BE161-7-AU: CORPORATE REPORTING AND ANALYSIS

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       BE161-7-AU: CORPORATE REPORTING AND ANALYSIS
COURSEWORK
 
Financial Comparison and Analysis:
AstraZeneca PLC and GlaxoSmithKline PLC
 
 
 
 
Umit KURNAZ
Registration No: 1405507
 
 
 
Colchester, 2015
Word Count: 3953

1.                  Introduction

This report will analyse and compare the two pharmaceutical companies GlaxoSmithKline PLC (GSK) and AstraZeneca in terms of their financial performance. These companies will be evaluated with regard to their financial ratios. Financial ratios give a clear picture of the financial health of a business and are very useful for comparing different companies.

1.1.            Pharmaceutical industry

A single company does not operate apart from its environment. Economic structure and the actions of other competitors affect any company’s success. Therefore in order to analyse and compare companies in terms of financial performance, the industry in which they conduct business should be evaluated. Pharmaceutical industry can be defined as an industry which develops, produces, and markets licensed drugs or biologicals for human and veterinary use. The pharmaceutical industry has doubled in value since 2000. According to IMS Health (2014) world pharmaceutical market sales reached US$874 billion in 2013.  The 10 largest drugs companies control over one-third of this market, several with sales of more than US$10 billion a year and profit margins of about 30% (WHO, 2014). The industry has a very competitive structure. While large-scale and research based companies develop medicines and vaccines, smaller companies produce generic medicines. As world population is rising and diseases which require long term management is increasing the pharmaceutical industry is going to grow. Spending on medicines globally is expected exceed US$1.17Tn by 2017(IMS Health, 2014a) On the other hand, there are some challenges, such as maintaining R&D productivity, pricing pressure, patent expiries  have impact on pharmaceutical sector as well.

1.2.            AstraZeneca PLC

AstraZeneca was established in 1999 through the merger of Astra AB of Sweden and Zeneca Group PLC of the UK. AstraZeneca specialized in the discovery, development, manufacturing and marketing of prescription medicines. Its product pipeline is focused on six important areas of healthcare: cancer, cardiovascular, gastrointestinal, infection, neuroscience, and respiratory and inflammation. Currently employing around 50,000 people worldwide AstraZeneca is among the top ten healthcare companies in the world (IMS Health, 2014b). Geographically, U.S. is the largest market of AstraZeneca during 2013, accounting for 38%. On the other hand, Europe and emerging markets were responsible for 26% and 21% of sales, respectively (AstraZeneca, 2013).

1.3.            GlaxoSmithKline PLC (GSK)

GSK was established in 2000 by the merger of Glaxo Wellcome PLC and SmithKline Beecham PLC. It is currently world fifth largest pharmaceutical company and the largest healthcare company in the U.K. (IMS Health, 2014b) employing around 100,000 people worldwide. The company has three primary business areas: Pharmaceuticals, Vaccines, and Consumer Healthcare. Geographically, GSK’s revenues outside the U.S. and Europe account for about 40% of its total sales during 2013, being therefore very well exposed to developing markets (GSK, 2013), contrary to AstraZeneca.

1.4.            Overview of report

This report evaluates and compares the two UK-based pharmaceutical companies in terms of their financial performance by analysing their financial ratios during the period of 2009-2013. Financial ratios will be analysed with regard to following categories: Profitability, liquidity, efficiency, gearing and investment. All financial ratios are calculated by using Financial Statements of both companies and exist in the Appendix. In the end, by evaluating all outcomes of financial statements and ratios, the question of ‘which company is a good option to invest?’ will be answered for potential investors.
 
 
 
 
 
 
 

2.                  Ratio Analysis

2.1.            Profitability Ratios

2.1.1.      Return on Capital Employed (ROCE)

 
First of all, profitability of the two companies will be compared through the key profitability ratios. To begin with ROCE of two companies, we can see from the Figure 1, ROCE in GSK and AstraZeneca fluctuated from 2009 until 2011. After the year 2011, AZ saw a sharp decline in ROCE while GSK’s ratio decreased slightly.
Looking at AstraZeneca’s figures, obviously, main reason behind decline in ROCE is deterioration of operating profit. As it is stated in the Annual Report, the sharp decrease in ROCE in 2012 and 2013 is stemmed from the reported operating profit which was down 24% and 51% respectively. In order to analyse this downward pattern, structure of operating profit for the final three year should be evaluated in more detail from the Table 1.
 
