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Introduction Of The Finance Coursework
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The system of financial management assists the accountant in the accurate and proper utilisation of research. It also assists in improving the organisation by business in the operational activity. Therefore, whether the funds are utilised in a proper way will assist in diminishing the “costs of capital” and increase the firm’s value. The report mainly aims at managing the Finances of “AstraZeneca” revenue, profit, debts, dividends, and also sales. There is a need to analyse the performance of AstraZeneca in a better way by measuring the company’s position. Along with that, it is also needed to make a comparison of AstraZeneca and “GlaxoSmithKline”. However, with the help of that, it will assist Astrazeneca to know its performance. The company comparison has been done on the basis of ratio analysis of both mentioned companies.
Discuss the historical trends in the statement of accounting
Turnover
As per the above figure, it can be said that AstraZeneca’s turnover has been mentioned at £35.5B for the year 2021. The value of sales for the year 2021 is much higher as compared with the year 2020 which is £26.6B. It proves AstraZeneca that sales have increased by maintaining its position and also fulfilling customer demands. Profit and turnover both are important in finding the financial performance of the organisation (Cahalan et al. 2019). The turnover is mainly referring to the net sales of the business which have been created with the business and also accounts for additional expenses. The income statement of the organisation has been given at top of the statement and also reinforced with the higher ideas of plurality and repertories inside the organisation.
Profit
Profit is equal to the sales of the organisation that are subtracted from the expenses (Delamater et al. 2019). The earnings value of the profit is more important with the business due to the profitability impacts on the organisation which can be secured with financing from the bank, attracting the investors in funds with the business and growing operations. The organisation can’t remain with the business without turning the profit value.
The profit of AstraZeneca is mentioned as about £3.2B in the year 2020 which is higher as compared with the year 2019 which is £1.3B. However, it can be seen about the company that the profit of the organisation has increased by maintaining its expenses and also the gross profit value. The profit for the company is the main primary goal of the organisation that does not show initially with financing or investors. Hence, without adding enough financing resources or capital, it has utilised to run the organisation, business failure is imminent.
Dividends
The dividend is important for the primary reasons because the dividends matter to the investors by adding the facts. They have substantially enhanced the profits of the stock, giving an extra metric for the analysis of fundamentals in all the portfolio risks (Sawano et al. 2020). Along with that, it has assisted in mitigating the capital buying power and also offers the advantages of tax. However, it can be seen that the value of dividends has reduced from the year 2017 to 2021. The dividend has changed with the relative stock price, it can be shown often to look more generally greater for the stocks. It has fallen in value rapidly and a new organisation about the dividends means the company keeps the earnings and pays out earnings on the earnings rest as the dividends. For example, if the organisation keeps around 70% related to earnings, then it will have around 30% payout of the dividends. The low value of the dividend has been paid to investors in the company.
The dividend yield has been measured with the process of income which has been received related to the share price. The higher dividend is more attractive as compared with the lower yield which can be made with the stock seem in lower competitiveness related to the industry.
Cash flow from operations
The “cash flow from the operating” is important benchmarked in finding the company’s success in cash creating with the normal business activities organisations. Operating cash flow is the first section that mainly shows the cash flow such as direct and indirect methods. The indirect method is mainly referring to the net income that comes from the income statement (Dewu and Barghathi, 2019). Then it includes the terms of back non-cash in arriving at the cash flow from operation. However, it can be seen that the value of cash flow increased in the years 2017 and 2021. Therefore, with the help of that, it can be observed that the organization’s core operations are thriving. It gives more profitability measures related to organizations in traditional ones such as EBITDA and income.
Long-term debts
The debt value has increased from the year 2017 to the year 2021 which is £17B to £30B. However, the increasing value of debts in the company is so heavily indebted, enhancing the alters in running into trouble finance (Mosteanu and Faccia, 2020).
