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ANALYSIS OF ABBOTT
FOR THREE YEARS PERIOD
As a finance person my job would include financial analysis of the company, therefore this topic would
help in making my concepts stronger. This RAP project has given me the opportunity to practice hands
on a real companys financial statement.
Another reason for choosing this company is also the practical working experience I have already
gained in another pharmaceutical company. While working there I had developed a sense of
understanding of the pharmaceutical industry. This Research and Analysis project for Oxford Brookes
thesis has given me the opportunity to discover this industry in depth.
Industry analysis:
Pakistan Pharmaceutical Industry
Pakistan has a vibrant and forward looking pharma industry. At the time of independence in 1947, there
was no scope for pharma industry in Pakistan. However today, after so many decades pharma industry
in Pakistan has grown to its peak. Pharma industry consists of some quality producers which are
recognized all over the world. (www.ppma.org.pk, 2012)
The domestic pharma market, in terms of market share is evenly divided between the locals and multi-
nationals.
In the international market Pakistan pharma industry is relatively young with an export turnover of just
US$ 100 million. Like the domestic market the sales in international market have also gone double in
past few years. Overall Pakistan pharma industry is a success story because not only it provides high
quality drugs at affordable prices but also a source of employment for millions.
(www.ppma.org.pk, 2012)
Pricing In Pakistan
The maximum retail price (MRP) of a medicine is determined using a formula that incorporates
manufacturing costs and retail markups. When pricing imported medicines, the cost of freight and
import duties are also included.
The market share of some of the top companies can also be illustrated through the following diagram
Growth rate of the top 5 companies can be illustrated through the following diagram:-
The above bar chart shows the average growth of top 5 pharmaceutical companies in comparison to
their previous years. As per the IMS data (June, 2012) the overall industry growth of Pakistani market
has been 17%. In line with the industry growth, Abbott has maintained sound performance and has
grown in line with the market.
FRAMEWORK
The Research and analysis report (RAP) starts with the introduction of Pharma industry operating in
Pakistan followed by the brief description of the chosen company i.e. Abbott.
Gathering information is an essential part of RAP. The later part of the report defines how and what
sources have been used to gather information for this report.
After this, follows the detailed financial and business analysis of Abbott and its chosen competitor
GSK. On the basis of these analyses, conclusion and recommendations have been provided at the end.
ETHICAL CONSIDERATION
During the preparation of this report, most data has been taken from secondary sources. These sources include
websites, magazines, annual report and any other as mentioned next. I have ensured that any piece of
information being used is reliable and relevant to my project.
For this reason, Harvard Referencing System has been properly used on my project and any information
which is obtained from any source is properly referenced.
Secondary sources include the use of internet, newspapers, business magazines, company website, and other
electronic media. As Abbott is listed at the local stock exchange and is a market leader therefore gathering
information was not too difficult.
Sources of Information:
Annual Report
Annual reports of Abbott and its competitor GSK for 2011,2010 and 2009 have been used for the purpose of
making this project. This document is widely used overall in the report as it is a means of financial and other
important business related data. The annual reports were arranged from the stock market.
Company Website
Official website of Abbott (www.abbott.com.pk) and GSK (www.gsk.com.pk) has been used to gather
information. Official website provides a lot of information regarding the organization. Current news,
directors profile, product portfolio, company information and annual reports have been obtained from this
website.
Other Websites
Information from other websites such as www.google.com, www.ppma.corg.pk, www.tribune.com.pk etc has
been used widely. Competitors website (www.gsk.com.pk) has been used to get the financial statements.
Books
ACCA books of F3 (BPP publishing, F3 Financial Accounting, 2011), and P3 (Emily Woolf Publishing,
Business Analysis, 2011) have been used during this project. These books provided quality information which
was relevant for this project. F7 and F9 books have been used for support during the financial analysis of the
company. P3 book was used to learn SWOT and PEST models for the business analysis of the company.
Other than these, Accounting and Business Studies books for A-levels e.g. Randall, Frank wood, Stimpson
and other books were used to get definitions and formula for the purpose of this report.
LIMITATIONS
Annual reports provide financial information for the company and its competitor. However this
financial data is based on historical events. Predicting future on the basis of past events may not be a
wise option. Further, the annual report presents only the good picture of the organization and does not
identify any weaknesses.
Company website provides limited and non updated information. For example, it does not provide any
information on future strategies opted by the management and their attitudes towards risk or
competition, lets say.
