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Investment Decision Analysis of GlaxoSmithKline plc and Reckitt Benckiser Group plc

Calculation of 10 Financial Ratios for 2017-2018

Portfolio 1 

You have been working as a finance manager in a company. The chief financial officer of the company has decided to invest in shares in either of these two companies and he has asked for your help in deciding.  

GlaxoSmithKline plc is a British multinational pharmaceutical company headquartered in Brentford, London. Established in 2000 by a merger of Glaxo Wellcome and SmithKline Beecham, GSK was the world's sixth largest pharmaceutical company as of 2015. GSK manufactures products for major disease areas such as asthma, cancer, infections, diabetes and mental health. Its biggest-selling products in 2013 were Advair, Avodart, Flovent, Augmentin, Lovaza, and Lamictal. Other top-selling products include its asthma/COPD inhalers Advair, Ventolin, and Flovent; its diphtheria/tetanus/pertussis vaccine Infanrix and its hepatitis B vaccine; the epilepsy drug Lamictal, and the antibacterial Augmentin.GlaxoSmithKline plc 

(ii) Reckitt Benckiser Group plc is a British multinational consumer goods company headquartered in Slough, England. It is a producer of health, hygiene and home products. It was formed in 1999 by the merger of the UK-based Reckitt & Colman plc and the Netherlands-based Benckiser NV. RB's brands include the antiseptic brand Dettol, the sore throat medicine Strepsils, the immune support supplement Airborne, the indigestion remedy Gaviscon and the baby food brand Mead Johnson.  

Further information can be found through the Reckitt Benckiser Group plc website and a recent annual report at the link below: 

Required:  

Prepare a report for potential investors which analyses the financial information for both companies and recommends which company would be a more viable option to invest in. The report must include:  

a)Calculation of 10 financial ratios as given below for two years (2017 - 2018):  

•Current ratios 

•Quick ratios 

•Net Profit Margin 

•Gross Profit margin 

•Gearing ratios 

•P/E ratio 

•Earnings per share 

•Return on capital employed 

•Average inventories turnover period 

•Dividend payout ratio    

b)Analyse the performance, financial position and investment potential of both companies. You should use charts to compare the performance of two companies.  You will need to look at the audited financial statements and carry out further research to explain the performance of each company for two years.    

c)Provide recommendations of how the financial performance of the poorly performing business can be improved. 

d)Discuss the limitations of relying on financial ratios to interpret a company’s performance.    This item of assessment covers the following learning outcomes. For the full list of learning outcomes for the module, please refer to the Module Study Guide.

 

• Understand and evaluate relevant accounting and finance regulatory frameworks.

• Comprehend and critique the key accounting and finance techniques, principles and functions.

• Interpret and analyse financial statements.

• Through a process of analysis and evaluation, identify and recommend sources of finance to an organisation.

• Develop financial numeracy. (C6 & C7)

• Develop problem solving skills. (C5) 

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