Computation of financial ratios
The term ROCE or return on capital employed is the financial ratio that can be utilised to evaluate the efficiency of capital and profitability of the firm (Fernández, 2020). The following ratio could assist to know how better the firm is producing profits from the capital that it put to utilise. ROCE is the most various profitability ratios stakeholders, financial managers and potential capitalists might utilise in the projection of the firm for investment. It can also be useful when contrasting the performance of the firms in industries of capital intensive like telecoms and utilities.
The ROCE for AstraZeneca stood at the value of 2.20, 2.40, 2.19, 1.73 and 1.54 for the years 2018 to 2022 respectively. As contrasted to 2018 the ROCE of the company is much less in the year 2022 which means that the company is not utilising its capital effectively and is not able to produce higher returns on the investment. Whereas, for the company GlaxoSmithKline the ROCE depicts the value of 1.19, 1.26, 1.50, 1.62 and 1.08 for the years 2018 to 2022 respectively. As contrasted to 2018 the ROCE of the company is not much less in the year 2022.
After the comparison of both companies, the value of the ROCE of AstraZeneca is greater than GlaxoSmithKline which indicates that the main company uses its capital much more successfully and efficiently than compared to the other company. The companies can improve their ROCE and the generation of profits by mitigating the costs or by raising sales. Mitigating the usage of liabilities and paying off the debt of the company is the method by which the company can improve its return on capital employed (ROCE).
Figure 7: Calculation of EPS
(Source: Self-developed)
EPS or Earning per share is computed as the profit of the firm divided by the number of leftover shares of its usual share. The number derived as the outcome is the indicator of the profitability of the firm. It is general for the organisation to report earnings per share that are rearranged or modified for the prospective dilution of shares and extraordinary items. The more value of EPS ultimately signifies the higher profitability of the firm. A more purified and clarified computation arranges both the numerator and denominator for the shares that would be constructed across warrants, convertible debt and options. EPS is the most essential number in work when determining the profits of the company on an absolute basis (Fernandez, 2018).
The EPS for AstraZeneca stood at the value of 0.11, 0.18, 0.20, 0.21 and 0.12 for the years 2018 to 2022 respectively. As contrasted to 2018 the ROCE of the company is less high in the year 2022 which means that the capitalists pay more for the shares of the firm if they think the profitability of the firm is more relative to the price of the share. Whereas, for the company GlaxoSmithKline the EPS depicts the value of 0.18, 0.22, 0.07, 0.27 and 0.67 for the years 2018 to 2022 respectively. As contrasted to 2018 the ROCE of the company is higher in the year 2022.
After the comparison of both companies, the value of earnings per share of the company GlaxoSmithKline is higher than the main company which indicates that the company generates more for every share of its stock and is a broadly utilised number for assuming the valuation of corporate. The company can improve or upgrade its EPS by raising its earnings or mitigating its count of shares through the buyback of shares.
Figure 8: Calculation of current ratio
(Source: Self-developed)
The current ratio also called the liquidity ratio measures the capacity of the firm to pay short-term hurdles or those that are due in a year. It tells the capitalists and the analysts how the firm could maximise and increase the current securities on its financial statement to satisfy other payables and current debt. This ratio is in the line with the average of the sector or slightly more is usually contemplated as acceptable. The lower current ratio than the average of the industry signifies the huge risk of default and distress. The following ratio is known as current as, unlike certain other liquidity ratios, it included overall current liabilities and assets (Mulyadi, 2020).
The current ratio for AstraZeneca stood at the value of 1.55, 1.56, 1.66, 2.04 and 2.12 for the years 2018 to 2022 respectively. As contrasted to 2018 the ROCE of the company is higher in the year 2022 which means that the firm is adequately liquid and could simply pay off its current liabilities by utilising its current securities. Whereas, for the company GlaxoSmithKline the current ratio depicts: the value of 1.35, 1.37, 1.75, 1.65 and 2.19 for the years 2018 - 2022 respectively. As contrasted to 2018 the ROCE of the company is higher in the year 2022.