 
 
 
 
 

Table 1. Horizontal Analysis of some figures from AstraZeneca’s Income Statements
2011 2012 2013
Actual figures Base figure Actual figures Comparison with 2011 (%) Actual figures Comparison with 2012 (%)
Revenue 33,591 100 27,973 83 25,711 92
Cost of sales -6,026 100 -5,393 89 -5,261 98
Gross profit 27,565 100 22,580 82 20,450 91
Administrative expenses -17,030 100 -15,402 90 -17,333 113
Profit on disposal of subsidiary 1,483 100 — —
Other operating income & expense 777 100 970 125 595 61
Operating profit 12,795 100 8,148 66 3,712 49

 
Chairman of AstraZeneca defined 2012 financial performance as a ‘significant revenue decline associated with the loss of exclusivity for several products.’ Looking at the revenue figure of AstraZeneca of 2012, it was down 17% to $27,973 million compared with 2011. According to Annual Report of 2012 loss of exclusivity on several brands, most notably Seroquel IR, and the disposals of Astra Tech and Aptium were the key drivers of the revenue decline. Furthermore, decline in operating profit was much more significant than revenue. In 2012, operating profit was down 34% (almost twice as the decline in revenue) compared with the 2011. In 2013 loss of exclusivity continued to have negative effect on AstraZeneca. According to Annual Report of 2013, loss of exclusivity on brands accounted for a revenue decline of some $2.2 billion. In 2013, operating profit was down 51% compared with the 2012. Over the coming years, it is forecasted that this trend will continue as some medicines continue to lose exclusivity in US and Europe markets. Another significant development which had impact on operating profit in 2013 is $1,758 million impairment due to disappointing sales of diabetes drug Bydureon, according to WSJ (6 February 2014).
All in all, it can be claimed that GlaxoSmithKline has been more profitable company in terms of return on capital employed than AstraZeneca after 2011.

2.1.2.      Return on Total Assets (ROTA)

As it can be seen from the Figure 2 AstraZeneca’s ROTA figures prevailed over the GSK’s figures between 2009 and 2011. However, AstraZeneca had a sharp decline in ROTA in 2012 and 2013 due to above-mentioned decrease in operating profit meanwhile GSK saw a slightly decrease.
Table 2 shows the components of ROTA for both companies during 2009-2013. It is obvious from the table; the deterioration of ROTA is stemmed not only from decrease in operating profit but also increase in total assets for both companies. The decline in operating profit for AstraZeneca was much more significant than GSK after 2011. The main reason behind the decrease in operating profit for AstraZeneca is decline in revenue due to loss of exclusivity for several products which was mentioned in Section 2.1.1.

Table 2. Return on Total Assets (ROTA) of AstraZeneca and GlaxoSmithKline (2009-2013)
AZ GSK
YEAR OPERATING PROFIT TOTAL ASSETS OPERATING PROFIT TOTAL ASSETS
2009 11,543 54,920 8,425 42,862
2010 11,494 56,127 3,783 42,230
2011 12,795 52,830 7,807 41,080
2012 8,148 53,534 7,392 41,475
2013 3,712 55,899 7,028 42,086

 

2.1.3.      Return on Equity (ROE)

Return on equity (ROE) is another important profitability ratio. This ratio measures the profitability of a company with regard to the capital provided by the ordinary shareholders. Figure 3 demonstrates that the ROE trends of both companies during the period. As can be seen from the graph, after having seen a sharp decline in 2010 GSK’s ratio increased year by year. On the other hand, AstraZeneca’s figure grew erratically between 2009 and 2011, and decreased dramatically for the last two years. In order to understand these patterns, the components of the ratio should be evaluated also.
Looking at GSK, main reason behind the decline in annual profit of 2010 is the expansion of the Operational Excellence programme which was announced in February 2009, according to Financial Review of 2010. With an estimated total cost of approximately £4.5 billion, 75% of the costs of this programme were incurred by the end of 2010. One of the outstanding restructuring costs which were incurred in 2010 is acquisition of Stiefel Laboratories Inc., which was about a $2.9 billion deal, according to WSJ (20 April 2009).
 

2.1.4.      Operating Profit Margin

Another important ratio for analysing both of the company is operating profit margin which measures the two companies’ operating performance. Operating profit margin for GSK was almost constant at about 30% during the period except the year 2010. As it is stated in the Annual Report of 2010, due to restructuring costs related to the Operational Excellence programme and the acquisitions of Reliant and Stiefel, there was a decrease of 59% in operational profit which is about £2,438, compared with the 2009. On the other hand, after reaching its peak at 38.09% in 2012, AstraZeneca saw a sharp decline in operating profit margin for the last two years. Figure 4 shows that there is something wrong for AstraZeneca in 2012 and 2013 with regard to operating profit margin ratio.
 
In order to understand sharp decline in operating profit margin, we need to analyse the components of the ratio in more detail. Figure 5 demonstrates structure of operating profit margin for AstraZeneca for the period of analysis. Although revenue, denominator of the ratio, was decreasing year by year after 2011, downward trend in operating profit was much more significant. As it is stated in the Annual Report of 2013, the decline in operating profit was greater than the decline in revenue primarily due to expenditure associated with the AstraZeneca’s key growth platforms and strengthened pipeline. On the other hand, Chairman stated that the decline in revenue was, in part, offset by the key growth platforms: Brilinta, diabetes franchise, respiratory, Emerging Markets and Japan, which delivered an incremental $1.2 billion of revenue in 2013.
 

