Financial Reporting and Analysis: AstraZeneca Company - Case Study Example

ASTRAZENECA PLC Student’s Name Code + Course Name Professor’s Name University Name City, State Date AstraZeneca plc. AstraZeneca refers to among the global largest pharmaceutical corporation that has a significant market presence in the UK (AstraZeneca.com 2016). The organization is based on a business mission of pushing the science boundaries in the delivery of life-changing medicines. The best way of making the patients comfortable is through the use of science-led business communities and scientific health within the UK. The organization current stock performance Price (GBX) 4,450.50 Var % (+/-) +0.45% ( +20.00) High 4,508.13 Low 4,409.16 Volume 2,246,815 Last close 4,450.50 on 08-Nov-2016 Bid 4,445.50 Offer 4,447.50 Trading status End of Post Close Special conditions NONE (AstraZeneca.com, 2016) Investment in stock market The stock market refers to buying or acquisition of shares in public traded companies that are traded over the counter markets and are referred to as equity market. Consequentially, the stock market is a vital and significant free-market economy that offers the corporation access to the exchange of capital by giving the investors a chance to the corporation ownership (Bebbington Gray and Laughlin 2001). Ostensibly, the stock market facilitates the growth of an organization diversification and expansion agenda that requires large financial muscles that the investor provides. It is advisable to invest in stock such as that of AstraZeneca as an investment in mutual funds, and stock is significantly associated with growth potential as compared with other financial derivatives. The list and sale of corporation stock such as that of AstraZeneca help the organization achieve its expansion agenda without using debt financing that tends to add the company financial obligation that translates to an effect on the cash flow and overall liquidity of the organization (LexisNexis 2003). This is because debt financing is an expensive financing technique despite the tax shield associated with it because of the associated interest payment that increases the operation cost. On the other hand, equity financing is relatively cheaper because of lack of interest payments. Consequentially, floating of stock in the market facilitates the risks distribution of efficient running of a significant organization to the shareholders or their investors. The corporation stockholders and founders rarely lose their money even in the case of bankruptcy as there is a guarantee and retaking of all or some shares in such a scenario. Primarily, through floatation of AstraZeneca stock to the public, the corporation is entitled to pay a listing fee that enables the organization to access crucial markets information (Fryer 2002). However, during the initial public offer or IPO of the shares in the market, the business is undertaken in the exchange market board. Consequentially, registered and professional brokers mostly appointed and regulated by the exchanges facilitate this business. However, investment is stock associated with some risks, and the most significant risks include interest rates fluctuation both globally and nationally. Hence, such movements significantly affect the AstraZeneca Inc. stock prices (Bebbington, Gray and Laughlin 2001). Currently, global risks are affecting virtually all global stock exchanges including the London stock exchange (LSE) due to major markets economic issues and volatility that ought to factor in the corporation risk assessment strategy. Another significant risk affecting the stock market is systematic business risks that are characterized by industry slowdown, competition, and poor management that might even lead to profit decline and bankruptcy that places the investor's stocks at the unfavorable situation. There is also the risk of trading suspension that arises because of misinformed or miscalculation regarding the business stocks (Becket 2012). Consequentially, the association of liquidity risk, especially after the stock is floated to the public because stocks are highly volatile and increased capitalization. The stock liquidity is also attached to the currency rates fluctuation risk that are pegged to US dollar in the London stock exchange because of foreign exchanges gains and losses depending on the strength and weakness of the local currency. There is the effect of political risk based on government policies and regulations both