Essay Example - GlaxoSmithKline's Financial Analysis

GlaxoSmithKline plc (GSK) is a renowned pharmaceutical company with a British origin and the location of the headquarters being Brentford, London, it was established in 2000 by Glaxo Wellcome and SmithKline. It rose to be the world's sixth-largest company in pharmaceuticals by 2015. It is closely followed by Pfizer, Merck, Sanofi, Novartis, and Hoffmann-La-Roche. In 2017, Emma Walmsley became the first female CEO of GlaxoSmithKline Company, a most unlikely situation for a person of her gender. The company has a listing in the Stock exchange market in London constituting an index of 100. By August 2016, GlaxoSmithKline Company had a capitalization of the market of about $107 making it number four in the Stock exchange of London. The company has also secured a secondary listing in the stock exchange of New York.

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Drugs and vaccines produced by GSK, earned an attractive revenue of 21.3 billion Euros with its bestselling products being Advair, Augmentin, Lovaza, Lamitical, Flovent and Avodart. The company's consumer products like Sensodyne, malted milk drinks, Aquafresh toothpaste, Abreva for cold sores and a remedy for the common cold, earned a 5.2 billion euros revenue. The company claimed that their newly founded malarial vaccine would be made available for a price that would roughly be five percent above the normal cost earning its listings in the essential model list of medicines that are necessary by the world health organization. The listing was meant for medicine such as zidovudine, amoxicillin, pyrimethamine and mercaptopurine. GSK paid around $1 billion to raise its stake in the pharmaceutical unit belonging to the company from India translating 75 percent being part of a movement focusing on the market that is emerging. In the same year 2014, the founders of the company stroke deals that amounted to $20 billion as they also bought the cancer business. The next year, February they acquired GlycoVaxyn and sold meningitis drugs for about $ 130 million. Phillip Hampton then became the chairman of GSK in 2015. Emma Walmsley succeeded and became the CEO coupled with the fact that she had a strong background in marketing and utmost professionalism.

The company also divested its portfolio belonging to gene therapy to a company with name Orchard Therapeutics in the year 2018. They came to a decision coupled up with the fact that they were also making considerations regarding rare medications and producing them. Later that year in November it was noted that the GSK was in a position in which Unilever could acquire its unit which was based in India. It was estimated that the sale of the Indian unit could generate $4 billion for the GlaxoSmithKline Company. In December, GSK announced that Unilever could acquire the unit for $3.8 billion in cash and the remaining part made payment through buying shares in Hindustan Unilever Limited thereby owning 5.7% of Hindustan Unilever Limited and initiating the share distribution in sale to a number of tranches. After the sale, the company decided on acquiring an oncological specialist by the name Tesaro who went for a net worth of $5.1 billion. Striking the deal would be of benefit to GSK as it resulted in finding out the control of the treatment meant for ovarian cancer. The medication Zejula was a member of the inhibitors of class poly ADP ribose polymerase (PARP), resulting in the rising of GlaxoSmithKline's worth by a relatively high percentage.

Most of the vital returns show an increase in the past three years of the company's operation. This could translate to showing how stable the company is in administration. Progress made by the company. Owing to a relatively higher net income which is generated by GSK, the company's returns on assists have been higher, and the return on equity has also been quite high. The sternly high numbers could be as a result of a variety of essential medications being at a higher level of demand. Alternatively, its increase in return of assets could be attributed to by the smaller size of the capital being in use because the company spent a variety of its retained earnings on transactions which include acquisitions and also a majority of its distribution to some of their shareholders.

GSK is on the other hand as translated by the ratios on the table, experiencing some decline in the financial performance which could be accounted for by the internal restructuring of the company. The analysis of investment shows that the market predicts future growth based on the multiplication of currency earned and as such investors interested in seeking risks could be advised to buy shares for capital gains in the future. The company's shares are way attractive to investors in need of a high yield though it would be taking a major risk when buying GSK shares' and also investing one's fund in the company.

The gross profit margin of GSK has been on the increase, and it's the hope of the company that they would bring longer-lasting profits to the industry since it is deeply rooted all over the world with active markets and stock of the company. The basic growth of the company could be attributed to the fact that the company has a marketing team that may be committed to making an increase in the profits margin all over the world. Through product promotion of bonuses for some of their drugs such as Amoxycillin and basic commodities such as Aquafresh, the company creates the awareness of being depended on globally. It is however admirable that the company would make progress though faced with challenges such as the manufacture of essential biosimilar drugs for competition with biologic trademarked drugs. Aside from that, Mr. Witty assured the public that the company was about to increase their profits once 15 of their drugs were completely developed as 9 of the drugs and also vaccines were done with clinical trials, about three being in the process of being filed by regulators and one already filed by regulators. That was the basis of their plan to avoiding loss of revenue from generic versions of the drugs that went out for a lower price.

With it's market capitalization being of around $95.56 billion, GlaxoSmithKline is placed as a large-cap with the stocks seeking attention significantly from the community of investors due to its large size and the size of the company's liquidity. There is usually a variation from one company to another of a ratio of debt to equity as some companies need debt finances than others. For large-cap stocks, it's considered financially healthy when the ratio is way below 40%. The ratio of debt to equity for GSK is about 426.56% showing that the company holds relatively high levels of debt in comparison to the company's net worth. The ratio indicates that in the event of financial turmoil, the company would experience a challenge in meeting their achieved interests and obligation of debts. The following ratio has several factors at play being a way of checking whether the leverage can service the debt. A company is considered financially sound when it is able to produce at least three times its payments of interest (Ross Stores Inc, 2018). While GSK amply covers its profitable interests at about 9.3 times, it is reasonably healthy, and GSK could receive more debt aiding in the expansion of growing the facilities for debts (Zack, 2013). The company is delivering what is expected of them in the generation of their flow of liquidity from the borrowings made by the company.

A company as large as GSK is expected to have the utmost sincere financial reports as according to Albrecht (2015), management is solely responsible for fraud by the organization. In the course of the company's trade years, the company has maintained vast social networking processes building trust in many individuals and reducing the risk of financial fraud by the company. Social networking builds a company's need for transparency and also the normalization of most of deviant practices. Diffusion of the company to the market could be a factor in discouraging fraud in a majority of the organizations (Higgins, Koski & Mitton, 2016) and through the deep diffusion GSK to the market, it is less likely that financial fraud would occur in the organization.

References.

Albrecht, C., Holland, D., Malagueno, R., Dolan, S., & Tzafrir, S. (2015). The role of power in financial statement fraud schemes. Journal of Business Ethics, 131(4), 803-813.

Higgins, R. C., Koski, J. L., & Mitton, T. (2016). Analysis for financial management. New York: McGraw-Hill Irwin.

Ross Stores Inc. (2018). Annual Report: Say Yes to Bargains

Zack, G. M. (2013). Financial statement fraud: Strategies for detection and investigation. Hoboken, New Jersey: John Wiley & Sons, Inc.