2.2.            Liquidity Ratios

2.2.1.      Quick Ratio

In order to compare the ability of covering short term obligations, Figure 6 demonstrates quick ratios for GSK and AstraZeneca for the period of 2009-2013. While AstraZeneca’s quick ratios were above 1 for the period, GSK’s quick ratios were under 1, meaning current assets (except inventory) are not big enough to cover current liabilities. Though AstraZeneca’s ratios are better with regard to liquidity than GSK’s ratios, it is useful to analyse the companies’ profitability ratios also. As analysed earlier, profitability figures for GSK were better than AstraZeneca. Therefore, despite the fact that GSK’s quick ratios are below 1, ‘pharmaceutical giant’ is not in trouble with regard to liquidity because of good profitability performance.
 

2.3.            Efficiency Ratios

2.3.1.      Day sales of inventory

‘Day sales of inventory’ ratio measures a company’s performance that how long it takes a company to turn its inventory into sales. Averaged inventory turnover for AstraZeneca is 118 days while for GSK is 185 days during the five-year period. Figure 7 compares how fast AstraZeneca and GSK turn over their inventory within a year. While GSK’s stock of inventory lasted in 166-201 days, it took 96-139 days for AstraZeneca to sell its entire inventory in the recent years. In this view, AstraZeneca has been more efficient company than its competitor as shorter day sales of inventory means the inventory can be converted into cash sooner.
 

2.3.2.      Asset turnover

Figure 8 shows asset turnover ratio of two pharmaceutical giants between 2009 and 2013. It is obvious that GlaxoSmithKline’s asset turnover figures prevailed over AstraZeneca’s figures during the period. As can be seen from Table 3, although AstraZeneca’s assets are more than GSK during five-year period, the latter had better asset turnover performance over the period. This means, GSK has used its assets more efficiently to generate revenue than AstraZeneca between 2009 and 2013.
 
 
 
 
 
 
 
 

Table 3. Asset Turnover of AstraZeneca and GlaxoSmithKline 
(2009-2013)
  2009 2010 2011 2012 2013
AstraZeneca Sales 32,804 33,269 33,591 27,973 25,711
Net assets 20,660 23,213 23,246 23,737 23,224
Asset Turnover (times) 1.6 1.4 1.4 1.2 1.1
GSK Sales 28,368 28,392 27,387 26,431 26,505
Net assets 10,742   9,745   8,827   6,747   6,737
Asset Turnover (times) 2.6 2.9 3.1 3.9 3.9

 
AstraZeneca’s asset turnover ratio decreased during 2012 and 2013. In order to understand this downward trend, the components of the asset turnover ratio should be evaluated. As it can be understood from the Figure 9, asset turnover of AstraZeneca decreased in 2012 and 2013 due to significant deterioration of sales revenue. AstraZeneca’s sales in 2012 were down 15% to $27,973 million and in 2013 were down 6% to $25,711 million. According to Chairman, most of the revenue decline was related to loss of exclusivity on several
brands, such as Arimidex, Atacand, Crestor, Nexium and Seroquel IR, in the portfolio. Although the decline in revenue was, in part, offset by key growth platforms in 2013, over the coming years, it is forecasted that this trend will continue as medicines such as Crestor, Nexium and Seroquel XR continue to lose exclusivity in some markets. Therefore this trend is likely affect sales revenue negatively over the coming years.
 

2.3.3.      Sales Revenue to Capital Employed

Figure 10 shows that sales revenue to capital employed figure for GSK and AstraZeneca between 2009 and 2013. The sales revenue to capital employed for AstraZeneca averaged 0.8 times while GlaxoSmithKline averaged 0.96 times during the period.  As can be seen from the Figure 10, while GSK’s ratios are almost constant and prevailed over its competitor’s figures, AstraZeneca saw a decline trend after 2011. AstraZeneca’s figure stood at 0.91 times in 2011 and slightly decreased year by year reaching 0.65 times in 2013.
 
 
In order to understand the downward trend of AstraZeneca in terms of sales revenue to capital employed, the components of the ratio should be evaluated during the period. Figure 11 demonstrates the structure of sales revenue to capital employed figure between 2009 and 2013.
As can be seen from the Figure 11, deterioration of sales revenue to capital employed ratio was caused from the above-mentioned decrease of sales revenue in 2012 and 2013. Although capital employed has an upward trend, extra capital employed was not properly reflected in revenue.

2.4.            Gearing Ratios

2.4.1.      Gearing (Debt to Equity) Ratio

Figure 12 shows that gearing (debt to equity) figure for GSK and AstraZeneca between 2009 and 2013. The debt to equity ratio for AstraZeneca averaged 27.64% while GSK averaged 64.58% during the period. AstraZeneca’s figures have been below 50% during five years meaning AstraZeneca has been mostly funded by shareholders’ capital rather than borrowing. On the other hand, as GSK’s figures fluctuated between approximately 60% and 71% during the five year period, it is in a risky situation. A high debt to equity ratio generally means that a company has an aggressive strategy in financing its operations with debt. This situation may affect a company negatively due to additional interest expense.
According to Annual Report of 2013, GSK’s policy is described as “to borrow centrally in order to meet anticipated funding requirements.” Moreover it is stated that company’s long-term credit ratings have remained unchanged since February 2008 and current ratings are A+ (stable outlook) by Standard and Poor’s and A1 (negative outlook) by Moody’s. However, in August 2014, Moody’s (2014) downgraded GSK’s credit rating to A2 from A1(Telegraph, 5 August 2014).
 