within and without the UK jurisdiction. The organization ratio analysis Organizations use different accounting ratios and methods relies on financial information that helps the investor in deciding on whether to invest in some stock (Bebbington, Gray and Laughlin 2001). Ostensibly, the financial information used in the financial analysis is undertaken mostly inform of figures and financial ratios that are supposed to be accompanied with proper explanation to ensure that the investors make a sound investment decision. Hence, the financial ratios are significant in the disclosure of the organization financial health such as liquidity, profitability, and gearing issues. The financial ratios are critical when undertaking investment decision and it comes with its fair share of challenges that uses different financial information and accounting methods (Fryer 2002). The information used in financial ratio analysis is used in comparative analysis of various companies. Therefore, it facilitates comparison of the organization in different fiscal years and among other companies in the industry. Profitability ratio Every firm is significantly concerned with the profitability of the venture, and it utilizes financial analysis tools such as profitability ratio that are the fundamental basis of the determination of investors return (Becket 2012). Primarily, the profitability ratio indicated the overall organization performance and efficiency, and it is categorized into two categories namely returns and margins. Hence, the ratios indicate the margins that represent the organization ability in the measurement of the overall efficiency of the business venture in the generation of shareholders returns. Profitability 2011-12 2012-12 2013-12 2014-12 2015-12 TTM Tax Rate % 19.01 18.02 21.30 0.88 7.92 10.47 Net Margin % 29.72 22.51 9.94 4.73 11.43 9.23 Asset Turnover (Average) 0.62 0.53 0.47 0.46 0.42 0.40 Return on Assets % 18.32 11.84 4.67 2.15 4.76 3.71 Financial Leverage (Average) 2.27 2.26 2.41 2.99 3.25 4.76 Return on Equity % 42.98 26.81 10.89 5.75 14.82 13.96 Return on Invested Capital % 31.78 19.96 8.59 5.04 10.15 9.08 Interest Coverage 13.62 9.06 7.60 4.25 7.54 5.05 Financial health ratio Liquidity/Financial Health 2011-12 2012-12 2013-12 2014-12 2015-12 Latest Qtr Current Ratio 1.49 1.37 1.27 0.96 1.08 0.93 Quick Ratio 1.37 1.22 1.05 0.77 0.84 0.76 Financial Leverage 2.27 2.26 2.41 2.99 3.25 4.76 Debt/Equity 0.32 0.40 0.37 0.43 0.76 1.22 The AstraZeneca plc. Financial ratio is measured through determination of gearing or advantage level that tends to determine the corporation liquidity and financing that entails the use of equity and debt funding (Bebbington, Gray and Laughlin 2001). Therefore, the advantage level is an indication of the subjectivity of a corporation financial risk. This is attributed to the fact that use of debt financing causes many organization financial constraints as compared to the equity investment. These are indicated by debt/equity, economic advantage, quick, and current ratio indicated above. Investors are more concerned with an organization characterized by high leverage or gearing ratio because the organization that has a bigger percentage of their funding through debt funding are more likely to experience the business downturn (London, Thomson, and Becket 2012). The management of AstraZeneca can help in administration and mitigation of gearing level by embracing techniques to increase their profit so that they use retained earnings as their financing for expansion and diversification of the organization business. This can also be achieved through the embracing of management tactics that enhances the management of account payable and receivable collection period. Efficiency ratios This refers to efficient the organization is utilization and management of their assets and liabilities, and these ratios are used in the comparison of multiple period performances. These ratios use the concepts of capacity utilization (CU) that enhances the cost efficiency analysis and maintenance of non-parametric framework (Bebbington, Gray and Laughlin 2001). Therefore, the efficiency ratios deal with estimation of effectiveness based on input factors existence in the organization operation process. Therefore, the efficiency is gauged in the management of some costs such as rationing measures, external factors, administrative regulations, and adjustments costs (Baker 2009). Therefore, the efficiency may occur as structural efficiency that