Other websites does not always provide with relevant information and normally contain junk of
information. The information available may not be reliable because of possible manipulations.
TV channels only outline that news which is hot-topic. Local media is often criticized for
highlighting only negative information on air. These factors limit the usefulness of information.
(www.accountingtools.com, 2012)
Limitations
Over reliance on base year.
Difficult to decide whether the result is good or bad for a particular year since no benchmarks are
used.
No comparison can be made between companies. It is only useful for trend analysis of a companys
own results.
(www.accountingtools.com, 2012)
Accounting ratios help to summarize and present financial information in a more understandable form.
(F3 BPP study text, 2012)
Limitations:
Different companies use different accounting policies for the purpose of preparing accounts, this
makes the comparison difficult.
Qualitative factors are ignored.
Ratios usually do not recognize seasonal factors and inflation affects.
Different companies may use different formulas to calculate the same type of ratio. E.g. some
organizations prefer use of PBIT (profit before interest and tax) while some use PBT (profit before
tax) in profitability ratios.
Ratio analysis also averages out figures of the financial statements which may become misleading.
(F3 BPP study text, 2012)
S Strengths. Strengths are internal that come from the resources of the entity.
O Opportunities. Opportunities are factors in the external environment that might be exploited, to the
entitys strategic advantage.
T Threats. Threats are factors in the external environment that create an adverse risk for the entitys
future prospects.
Strengths and weaknesses are concerned with the internal capabilities and core competencies of an entity.
Threats and opportunities are concerned with factors and developments in the environment.
LIMITATIONS
Subjectivity is often a limitation of a SWOT analysis as no two managers would necessarily arrive at
the same assessment of the company they work for.
It is not a quantitative form of assessment so the cost of correcting a weakness cannot be compared
with the potential profit form pursuing an opportunity.
SWOT should only be used as a management guide for future strategies, not a prescription.
P Political
E Economical
S Social
T Technological
Political Factors
These are all about how and to what degree a government intervenes in the economy. This can include
government policy, political stability or instability in overseas markets, foreign trade policy, tax
policy, labour law, environmental law, trade restrictions and so on.
(www.professionalacademy.com, 2012)
Economic Factors
Economic factors have a significant impact on how an organization does business and also how
profitable they are. Factors include economic growth, interest rates, exchange rates, inflation,
disposable income of consumers and businesses and so on.
(www.professionalacademy.com, 2012)
Social Factors
Also known as socio-cultural factors are the areas that involve the shared belief and attitudes of the
population. These factors include population growth, age distribution, health consciousness, and
career attitudes and so on.
(www.professionalacademy.com, 2012)
Technological factors affect marketing and the management in three distinct ways:
It is easier to use PESTEL analysis to identify environmental influences in the past and present.
It is not so easy to identify the environmental influences that will have the biggest influence in
the future.
It is used for qualitative analysis, but not for quantification. A manager using PESTEL might
need to use his (subjective) judgment to decide which environmental factors are important than
others.
(ACCA Study Text P3, Emile Woolf, 2011)
GSK ABBOTT
The growth in sales of Abbott over the years (2009-2011) is mainly due to volume, favorable product mix,
increased marketing and the outstanding performance of some segments. Over these years Vitamins, anti-
infective, hematinics, gastro preparations and other consumer products have shown strong double digit
growth. (Abbotts annual report, 2009-2011)
The sales breakup according to the product segments have been shown in the following charts.
The pharmaceutical products have huge local market. As shown by the chart pharma sales for Abbott
accounted for 80% of its total sales. Pharmaceutical products sales grew by 19 percent for a good contribution
of Rs 6746 million (Rs 5651 million in 2008) to the total sales revenue. Nutritional sales were Rs 970 million
(Rs 892 million in 2008), thus a growth of 9% is witnessed. (Annexure 3)
Pharmaceuticals sales in 2010 accounted for 79% (Rs 8,687 million) of the total sales (Rs 10,995 million).
Local sales which are 95% of the total sales grew by 29.4% in comparison to the previous year. Export sales
for the year 2010 (compared to 2009) grew by 49%. This led to an overall growth of 30% in the total sales
Sales from pharmaceutical segment showed a growth of 16% compared to 2010. Pharmaceutical segment
provided for sales revenue of Rs 10,065 million (Rs 8,687 million, 2010) out of total sales of Rs 12,946
million (Rs 10,955 million, 2010). Within the pharmaceutical segment, pain management, vitamins, cough
and cold, anti infectives and gastro preparations were the biggest contributors (Business Recorder, July 04,
2012). (Annexure 3)
Nutritional sales showed growth by 23%, contributing Rs 1,659 million in 2011 (Rs 1,353 million in 2010).
