Financial Correction Assignment Help (GC01362)

Table of Contents

Introduction.

1.0 Task 1.

1.1 Calculation of the useful ratios based on GSK Ltd.

1.2 Comparison of two years figures and comment on the finances of the business.

1.3 Comment on the business structure and financial structure.

Reporting requirements for the company.

Comparison with other possible structures.

1.4 Recommendation for a potential investor to invest of £50, 000 in business.

Financial

Economic.

Lifestyle.

1.5 Recommendation for suitable sources of finance.

Sources of finance.

Assessment of implications of different sources of finances.

Recommendation for resourcing fiancé for the business.

1.6 How working capital can be effectively managed.

2.0 Task2.

2.1 Cash Budget & Forecast

2.2 Evaluation and recommendation on cash flow.

3.0 Task 3.

3.1        Methods used/applied to evaluate the projects.

3.2 Overall views of the two projects.

3.3 Evaluation of the given projects using ARR, PP, NPV and IRR.

3.3.1 Accounting rate of return (ARR).

3.3.2 Payback Period.

3.3.3 Net Present Value.

3.3.4 Internal rate of return (IRR).

3.5 Recommendation for choosing one project to invest in.

4.0 Conclusion.

5.0 References.

Introduction

Financial ratios describe the relationship between different items in the financial statement which particularly help to direct the user’s focus of attention identifying and highlighting significant changes, good and bad performance (Elliott. B and Elliott. J, 2007). Ratio analysis deals with the historical performance measurement of a firm and it helps in comparison across the companies and/or over time and forecasting the future performance or direction (Ross and Westerfield et al., 2005). The first section as Task 1 of this report includes a ratio analysis on two years of financial data of a particular organization namely Glaxo Smithkline Ltd, a renowned pharmaceutical company.

Cash and preparing a cash budget is the lifeblood in the issue of any business success. The second section as Task 2 in the report includes preparation of cash budget and forecasting from the given income statement forecast for Green Limited. This section also describes the ways of managing working capital effectively and suitable sources of finance to invest in more. The final section as Task 3 of the report applies some useful project appraisal methods to evaluate two given projects in order to select the best one to invest in. This part also elaborates shortcomings of the project appraisal methods with the probable recommended one and the rationale behind it.

1.0 Task 1

1.1 Calculation of the useful ratios based on GSK Ltd

Financial ratios are very significant to examine and evaluate different aspects of financial performance regarding planning and controlling issues which are mainly useful for managers in a variety of decision-making areas like profit planning, pricing and financial structure, etc (Attrill. P, 2011). Ratios calculation and analysis shown in the following table are based on the data of Glaxo Smithkline (GSK) Annual Report (2012) where the data come from the year 2011 and 2012.

Table 1: Ratios of GSK for 2011 and 2012.

1.2 Comparison of two years figures and comment on the finances of the business.

Return on capital employed increased by 8.5% from 61.8% in 2011 to 70.3% in 2012. Glaxo SmithKline manages its return on capital through its investment board, where all capital expenditure is subject to rigorous appraisal both after and before it is made. It reduced the cost and reflects the relatively modest profit progress.

The gross profit decreased by 2%, from 72.1 % in 2011 to 70.1% in 2012. The main cause of this decrease is the cost of sales was higher relative to sales revenue in 2012 than in 2011. Both sales and purchase prices had also increased but the former at a higher rate than the latter. The cost of sales has increased by 1%, from 38.1% in 2011 to 38.1% in 2012.

Net profit also decreased by .5% in 2012 compared with that of 2011. The cause of this decrease is the bad ROCE and extends of capital expenditure and administrative expenses following the effectiveness of purchasing and centralization of business. The main cause of decreasing the gross profit is the increase in the cost of sales.

The key point of decreasing inventory turnover is the down of sales by 5.2% in 2012 in comparison with 2011.  The expansion of new 42 products, 101 branches have also increased the inventory turnover.

Liquidly ratios including the Current ratio and acid test ratio have increased by 0.09 times and 0.07 times respectively in 2012 compared with 2011. This improvement has been only in the inventories sector.  Raw materials and consumables; and work in progress are accounts for development in current assets.

Earnings per share were 43.3 pence (2011: 38.3 pence), an increase of 5.0 percent, with the increase at the pre-tax level boosted by the lower tax charge and a lower average number of shares in issue.

The gearing ratios including interest cover show that the level of operating profit is higher than the level of interest payable. The lower the level of operating profit coverage, the greater the risk to lenders that interest payments will not be met.

1.3 Comment on the business structure and financial structure

Glaxo SmithKline UK has three primary areas of business: pharmaceuticals, vaccines and consumer healthcare. The company’s commercial success depends on creating innovative new products and making these accessible to as many people who need them as possible. By achieving this, the company will be able to grow business and provide benefits to patients, consumers, society, employees and shareholders (Glaxo Smithkline, 2014).

According to the information on Glaxo Smithkline’s website, research is vitally important to the success of its business. The company spent just under £4 billion in 2012 in search to develop new medicines, vaccines and innovating consumer products.  This is one of the few healthcare companies researching medicines and vaccines for the World Health Organization’s three priority diseases – HIV/AIDS, tuberculosis and malaria (Glaxo Smithkline, 2014)………………………………….

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