defines the short and long run efficiency cost coefficients. Efficiency 2011-12 2012-12 2013-12 2014-12 2015-12 TTM Days Sales Outstanding 81.50 106.89 93.29 71.87 69.39 92.79 Days Inventory 107.03 132.42 137.72 120.86 161.17 192.67 Payables Period 349.95 615.76 406.56 193.43 289.46 872.38 Cash Conversion Cycle -161.42 -376.45 -175.55 -0.70 -58.90 -586.91 Receivables Turnover 4.48 3.41 3.91 5.08 5.26 3.93 Inventory Turnover 3.41 2.76 2.65 3.02 2.26 1.89 Fixed Assets Turnover 5.02 4.47 4.32 4.41 3.98 3.78 Asset Turnover 0.62 0.53 0.47 0.46 0.42 0.40 Investment decision The investment decision is based on dividend policy that helps in setting up company guidelines in making decision of how much the dividend earning should be paid to the shareholders (Frankfurter, Wood, and Wansley 2003). Consequentially, it is evident that most investors are less concerned with the organization dividend policy because their equities portfolio are liquid and are readily convertible to cash should the investor be in need of cash. The AstraZeneca uses the residual dividend policy that relies on internal equity generation to finance their expansion and diversification. Therefore, the dividend payments are the remnant or the residual of equity after meeting the project investment requirements. The AstraZeneca should attempt to strike a balance in their equity/debt ratios before advancing the dividend distribution (Gibson 2009). This type of dividend policy used by AstraZeneca is characterized with an advantage of its useful in setting up long-term dividend policy especially in dealing with capital project budgeting. However, it has demerits of association with unstable dividends despite their usefulness in long-term planning. Key Fundamentals 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 31-Dec-15 Revenue (£ m)   20955.43 17654.57 16515.34 16153.38 16089.21 Pre-Tax (£ m)   7715.04 4825.61 2098.54 758.17 1998.45 EPS  457.28p 312.41p 131.04p 59.63p 145.21p PE  6.51 9.31 27.28 76.40 31.79 PEG  1.24 -0.29 -0.47 -1.40 0.22 EPS Growth  5.25% -31.68% -58.06% -54.49% 143.52% Dividend Cover  2.71 1.72 0.73 0.35 0.80 Dividend Yield  5.67% 6.25% 5.03% 3.73% 3.95% (AstraZeneca.com, 2016) This is guided by the organization dividend policy that embraces the dividend reinvestment plan (DRP). Ostensibly, the DRP is mostly provided by the organization that allows reinvestment of cash dividends by the investors through purchasing of fractional shares and additional shares on the payment date of dividend (Frankfurter, Wood, & Wansley, 2003). Consequentially, the DRP is the best way of increasing the investment value. Therefore, the DRP allows the investors in the reinvestment of current share at the commission-free and discount rate. The current DPR election regarding the interim dividend was held on 8 December 2016, and a copy of DRP conditions and terms are now available. The organization dividend policy is that the shareholders can receive their dividend payment either in cash or through building society and bank account with bankers automated clearing services (BACS). Ostensibly, this is an instant remittance method. However, it is worth noting that this type of dividend payment does not override the DPR mandate already existing that only be revoked by the registrar in writing. Conclusion In conclusion, AstraZeneca plc. is widely and globally acknowledged outsourcing and Distribution Company that engages in the business of supplying a broad range of products mostly the non-food products. The Corporation offers an array of catering equipment, disposable tableware, food packaging, healthcare, packaging, personal protection gadget, guest amenities, and hygiene and cleaning supplies. The stock market refers to buying or acquisition of shares in public traded companies that are traded over the counter markets and are referred to as equity market. The AstraZeneca plc. financial ratio is measured through determination of gearing or advantage level that tends to determine the corporation liquidity and financing that entails the use of equity and debt funding. Therefore, the advantage level is an indication of the subjectivity of a corporation financial risk. This is attributed to the fact that use of debt financing causes many organization financial constraints as compared to the equity financing. The organization dividend policy is that the shareholders can receive their dividend payment either in cash or through building society and bank account with bankers automated clearing services (BACS). Reference Top of Form Bottom of Form Top of Form Bottom of Form Baker, H. K. (2009). Dividends and dividend policy. Hoboken, N.J., John Wiley. http://public.eblib.com/choice/publicfullrecord.aspx?p=433797. Bebbington, J., Gray, R., & Laughlin, R. 2001. Financial Accounting: Practice and principles. AstraZeneca.com, 2016. Highlights. [Online] Available at:http://www.AstraZeneca.com/investors/financial-information/highlights.aspx[Accessed 4 November. 