Higher volume and increases in the prices led to this growth rate (Business Recorder, July 04, 2012).
GSK, 26.75%
2011 Abbott, 36%
Gross profit margin is an indication of a firm's ability to turn a dollar of sales into profit after the cost of
goods sold has been accounted for. (www.financial-dictionary.thefreedictionary.com)
In 2009, Abbotts G.P margin lowered down to 29% in 2009 (30% in 2008). The base reasons for such results
include depreciation of PAK rupee and high inflation with no corresponding increase in selling prices by the
Government of Pakistan. The cost of raw and packing materials consumed, increased by 21.5 % in 2009 as
compared to the previous year. (Abbotts annual report, 2009)
In 2010, Abbotts Cost of goods sold rose by 19.2% in 2010. Cost of raw and packing materials (Rs 4136
million), Salaries and wages (Rs 818 million), Fuel and power (Rs 184 million) were major contributors to the
total of cost of goods sold of Rs 7,308 million. The increase in cost of goods sold was however less than the
proportionate growth in sales (30.42%). For GSK, as for Abbott cost of raw materials (Rs 8,931 million) was
a major contributor to the total cost of goods sold of Rs 14,063 million.
In 2011 Abbotts sales revenue increased by Rs 1.95 billion, whereas the cost of goods sold only witnessed an
increase Rs 0.97 billion. This shows efficient management and efficient cost control by the company. The
company maintained a favorable product mix of its nutritional, generic health-care and other products. GSK
also made efforts to reduce costs and improved its product mix which led to a reasonable gross profit margin.
10.00%
5.00%
0.00%
2009 2010 2011
Abbott 13.90% 15.90% 18%
GSK 10.50% 10.30% 10.50%
Profit margin is an indicator of a company's pricing strategies and how well it controls costs. Differences in
competitive strategy and product mix cause the profit margin to vary among different companies.
(www.encyclopedia.thefreedictionary.com)
In 2009 Abbotts operating profit (profit before interest and tax) witnessed a rise of 113% as compared to
2008. The operating profit went from Rs 574.5 million in 2008 to Rs 1,168 million in 2009. Sales and
distribution decreased by 17% in 2009 as compared to its last year. This was primarily due to decline in
salaries and wages cost by Rs 257 million. For GSK, selling and distribution expenses increased by 26% to Rs
1,673 million in 2009 (Rs 1,328 million in 2008). This was primarily due to increase in freight costs as a
result of rising fuel prices. (GSKs annual report, 2009)
In 2010 Abbotts operating profit (profit before interest and tax) increased by 98.6% in 2010. The sales
revenue increased by Rs 2,565 million. The floods in interior Sindh and other districts of Pakistan increased
the sales demand for medicines and thus sales revenue increased. According to an article published in
Business Recorder (September 23, 2010) Rs 25-30 million worth items were daily being sent to these flood
affected areas. For GSK, the advertising campaigns for newly launched consumer products, rising oil prices,
general inflation and freight cost were the major factors contributing towards increase in sales and distribution
costs. (GSKs annual report, 2010)
The growth in sales (18%) in 2011 compared to the previous year for Abbott was the highlight behind the
operating profit of Rs 2,378 million (Rs 1,744 million in 2010). The Legacy Solvay brands acquired by
Abbott Pakistan and better product mix led to increased sales (Abbotts annual report, 2011). For GSK, sales
2011
2010
2009
ROCE measures the overall efficiency of a company in employing the resources available to it (BPP
publishing, F3 Financial Accounting, 2011).
Higher profitability for Abbott in 2009 was primarily due to sales growth (19%) and efficient cost control.
Sales and distribution expenses reduced by 17% (compared to previous year). Due to efficient performance of
pharmaceutical, nutritional and other segments Abbott Pakistan was able to produce good financial results.
GSK also showed good results in 2009. The growth in profitability and efficient use of resources were the
factors that led to a good return over the amount invested.
Abbott achieved sales growth of 30% in 2010 (compared to 2009). The floods in Interior Sindh and other
districts of Pakistan provided the opportunity to boost its sales demand and thus profitability. Medicines worth
millions were sold to government and NGOs in order to save the flood victims (business recorder, Sep 23,
2010). The operating profits (profit before interest and tax) grew by 99% to Rs 1,744 million in 2010
(compared to Rs 878 million in 2009). Thus a good return was achieved over the amount invested. In 2010,
ROCE for GSK fell by 2%. GSK issued 144.52 ordinary shares worth Rs 10 each for each share of Stiefel
Pakistan. The rise in equity was a major factor for lower ROCE (Express Tribune, June 14th, 2011).
