In the paper, a comparison will be made between the results of GlaxoSmithKline PLC and Roche Group. The two companies close their financial year in the month of December. The analysis will be carried out for a period of two years, that is, 2013 and 2014. A review of the financial statements shows that the companies report their results in different currencies. GlaxoSmithKline PLC reports in British Pounds (£) because it is based in the United Kingdom (GlaxoSmithKline PLC, 2015). The shares of the company trade both on the New York and London Stock Exchange markets. On the other hand, Roche Group is a multinational company that is based in the Swiss. The shares of the company are listed on the Swiss Exchange. Further, the company reports its results using the Swiss Franc (CHF) (F. Hoffmann-La Roche Ltd., 2015).
|GlaxoSmithKline PLC||Roche Group|
|Cost of goods sold||8,585||7,323||11,948||13,381|
Currently, 1 Swiss Franc is equivalent to 0.70 of a British Sterling Pond. This rate will be used to convert the data above to one currency. The converted data is presented in the table below.
|GlaxoSmithKline PLC||Roche Group|
|Cost of goods sold||8,585||7,323||8,364||9,367|
The information in the table above shows that the revenue for GlaxoSmithKline dropped during the two-year period while the revenue for the Roche Group rose by a small margin. The revenue for GlaxoSmithKline dropped by 13.20%, while that Roche rose by 2.58%. The drop in the revenue was attributed to the competition arising from the generic products. The demand in the industry is expected to grow in the future. Therefore, the companies are expected to report favorable results in the future.
Cost of sales
In most cases, there is always a direct relationship between the revenue and the cost of sales. Thus, the management expects that if the sales revenue rise, then the cost of sales is expected to rise. This association is exhibited in the case of the two companies. The cost of sales for GlaxoSmithKline dropped by 14.7%, while that of the Roche Group rose by 11.99%. It can be observed that the cost of sales for the two companies changed by a higher percentage than sales. From the management’s point of view, these changes affect the gross gross profit. For instance, in the case of GlaxoSmithKline, the change has a positive effect on the gross profit while in the case of Roche Group, it has a negative effect (Drury, 2012).
The balance of accounts receivable for GlaxoSmithKline dropped by 15.47%, while that of the Roche Group rose by 2.21%. There is always a direct relationship between sales and accounts receivables. Therefore, if sales rise, then accounts receivables are expected to rise. This relationship is evident in the case of the two companies. However, this relationship does not hold in some cases, depending on the credit terms of the company. From the management perspective, a rise in accounts receivable can be an indication of inefficiency in the collection of debts while a reduction is an indication of efficiency.
The balance of accounts receivable for GlaxoSmithKline dropped by 4.3%, while that of the Roche Group rose by 33.3%. The accounts payable for the Roche Group rose by a large margin. A growing balance of accounts payable is an indication that the company is facing difficulties in paying creditors. This can be an indication of a liquidity management problem. On the other hand, a drop in the value of accounts payable is an indication of improved efficiency in the payment of trade creditors.
The inventory balance for both companies rose. The balance for GlaxoSmithKline rose by 8.5%, while that for the Roche Group rose by 31.1%. Thus, the inventory for the Roche Group rose by a larger margin than that of GlaxoSmithKline. From a management point, the growth can be an indication that the company is not managing the inventory effectively. A growing inventory balance increases the cost of handling this inventory. Therefore, it is not advisable for a company to hold a high inventory balance in the books of account. A high inventory balance can also be caused by a slow-moving stock (Atrill & McLaney, 2009).
Interaction between financial statements
All the financial statements prepared at the end of the year are interconnected because the output in one statement is used in another statement. For instance, revenue in the income statement yields accounts receivable when goods are sold on credit. This explains why a company with a higher value of revenue is likely to have a higher balance of accounts receivables. Further, the cost of goods sold on the income statement is connected to accounts payable under liabilities, and inventory under assets in the balance sheet. In summary, it can be observed that the performance of Roche Group was better than that of GlaxoSmithKline PLC.
Atrill, P. & McLaney, E. (2009). Management accounting for decision makers. UK: Financial Times/Prentice Hall.
Drury, C. (2012). Management and cost accounting. United States of America: Cengage Learning.
F. Hoffmann-La Roche Ltd. (2015). Finance report 2014. Web.
GlaxoSmithKline PLC. (2015). Annual report 2014. Web.
Morningstar Inc. (2015a). GlaxoSmithKline PLC ADR. Web.
Morningstar Inc. (2015b). Roche holdings AG ADR. Web.