2016] AstraZeneca.com, 2016. Highlights. [Online] Available at:http://www.AstraZeneca.com/investors/financial-information/highlights.aspx [Accessed 4 November. 2016]. Connolly, D. 2010. The UK trader's bible: a complete guide to trading the UK stock market. Frankfurter, G. M., Wood, B. G., & Wansley, J. W. (2003). Dividend policy: theory and practice. Amsterdam, Boston. http://www.books24x7.com/marc.asp?bookid=6491. Fryer, G. H., 2002. Stock Exchange official yearbook. [S.l.], MacMillan. Gibson, C. H. (2009). Financial reporting & analysis: using financial accounting information. Mason, OH, South-Western Cengage Learning. Lexisnexis, F. 2003. LexisNexis corporate affiliations. Volume 8, Volume 8. New London, Thomson Learning. Becket, M. 2012. How the stock market operates a beginner's guide to investment. London, Kogan Page. Appendix 1 Income Statement Annual Income Statement (values in 000's)Get Quarterly Data Period Ending: Trend 12/31/2015 12/31/2014 12/31/2013 12/31/2012 Total Revenue $24,708,000 $26,547,000 $25,806,000 $27,973,000 Cost of Revenue $4,646,000 $5,842,000 $5,261,000 $5,393,000 Gross Profit $20,062,000 $20,705,000 $20,545,000 $22,580,000 Operating Expenses Research and Development $5,997,000 $5,579,000 $4,821,000 $5,243,000 Sales, General and Admin. $9,951,000 $12,989,000 $12,012,000 $9,189,000 Non-Recurring Items $0 $0 $0 $0 Other Operating Items $0 $0 $0 $0 Operating Income $4,114,000 $2,137,000 $3,712,000 $8,148,000 Add'l income/expense items $46,000 $78,000 $50,000 $42,000 Earnings Before Interest and Tax $4,144,000 $2,209,000 $3,762,000 $8,190,000 Interest Expense $1,075,000 $963,000 $495,000 $544,000 Earnings Before Tax $3,069,000 $1,246,000 $3,267,000 $7,646,000 Income Tax $243,000 $11,000 $696,000 $1,376,000 Minority Interest $0 $0 $0 $0 Equity Earnings/Loss Unconsolidated Subsidiary ($16,000) ($6,000) $0 $0 Net Income-Cont. Operations $2,810,000 $1,229,000 $2,571,000 $6,270,000 Net Income $2,826,000 $1,235,000 $2,571,000 $6,270,000 Net Income Applicable to Common Shareholders $2,826,000 $1,235,000 $2,571,000 $6,270,000 Appendix 2 Balance sheet Annual Income Statement (values in 000's)Get Quarterly Data Period Ending: Trend 12/31/2015 12/31/2014 12/31/2013 12/31/2012 Current Assets Cash and Cash Equivalents $6,244,000 $6,402,000 $9,297,000 $7,763,000 Short-Term Investments $613,000 $795,000 $796,000 $823,000 Net Receivables $7,009,000 $7,561,000 $8,373,000 $8,432,000 Inventory $2,143,000 $1,960,000 $1,909,000 $2,061,000 Other Current Assets $0 $0 $0 $0 Total Current Assets $16,007,000 $16,697,000 $20,335,000 $19,048,000 Long-Term Assets Long-Term Investments $1,896,000 $2,138,000 $2,513,000 $940,000 Fixed Assets $6,413,000 $6,010,000 $5,818,000 $6,089,000 Goodwill $11,868,000 $11,550,000 $9,981,000 $9,898,000 Intangible Assets $22,646,000 $20,981,000 $16,047,000 $16,448,000 Other Assets $0 $0 $0 $0 Deferred Asset Charges $1,294,000 $1,219,000 $1,205,000 $1,111,000 Total Assets $60,124,000 $58,595,000 $55,899,000 $53,534,000 Current Liabilities Accounts Payable $13,146,000 $14,240,000 $13,438,000 $12,083,000 Short-Term Debt / Current Portion of Long-Term Debt $925,000 $2,467,000 $1,790,000 $904,000 Other Current Liabilities $798,000 $623,000 $823,000 $916,000 Total Current Liabilities $14,869,000 $17,330,000 $16,051,000 $13,903,000 Long-Term Debt $21,595,000 $16,388,000 $10,941,000 $10,410,000 Other Liabilities $2,418,000 $3,435,000 $2,827,000 $2,699,000 Deferred Liability Charges $2,733,000 $1,796,000 $2,827,000 $2,576,000 Misc. Stocks $0 $0 $0 $0 Minority Interest $19,000 $19,000 $29,000 $215,000 Total Liabilities $41,634,000 $38,968,000 $32,675,000 $29,803,000 Stock Holders Equity Common Stocks $316,000 $316,000 $315,000 $312,000 Capital Surplus $0 $0 $0 $0 Retained Earnings $11,834,000 $13,029,000 $16,960,000 $17,955,000 Treasury Stock $0 $0 $0 $0 Other Equity $6,340,000 $6,282,000 $5,949,000 $5,464,000 Total Equity $18,490,000 $19,627,000 $23,224,000 $23,731,000 Total Liabilities & Equity $60,124,000 $58,595,000 $55,899,000 $53,534,000 Read More