After the comparison of both companies, the value of the current ratio of the main company is higher for the years 2018, 2019 and 2021 than the second company which indicates that the company has enough ability to generate liquidity by paying off its current liabilities utilising its current securities. The company can improve or upgrade its current ratio by mitigating the private draw on the business and selling capital securities that do not produce a return to the business.
Figure 9: Calculation of net profit ratio
(Source: Self-developed)
The net margin or net profit margin measures the quantity of profit or net income produced as the revenue of percentage (Bustani, 2021). The following ratio is the ratio of net income to the revenues for the segment of the business or the firm. The margin of net profit is majorly expressed as the percentage but could also be reflected in the form of decimals. The following ratio demonstrates the quantity of every dollar in the revenue accumulated by the firm transfers into profits. It is also the most important signal of the financial performance and health of the firm. The metric of net profit incorporates various components in the operations and functions of the firm.
The net profit ratio for AstraZeneca stood at the value of 0.04, 0.07, 0.09, 0.11 and 0.08 for the years 2018 to 2022 respectively. As contrasted to 2018 the ROCE of the company is higher in the year 2022 which means that the firm has the capacity to control its costs efficiently and effectively and provide services and products at a rate notably higher than its cost. Whereas for the company GlaxoSmithKline the net profit ratio depicts the value of 0.12, 0.13, 0.03, 0.12 and 0.51 for the years 2018 to 2022 respectively. As contrasted to 2018 the net profit ratio of the company is higher in the year 2022.
After the comparison of both companies, the value of the net profit ratio of the company GlaxoSmithKline is higher than the main company which indicates that the firm has the ability to control its costs successfully. The company can improve or upgrade its net profit ratio by mitigating the liabilities, raising the prices, and reducing the costs of labour, declining the operational costs.
Figure 10: Calculation of gearing ratio
(Source: Self-developed)
The gearing ratio is the financial ratio that contrasts certain forms of the capital or equity of the owner to debt or funds advanced by the firm. Gearing is the evaluation of the financial leverage of the company which signifies the degree to which the operations and activities of the company are financed by the funds of stakeholders versus the funds of the creditors (Sudharto, 2021). The following ratio is the computation of the financial leverage that expresses the degree to which the operations and functions of the company are financed by debt financing versus equity capital.
The gearing ratio for AstraZeneca stood at the value of 1.87, 1.87, 1.94, 1.70 and 1.67 for the years 2018 to 2022 respectively. As contrasted to 2018 the ROCE of the company is less in the year 2022 which means that the organisation has a low proportion of equity versus debt. Whereas for the company GlaxoSmithKline the gearing ratio depicts: the value of 1.91, 1.82, 1.70, 2.07 and 1.73 for the years 2018 to 2022 respectively. As contrasted to 2018 the gearing ratio of the company is less in the year 2022.
After the comparison of both companies, the value of the gearing ratio of the company GlaxoSmithKline is higher for the years 2018, 2021 and 2022 than the main company which indicates a high proportion of debt versus equity. The company can improve or upgrade its gearing ratio by raising the profits, mitigating the operational costs, conversion of loans and selling shares (Poudyal, 2019).
Conclusion
As per the basis of the historical value, it can be concluded that AstraZeneca has shown a better position in the form of Net profit, dividends, cash flow, and sales. However, the debt value has shown in maintained and the value has increased in the year 2021. Moreover, the financial performance of the company is shown in well maintained in the year 2021. The company has focused on maintaining sales and profit each year. Financial management is the field which mainly deals with the process of making decisions. It adds to the organisation’s financial statement comparison with the “GlaxoSmithKline”. As per the basis of the above findings of the ratio calculation and analysis, it can be concluded that GlaxoSmithKline performs much better as compared to AstraZeneca. Thus, AstraZeneca needs to boost its performance for increasing sales, profit, cash flow maintenance, and also expenses or operational costs.
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