Abbott achieved a 44% return over the amount invested in 2011. However this was only 1% growth as
compared to the 43% ROCE in 2010. The sales growth plumed to 18% in 2011 (30% in 2010). However
efficient cost control and performance of some star products such as MOSPEL and Surbex-Z supported
profitability (GSKs annual report, 2011).
1.41
1.5 1.27
1.16
0.5
0
2009 2010 2011
Abbott 1.7 1.9 1.75
GSK 1.16 1.27 1.41
Asset Turnover ratio is a measure of how well the assets of a business are being used to generate sales (BPP
publishing, F3 Financial Accounting, 2011).
Abbotts performance over this period (2009-2011) was very good. However GSK had its own achievements.
Its star product Augmentin was declared the first medicine in Pakistan to cross the three billion rupee mark
(www. brecorder.com, Sep 25 2012).
In 2009 Abbott invested heavily in fixed operating assets in order to keep it in line with the increasing sales
demand. Plant and Machinery worth Rs 182 million, Vehicles worth Rs 175 million and demonstration
equipment worth Rs 76 million were bought during the year. These assets were utilized in an efficient manner
which led to an achievement of Rs 8,431 of sales revenue (19% growth compared to 2008). Although the
asset turnover ratio for GSK was not as good as for Abbott, GSK achieved a 10% growth in sales revenue for
2009 (compared to 2008).
In 2010 total sales revenue grew by 30% for Abbott which was higher than the market leader GSK (13%
growth). Export sales contributed Rs 625 million (Rs 420 million, 2009) to total sales revenue of Rs 10,995
million (Rs 8,450 million, 2009). The sales revenue figures show the efficient use of assets by Abbott.
For GSK, an investment worth Rs 790 million (Rs 515 million in 2009) was made in Plant up-gradations and
integrations, expansion and up-gradation of warehousing and purchase of vehicles. These assets were
efficiently utilized by GSK to generate sales revenue of Rs 18,916 million. (GSKs annual report, 2010)
In 2011, Abbotts asset turnover ratio compared to GSK declined by 8% to 1.75 times. Despite the 18%
growth in sales, Abbotts ratio was lower than 2010. The base reason was an investment worth Rs 687 million
in fixed operating assets and increase in current assets by Rs 1,614 million. For GSK, Rs 835 million was
spent on fixed operating assets for up gradations and integration. Its current assets increased by 4% to Rs
Liquidity Ratios
Current Ratio
3
2.5
2
1.5
1
0.5
0
2009 2010 2011
Abbott 2.03 2.19 2.42
GSK 2.8 2.71 2.48
Current ratio offers an indication of the companys liquidity position. That is, how much current assets the
business has in order to each $1 of its short term liability (BPP publishing, F3 Financial Accounting, 2011).
Although GSKs liquidity position deteriorated slightly over the three year period (2009-2011), its current
ratio is still higher than that of Abbott, which implies that it is still in a better position.
In 2009 Abbotts cash and bank balances fell by Rs 281 million to Rs 771 million (Rs 1,052 million in 2008).
During the year Rs 1,172 million were paid out as dividends. Rs 318 million were spent on plant and
machinery and other fixed operating assets. Thus, the core reason for decrease in cash equivalents was the
payout of dividends and other capital expenditure (Abbotts annual report, 2009). Although GSKs current
ratio was much higher than that for Abbott in 2009, its liquidity had gone poor over the year. Its cash and
bank balances fell by Rs 986 million. In addition, its current liabilities increased by 30% in 2009.
In 2010 Abbott generated Rs 1,512 million from operations. The primary reason was the increase in sales
demand which led to more cash. Cash and bank balances at the end of 2010 increased by 6% to Rs 819
million (Rs 771 million in 2009). During the year Rs 490 million and Rs 491 million were spent on fixed
assets and dividends respectively. Current liabilities consisting of trade and other payables also rose by 10%.
Overall the company efficiently managed its liquidity position. GSK on the other hand, maintained its
efficient liquidity position as of previous year (2009). Its cash balances in 2010 increased by 37% to Rs 2,809
million.
