946 11.03%OTHER OPERATING EXPENSES 981 0.71%OTHER OPERATING INCOME 282315 64.66%OPERATING PROFIT 1711123FINANCIAL CHARGES 12514 87.22%PROFIT BEFORE TAXATION 1698609TAXATION 285009 8.07%PROFIT AFTER TAXATION 1413599

FORECASTED BALANCE SHEET Rs. '000 % CHANGETOTAL SHAREHOLDER'S EQUITY 664,536 8.20%TOTAL NON-CURRENT LIABILITIES 49,313 13%TOTAL CURRENT LIABILITIES 479,641 19%TOTAL LIABILITIES AND EQUITY 1,193,490TOTAL NON-CURRENT ASSETS 283,783 10%TOTAL CURRENT ASSETS 909,707 11.13%TOTAL ASSETS 1,193,490

Took average of five year common size percentage

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