 
While GlaxoSmithKline’s debt to equity ratio currently stands at an extremely high level of 220%, meaning that for every £1 of equity, GlaxoSmithKline currently has £2.20 of debt, the company’s relatively high level of profitability means that debt levels are seems to be well-serviced. However, in order to have a judgement, GSK’s interest coverage ratio should be analysed as well.
 

2.4.2.      Interest Coverage Ratio

Figure 13 shows that interest cover ratio for GSK and AstraZeneca between 2009 and 2013. The interest cover ratio for AstraZeneca averaged almost 11 while GSK averaged 9 during the period. This means AstraZeneca and GSK have ability to pay their interest payments on debt 11 times and 9 times respectively, by their operating profit. Although GSK has a high level of debt to equity ratio, mentioned in section 2.4.1, it is likely to have opportunity to make its interest payments on debt.
 
 
Looking at AstraZeneca’s interest coverage trend from Figure 13, it climbed rapidly from 2009, stood at its peak of 14.9 by 2012 and was down 50% in 2013. Therefore there is something wrong for AstraZeneca in 2013 in terms of interest coverage. In order to understand sharp decline, the components of interest coverage ratio should be evaluated. Figure 14 shows the components of interest coverage ratio for AstraZeneca. Although interest payable, denominator of the ratio, decreased in 2013, above-mentioned downward trend in operating profit was much more significant. All in all, it can be said that both GSK and AstraZeneca is safe with regard to interest cover.
 
 

2.5.            Investment Ratios

2.5.1.      Earnings per share (EPS)

EPS, as a measurement of a company’s profitability per unit of shareholder ownership, is one of the most important ratios for an investor. Table 4 demonstrates EPS figures for both companies. EPS of AstraZeneca experienced an upward trend from 2009 and reached a peak of 464 p in 2011 and saw a sharp decline by 2013. In 2012 reported EPS was down 29% which was lower than the decline in core operating profit. According to Annual Report of 2012 this was the result of the benefits from net share repurchases and a lower tax rate. Furthermore reported EPS for the year 2013 was down 55% to 124.4 p. Annual Report of 2013 reveals that one of the most significant reasons for this decline is the impairment of Bydureon in the fourth quarter of 2013 which reduced reported EPS by $1.10
On the other hand, GSK’s EPS, beginning from 109 p in 2009, demonstrated a sharp decline by 2010 and increased and reached its peak of 110.5 p in 2013. According to Annual Report of 2010 the reason of this decline was impact of legal cost of £4,001 million.  Both companies’ EPS trends are broadly in line with their profit after interest and tax figures.
 
 
 
 
 
 

Table 4. Diluted EPS for AstraZeneca and GlaxoSmithKline  (2009-2013)
AstraZeneca GSK
Years  Diluted EPS (p) Issued shares (m) Diluted EPS (p) Issued shares (m)
2009 321.8 1,448 108.2 5,069
2010 362.1 1,438   31.9 5,085
2011 464.0 1,361 102.1 5,028
2012 306.3 1,261   90.2 4,912
2013 124.4 1,252 110.5 4,831

Figure 15 shows profit after tax interest and tax figures for each company during five-year period. As can be seen from the Figure 15, beginning from the year 2009, AstraZeneca demonstrated an upward trend and reached its top in 2011 and decreased dramatically over the final two years. In 2012 reported profit after interest and tax was down 37% to $6,297 million compared with the 2011. This decline was mostly related to loss of exclusivity on several brands in the portfolio, combined with the higher Core R&D and SG&A expenses, according to Press Release dated 31 January 2013 (AstraZeneca, 2013). Bloomberg (4 February 2013) wrote that AstraZeneca faced increasing competition from lower-priced generic medicines which decreased its profit. In 2013 reported profit after interest and tax was down 60% to $2,556 million compared with the 2012 figures. According to Telegraph (6 February 2014) AstraZeneca was under increasing pressure as cheaper competitors to its best-sellers come onto the market which affected its sales. Moreover it was forecasted that new generic competitors would erode its sales further.
 

2.5.2.      Price Earnings Ratio (P/E)

PE is an important ratio which shows a company’s current share price compared to its per-share earnings. This ratio is closely followed by investors as it is likely to affect investment decisions directly. Table 5 demonstrates PE ratio for both companies. As can be seen from the table, GSK’s ratio was higher than AstraZeneca’s in 2011 and 2012. However in 2013 AstraZeneca’s P/E ratio increased significantly and was almost twice as GSK’s. It’s obvious that sharp increase in P/E ratio stemmed from decrease in EPS accompanied with increase in market prices. 2013. Nevertheless, comparing with the GSK, high P/E ratio of AstraZeneca means investors are expecting higher earnings growth in the future. With regard to GSK, its EPS and market share price are relatively stable during the period.
 