Quick ratio
1.6
1.4 1.5
1.45
1.2 1.29
1
0.99 1.01 1.03
0.8
0.6
0.4
0.2
0
2009 2010 2011
Abbott 0.99 1.01 1.29
GSK 1.45 1.5 1.03
Abbott GSK
Quick ratio offers an indication of the companys liquidity position. That is, how much current assets after
deducting inventory, the business has in order to each $1 of its short term liability (BPP publishing, F3
Financial Accounting, 2011).
Excluding stock balances worth Rs 1,675 million, liquidity for Abbott in 2009 was below par. Abbott
maintained less than $1 of pure liquid assets for each $1 of its short term liability. Cash and bank balances
decreased by 27% to Rs 771 million (Rs 1,051 million in 2008). GSK on the other hand, maintained higher
liquidity position compared to Abbott in 2009. Cash and bank balances for GSK reduced by 36% to Rs 1,739
million (Rs 2,725 million in 2008). However this cash reserve is nearly double to that maintained by Abbott
(Rs 771 million). This indicates better liquidity management by GSK compared to Abbott.
Quick ratio for Abbott slightly improved in 2010 as compared to 2009. Cash and bank balances increased by
Rs 48 million to Rs 819 million in 2010 (Rs 771 million in 2009). Current liabilities increased by 10%. GSKs
Abbott improved its liquidity in 2011. Cash and bank balances increased by 77% to Rs 1,453 million (Rs 819
million). Trade debts increased by 56% (Rs 263 million in 2010). Current liabilities increased by 17%. Ir-
respective of the huge cash investments made to acquire intangible rights from Highnoon laboratories, Abbott
still managed to improve its liquidity which indicates efficient management by Abbott. In 2011, GSKs
liquidity decreased compared to its preceding year. GSKs cash flow from operations decreased this year
primarily due to integration activities, higher tax rates and dividend payouts (GSKs annual report, 2011).
25
20 Abbott
15 GSK
Abbott, 12 days
Abbott, 10 days
10 Abbott, 9 days
GSK, 6 days GSK, 6 days
5
0
2009 2010 2011
A rough measure of the average length of time it takes for a companys customers to pay what they owe is the
accounts receivable collection period (BPP publishing, F3 Financial Accounting, 2011).
In 2009, Abbott had sales growth of 19%, whereas receivables grew by 36% to Rs 234 million as compared
to the 2008 balance of Rs 173 million. The growth in receivables was primarily due to growth in sales. GSK
on the other hand had much higher receivable collection period (26 days) compared to Abbott. This shows
that GSK compared to Abbott was less efficient in converting its receivables into cash.
In 2010, analyses indicate that Abbott maintained its receivables collection policy and therefore collection
period was similar in 2010 (9 days) compared to 2009 (10 days). However, receivable days for GSK
drastically changed in 2010. GSKs receivables collection period fell by 23 days in 2010. The fall in
collection period indicates change in policy primarily after the amalgamation between GSK and Steifel
Pakistan.
In 2011 Abbotts receivable collection days (12 days) were slightly higher than the year 2010 (10 days). The
collection period over the three year period (2009-2012) remained 10 days on average for Abbott. Therefore
analysis concludes that Abbott maintained its collection period over this period. GSKs collection period
remained same in 2011 (6 days) as of 2010 (6 days). The consistency of collection days shows efficient
management by GSK.
2009 Abbott
2010 GSK
2011
The payment period often helps to assess a companys liquidity. An increase is often a sign of lack of long-
term finance or poor management of current assets, resulting in use of extended credit form suppliers (BPP
publishing, F3 Financial Accounting, 2011).
In 2009, higher payment period of Abbott indicates that Abbott maintains considerable power over its
suppliers. This also indicates efficient working capital management by Abbott as it enjoys the benefits of free
source of finance for a longer period. GSKs trade payables increased by 16% to Rs 1,606 million in 2009 (Rs
1,381 million in 2008). However the proportionate increase in cost of goods sold was 20% in 2009 (compared
to 2008); this is why payment days for GSK are quite high in 2009 (compared with results of GSK in 2010
and 2011).
The above chart indicates that Abbotts payables payment period had fallen in 2010 from its preceding year.
Although the decrease in payment period means that Abbott would be enjoying less benefit from the free
source of finance available, it also indicates that Abbott would be enjoying the benefits of early settlement.
On the other hand, GSKs payables payment days generally remained the same as of prior year.