Table 5. P/E ratio for AstraZeneca and GSK (2011-2013)
  AZ GSK
Years PE ratio Market price share EPS PE ratio Market price share EPS
2011 6.4 2,975.0 464.0 12.6 1289 102.1
2012 9.5 2,909.5 306.3 15.8 1422   90.2
2013 28.7 3,574.5 124.4 14.6 1618 110.5

 

2.5.3.      Dividend cover

Figure 16 shows that dividend cover figure for GSK and AstraZeneca between 2009 and 2013. The dividend cover ratio for AstraZeneca averaged 2.01% while GSK averaged 1.31% during the period. Normally a dividend cover ratio below 1.5 is regarded as risky and a ratio below 1 indicates a company is paying the current year’s dividend with retained earnings from a previous year. As can be seen from the Figure 16, dividend cover ratio for GSK in 2010 and AstraZeneca in 2013 were below 1. GSK’s low dividend cover trend was not stable as it increased in 2011. However, with regard to AstraZeneca, as its dividend cover ratio is 0.74 in 2013, the company needs something more than earnings to pay its dividend. AstraZeneca could borrow from their reserves of retained earnings from the year 2012 to pay a dividend. Only for one year this is fine but if this situation acquires continuity it will not sustainable in the long term and generally regarded as a warning sign for a company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3.      Conclusion and recommendations

All in all, ratio analysis of the two pharmaceutical companies shows that GSK’s financial performance over the past five years has been relatively stable. This is good for investors which presents a high level of predictability in terms of GSK’s future performance. Moreover, GSK has been absolutely more profitable company than AstraZeneca. Despite the fact that it has lower ability to cover its short-term obligations than its competitor, its high level of profitability is likely to compensate this deficit.
On the other hand, as GSK has higher gearing ratio compared with its competitor. GSK followed an aggressive strategy to finance its operations with borrowing. This situation may affect a company negatively due to additional interest expense. Looking at its interest coverage, GSK have ability to pay their interest payments on debt 9 times by its operating profit in 2013.
In 2014, GSK has been found guilty of bribery by a Chinese court and has agreed to pay a fine of £297m to the government (Guardian, 19 September 2014). Contrary to expectations, this problem did not affect its share price negatively.
With regard to AstraZeneca, it’s obvious that patent expiries had a significant negative impact on its financial performance. In 2013, AstraZeneca’s sales and operating profit were down %8 and 51% respectively. Furthermore it’s expected that new generic competitors will erode its sales further and 2017 revenues will be broadly in line with those of 2013. Therefore the patent cliff seems to affect the company’s financial structure negatively over the next few years.
On the other hand, AstraZeneca had better price earnings ratio, compared to GSK in 2013.This means investors are expecting higher earnings growth in the future. US giant Pfizer attempted to takeover AstraZeneca 70 billion pounds ($118 billion) but the offer was rejected in May 2014 (Reuters, 26 May 2014). In November 2014 Astra Zeneca said that another takeover approach from Pfizer has become less likely after a US clampdown on tax inversions, as the AstraZeneca  increased its  sales and profit forecasts for the second time in 2014 (Guardian, 6 November 2014).
In conclusion, as it has growth expectations, AstraZeneca could be a better opportunity to invest. On the other hand, as its financial performance relatively stable over the past few years, GSK could be a better investment opportunity for investors who seeks predictability.
 
 
 

References:

Annual Reports
AstraZeneca, 2009, Annual Report
AstraZeneca, 2010, Annual Report
AstraZeneca, 2011, Annual Report
AstraZeneca, 2012, Annual Report
AstraZeneca, 2013, Annual Report
GlaxoSmithKline, 2009, Annual Report
GlaxoSmithKline, 2010, Annual Report
GlaxoSmithKline, 2011, Annual Report
GlaxoSmithKline, 2012, Annual Report
GlaxoSmithKline, 2013, Annual Report
 
Websites and Newspapers
 
AstraZeneca (31 January 2013), Available at:<  http://www.astrazeneca.com/Media/Press-releases/Article/20130131–astrazeneca-2012-fourth-quarter-and-full-year-results > (Accessed 29 December 2014)
 
Bloomberg (4 February 2013),  Available at: < http://www.bloomberg.com/news/2013-01-31/astrazeneca-fourth-quarter-profit-falls-on-generic-competition.html > (Accessed 28 December 2014)
 
Guardian (19 September 2014), Available at: <http://www.theguardian.com/business/2014/ sep/19/glaxosmithkline-pays-297m-fine-china-bribery > (Accessed 30 December 2014)
 
Guardian (6 November 2014), Available at:< http://www.theguardian.com/business/2014
/nov/06/pfizer-unlikely-astrazeneca-takeover-tax-inversion-clampdown> (Accessed 30 December 2014)
 
IMS Health, 2014a, Available at< http://www.imshealth.com/portal/site/imshealth/ menuitem. 762a961826aad98f53c753c71ad8c22a/?vgnextoid=9f819e464e832410VgnVCM10000076192ca2RCRD&vgnextchannel=a64de5fda6370410VgnVCM10000076192ca2RCRD&vgnextfmt=default> (Accessed 24 December 2014)
 
IMS Health, 2014b, Available at <http://www.imshealth.com/deployedfiles/imshealth/Global /Content/Corporate/Press%20Room/ Global_2013/ Top_20_Global_Corporations_2013.pdf > (Accessed 24 December 2014).
 
 
Moody’s, 1 August 2014, Available at: < https://www.moodys.com/research/Moodys-downgrades-GlaxoSmithKline-to-A2-outlook-stable–PR_305316 > (Accessed 26 December 2014)
 
Reuters (26 May 2014), Available at:< http://www.reuters.com/article/2014/05/26/us-astrazeneca-pfizer-idUSBREA3R0H520140526 >(Accessed 30 December 2014)
 
The Telegraph (6 February 2014), Available at:< http://telegraph.co.uk/finance/newsbysector /pharmaceuticalsandchemicals/10620977/AstraZeneca-profits-slump-57pc- as-it-battles
-patent-cliff.html, >  (Accessed 28 December 2014)
 
The Telegraph (5 August 2014), Available at:<  http://www.telegraph.co.uk/finance/newsby
sector/Pharmaceuticalsandchemicals/11013056/Neil-Woodford-GlaxoSmithKlines-troubles-
are-only-temporary.html > (Accessed 27 December 2014)
 
World Health Organization, 2014, Available at: <http://www.who.int/trade/glossary /story073/en/> (Accessed 24 December 2014)
 
WSJ (6 February 2014), Available at: <http://www.wsj.com/articles/SB100014240527023
04680904579366053554393432> (Accessed 25 December 2014)
WSJ (20 April 2009), Available at: <http://www.wsj.com/articles/SB124017856765232773 > (Accessed 25 December 2014)
 
 
 
 
 
 
 
 
 

Appendix

  1. Profitability Ratios
    • Return on Capital Employed (ROCE)

ROCE=((Profit Before Interest and Tax) / (Capital Employed)) X 100
Profit Before Interest and Tax :Operating Profit
Capital Employed:Total Equity-Non-controlling interests+Noncurrent liabilities

  • Return on Total Assets (ROTA)

ROCE=((Profit Before Interest and Tax) / (Total Assets)) X 100
Profit Before Interest and Tax = Operating Profit

  • Operating Profit Margin

Operating Profit Margin=(Operating Profit/Revenues) X 100

  1. Liquidity Ratios
    • Quick Ratio

Quick Ratio=(Current Assets-Inventory)/Current Liabilities

  1. Efficiency Ratios
    • Day Sales of Inventory

Day Sales of Inventory=(Inventory/Cost of Goods Sold) X 365

  • Asset Turnover

Asset Turnover=Sales Revenue/Net Assets
Net Assets:Total Equity-Non-controlling interests

  • Sales Revenue to Capital Employed

Sales Revenue to Capital Employed=Sales Revenue/Capital Employed
Capital Employed:Total Equity-Non-controlling interests+Noncurrent liabilities

  1. Gearing Ratios
    • Gearing (Debt to Equity) Ratio

Debt to equity=((Long Term Barrowings/(Long Term Barrowings+Equity))X100
Equity:Total Equity- Non-controlling interests

  • Interest Coverage Ratio

Interest Coverage Ratio=Operating Profit/Interest Payable

  1. Invesment Ratios
    • Earnings per share (EPS)

Exist in Annual Reports.
AstraZeneca’s EPS figures were converted to pound with the exchange rate at end of December each year which are 0.61, 0.62, 0.64, 0.65, and 0.62 in 2009, 2010, 2011, 2012, and 2013 respectively. Rates were available at:
http://www.xe.com/currencycharts/?from=GBP&to=USD&view=1Y(Accessed 1 January 2015)
 

  • Price Earnings Ratio (P/E)

Price Earnings Ratio=Market price share/EPS
Market price shares exist in Annual Reports.

  • Dividend Cover Ratio

Dividend Cover Ratio=Profit After Interest and Tax/Ordinary Dividends
Profit After Interest and Tax:Profit attrituble to shareholders
Dividends paid figures were found from Cash Flow Statements.
 
 

 
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MT300-6: Synthesize telecommunications, networks, mobile computing and the Internet of Things in business organizations.

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Unit 10 [MT300]
Page 1 of 2
Unit 10 Assignment: The Internet of Things
In this Assignment, you will be assessed based on the following outcomes:
MT300-6: Synthesize telecommunications, networks, mobile computing and the Internet of Things in
business organizations.
GEL-1.02: Demonstrate college-level communication through the composition of original materials in
Standard English.
In this Assignment, you will synthesize the Internet of Things and apply it to business organizations.
Applying the Internet of Things, what are the implications for both businesses and society over the
next 5-years in relation to mobile computing, cloud computing, e-business, and the Internet of
Things?
Assignment Requirements
Address the question above in a 3-page (minimum 750 words) evaluative essay. Submit your essay
as a continuous piece of writing using Microsoft® Word and be sure it includes an introduction, body,
and conclusion. Your viewpoint and purpose should be clearly established and sustained.
Components
● Your essay must be double-spaced, in Times New Roman, with 12-point font, and follow
APA 6th edition format and citation style.
● It should have at least 3-pages (minimum 750 words) of content, not including the title and
reference page.
● Your essay should follow the conventions of Standard English (correct grammar,
punctuation, etc.), be well ordered, logical, and unified, as well as original and insightful,
and display superior content, organization, style, and mechanics.
● You are required to have at least two references in addition to the textbook, for a total of at
least three.
● Remember that APA uses both in-text citations and a reference list with hanging indents
(both are required).
● If you need help with these requirements, please use the Writing Resources accessed
through the Academic Success Center within the Academic Tools area of the course.
● Consult the grading rubric below to make sure you have included everything necessary.
● Utilize spelling and grammar check to minimize errors.
This is an academic paper and quality sources are required. The best place to start your search is to
use the Library, Google Scholar, or Microsoft Academic Search.
Directions for Submitting your Assignment
Compose your Assignment in a Word document and save it as Username-MT300 AssignmentUnit#.docx (Example: TAllen-MT300 Assignment-Unit 10.docx). Submit your file by selecting the Unit
10 Assignment Dropbox by the end of Unit 10.
Unit 10 [MT300]
Page 2 of 2
Grading
Rubric
MT300 Unit 10 Assignment Grading Rubric Points
Possible
Points
Earned
Content
(50%)
Discuss the implications to both businesses and society
of:
a. Mobile computing
b. Cloud computing
c. E-Business
d. The Internet of Things (IoT)
28
Analysis
and Critical
Thinking
(30%)
Work demonstrates synthesis of concepts, research,
and experience.
6
Student is able to apply relevant information to the
issues.
5
Analysis exceeds basic comprehension to demonstrate
higher order thinking.
5
Writing
(20%)
Spelling, grammar, and punctuation are correct. 3
Sentences are clear and concise with the appropriate
tone. At least 3-pages (minimum 750 words) of content,
not including the title and reference page.
4
Correct use of APA 6th ed. format to include supporting
the paper with at least three qualified sources.
4
Total 55

 
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Stanford University Advance Auditing Reflection on The Course Discussion

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Question Description

I’m trying to learn for my Accounting class and I’m stuck. Can you help?

 

Discussion Topic: Reflection on the Course

As you conclude the course, it is important that you reflect on your learning, as this reflection is an enhancement of learning and comprehension of material. Reflect to show how this course can enhance your ability to function as a professional, and be sure that this discussion includes material from the current module.

Also response each posted #1 to 3 down below

Posted 1

I can honestly say that I have learned quite a bit in this class even after having been involved in the auditing process with respect to several public companies. I have always been a tax professional so I was only involved in the audit of the tax provision which may have taken one day. I saw a small piece of all of the fieldwork actually being done. Auditors do a lot and have to know a lot. They also take on a lot of risk when they audit a client and have so many things to consider (the client’s industry, the client’s business, the integrity of management, the client’s internal controls, the client’s financial reporting process, etc.) and they even have to re-perform tasks and observe tasks being performed. They also have to consider not only the audit time frame but also subsequent events and the disclosures related to such events. They also have to be on the constant look out for fraud.

I especially enjoyed reading all of the issues and cases in the Contemporary Auditing book. Some of it was unbelievable – from fake businesses, to fraudulent journal entries, to embezzlement. If not for auditors, a company could represent anything in its financial statements. That professional assurance is needed for investors, creditors and the general public. I gained a greater awareness of why SOX was needed especially after the failures and fraud at companies like Worldcom and Enron but still miss my first employer, Andersen.

his class also helped me confirm that I made the right career choice to become a tax professional but opened my eyes to other opportunities as an entrepreneur. I own a licensed CPA firm but mostly do consulting and tax work. I have been approached by potential clients regarding compilation engagements, and now feel comfortable that I can provide that service since it doesn’t require auditing or providing assurance about the financials. I also feel more knowledgeable about reviewing a company’s financials. I’ve recently gotten into stock options trading, and now I can review a company’s filings and analyze what’s in those reports using financial ratios and other analytical tools I’ve learned in this class to be a better investor. I serve on the board of an entity that requires an audit, and now I feel a lot more confident in my ability to ask relevant questions about the audit, have an intelligent discussion with our external auditor, and understand our internal controls and what might be lacking. I also understand how to write and review the audit and attestation letters and what should be included in the CPA letter provided at the conclusion of an audit, agreed upon procedures, a compilation and a review.

Though this class has been challenging and outside of my comfort zone, I have really enjoyed it. I don’t know how I passed the audit portion of the CPA exam but can now say I truly have an understanding of what an auditor does and the profession itself which makes me a better CPA.

Posted 2

Hello Professor and Class,

As I continue to take classes at the University, I try to relate what I do at work with valuable educational information that is like my job. I am not an internal auditor, but I do a lot of auditing for quality and quantity. We warehouse parts for a production facility, and they must be audited by our team and then we pass the information onto management at the facility. I audit parts as they leave our warehouse and get loaded onto trailers to go over to the plant. So, I do like to consider myself as an internal auditor for the company I work for. Who knows, the facilities accountant may be asking management at the facility to make sure we are doing counts on inventory in our warehouse. What I would like to do at the end of the year is look at the facilities annual statement. I have the annual statement from the first quarter of the year for 2020. When I get the last quarter of this year, I would like to look over the financial details and do some analytical evaluations on the 2. I want to see what is going on with the financial side of the company I do not get to see.

What I want to see is how much money the company is making, their profit, revenue, assets, and many more accounts that are reported on their annual report. Then I would like to take what I learned in this class and show the employees I work with everyday the interesting information that makes up the financial information they never see or have no idea that it exists to begin with. They might like to know how the facilities assets and profit stand up to other company’s in the market. I could perform some ratios and let them know whether the facility is doing good or is just making it by with their shoelaces untied. It has been a difficult year for all markets, I would like to see how this last quarter stacks up to maybe the last quarter from 2019. The COVID-19 pandemic has made a mess of just about every corner of the economy, not many made it out untouched. I want to compare annuals and find out what parts of the company were affected, or which accounts took big hits.

Posted 3

Reading articles about past fraud cases during this course has opened me eyes to how obvious fraud might be, but how easily it can also slip through for many reasons. It is important to follow standard auditing processes even when you think you can slide something through that does not come off as fraudulent. Spending the time, using the detail, and following the standard guidelines is necessary for every situation, and is not to be overlooked just because something or someone does not come off as a concern during an audit. This concept is true for many examples in my work life. It is always so important to not assume anything, but to do the detailed work. I am always surprised to find how many mistakes I make when I double check.

 
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Testing the Value of an Asset

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Question Description

I need an explanation for this Accounting question to help me study.

 

Companies are often faced with the aspect of having to test the value of an asset on their books to see if it has been impaired.

The company uses one of two values in the testing that is compared to the book value of the asset. One of those values is the present value of the future cash flows and the other is the value of the asset on the open market. Both of these values involve estimations as to the true value of the asset.

What do you feel are some of the issues that could arise from these types of situations? Why do you feel they are issues?

Just do response each posted # 1to 3 only

Posted 1

My first issue is as the professor stated, accountants are not appraisers. They do not have the ability predict future outcomes. I currently have a real estate license, one of the things that I have to educate my clients about, that are looking to sell their homes, is that they cannot set their on selling price. I let them know that I understand what amount you want but you also have to understand that the market is dictated by the buyers. If there are several homes in the area for sale of similar style and features, you are not getting more than the market rate. When you are the only house being sold in the neighborhood then you can manipulate your way to the price you want.

That is the way I see asset valuations. How can I tell now about the future if their will be other assets in the market that will make the value of my asset decrease or if I will be the only one selling my asset at that future time. I can not tell. Just like the Covid-19 came from no where. People did not know three years ago that they were going to have to sell of their store/office/restaurant equipment for such discounted rates because more and more placed are going out of business and goods are currently saturating the market.

If we lived in a perfect world accountants can be appraisers, and forecasters. They can estimate a price and the future value, and not have anything go wrong and get that price for their assets. But we do not live in a perfect world, everything that can go wrong will go wrong. You might not get the full use from an asset, or their might be down time for repair etc. the possibilities are endless.

Posted 2

What is great about being an accountant is the money whether it is the present or future, it is not our money. We can tell you how much money you have and how many years of depreciation is left on a big tractor, but it is not our money. I see an estimation as a gamble, gambling is something I steer away from. Yet whether it is a guaranteed profit and a value is guaranteed to increase or decrease, it is a gamble. Investors and shareholders must gamble their money into assets they believe in, and maybe they might just get a hit (Kieso, Weygandt, & Warfield, 2018). Is an open market a greater opportunity for a larger gain whether present or future, open to any bargain or impairment at any time?

I believe what would work best is going by the quote, “Do not put all your eggs into one basket”! A company can trade, hold, or in

vest, there are many ways a company can test present value and future cash flows. An investor is better off doing tests, they may run into many tests with out comes of a loss. What we must do as accountants is provide the most obvious data available during a present period or moment. A loss or gain could be caused by our valued information, or information can be considered an asset, we are assets, and we make sense of values. We do not predict or estimate, the information we provide is the value a company will use to decide what they choose when making predictions or estimations (Kieso, Weygandt, & Warfield, 2018).

Posted 3

When a company buys an asset they choose a method to depreciate and the period of time that the asset is expected to benefit the company. The key word here is ‘expected’. Many issues arise that can cause an asset to not last as expected. It may wear out sooner than expected, become outdated due to changes in technology, among many other reasons. When this happens the carrying value on the company’s books is no longer accurate and must be evaluated for impairment.

‘To determine whether an asset is impaired, on an annual basis, companies review the asset for indicators of impairments-that is, a decline in the asset’s cash-generating ability through use or sale.’1 Users of financial statements are assuming that the company is selecting the best depreciation method and useful time period, and that their annual valuation of assets is made in good faith. I worry that it could be undetected if a company chose to misrepresent these numbers to manipulate their net income. Since depreciation expense and impairment loss both reduce the net income of the company these estimations become important. Are there new rules and regulations that could help streamline this process? I believe there could be, but until then as accountants we will act in good faith to give the most accurate financial report possible.

 
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