Abbotts settlement period rose by 3 days in 2011 to 91 days (88 days in 2010). Its cost of goods sold
increased by 13% whereas, trade payables increased by 17% in 2011. The increase in payments period would
not be a popular deal for suppliers. On the other hand, GSKs payment period reduced to 84 days in 2011.
This means that GSK would be enjoying less benefits of free source of finance.
133
100 112
128
100
0 103
102
2009
2010
2011
The inventory turnover period ratio is another measure of how vigorously a business is trading (BPP
publishing, F3 Financial Accounting, 2011).
In all the three years (2009-2012) Abbotts inventory turnover has been less than GSKs ratio. This indicates
that GSK has performed better than Abbott and has managed its inventory efficiently. The combination of
lower collection period and higher inventory turnover period for GSK indicates that GSK has been very quick
in converting its inventory into cash.
Abbotts inventory ratio like many other ratios has maintained a constant trend. The inventory turnover period
for Abbott averages around 102 days over the three years period. This ratio is lower to that maintained by
GSK. However, trend of working capital ratios indicate that Abbott has been very efficient and consistent
over these years (2009-2012).
No gearing can be calculated for Abbott Pakistan or GSK Pakistan since they both do not have any sort of
long term liability leading towards financial risk.
Interest Cover
The interest cover ratio shows whether a company is earning enough profits before interest and tax to pay its
interest costs comfortably, or whether its interest costs are high in relation to the size of its profits (BPP
publishing, F3 Financial Accounting, 2011).
No interest cover ratios can be calculated for Abbott Pakistan or GSK Pakistan since they both do not have
any sort of long term liability leading towards financial risk.
20
4.77
$ per share
15 5.08
5.47 GSK
10
$16.80 Abbott
$12.02
5
8.43
0
2009 2010 2011
Axis Title
Abbott Pakistan has shown great performance for these years. In comparison with GSK, Abbott has
been able to generate higher returns primarily for its investors. Abbotts EPS has almost grown by 40%
in 2011 whereas EPS for GSK has shown a decline of about 10% (compared to 2010).
Abbotts earnings for the three years period (2009-2011) increased primarily due to sales growth and
vigorous cost control exercised by Abbott. The inclining trend of EPS as shown by the chart above is an
attractive sign for Abbotts investors.
The (Year on Year) analysis indicates that GSKs EPS has followed a declining trend over these years
(2009-2010). However the primary reason for this trend is the increase in number of ordinary shares as
a result of amalgamation between GSK with Steifel Pakistan. GSK issued 144.52 ordinary shares worth
Rs 10 each for each share of Steifel Pakistan (The Express Tribune, June 14 th, 2011). However, this
merger is expected to improve future profitability of GSK.
A lower P/E ratio for Abbott indicates that its share price did not grow proportionately with the growth
in EPS.
It should also be noted that the above P/E ratios are based on accounting information which is based on
past data. Investors are more concerned with future performance of the company and their expectations
and confidence are reflected by the trading market price. Thus, the above figures shall not be taken as a
basis for conclusion.
The analysis of year end share prices for Abbott and GSK are given as follows:
In practice, share prices are useful indicator of what the investors expect from the company. Share
prices for 2011 and 2010 were higher for Abbott than GSK, thus indicating higher confidence of stock
markets and investors on Abbott.
2.8
2.5
2.4
2
1.5
1.33
1 1.2
1.1
0.5 0.7
0
2009 2010 2011
Abbott GSK
Dividend cover is measure of a firm's ability to pay its dividend. Higher the cover, the greater is the
possibility of earning higher dividend (www.businessdictionary.com, 2012).
It can be easily configured from the chart above that dividend cover for Abbott in 2009 was very low
compared to 2010 and 2011. Since then, the company has managed to grow its dividend cover by
almost 2 times till 2011.
GSK on the other hand, has maintained stable dividend cover for the period however a decline is
witnessed in 2011. GSKs dividend cover slightly fell by 0.12 times in 2011 (compared to 2010). If the
declining trend continues it would have an adverse impact on the confidence of shareholders.
Weaknesses
Abbott does not have any gearing and thus it misses out tax shield on debt finance.
Abbott has earned great popularity from its blockbuster product HUMIRA. It is indicated that
Abbott has over relied on this product. Once the product goes off patent (in 2016) Abbotts
profitability would be affected. (www.yousigma.com, 2012).
Opportunities
Neighbor to Pakistan is Afghanistan, which is in state of war, demands large quantities of
medicine. Abbott can increase its business in that geographical segment. Iraq is another country
which demands large quantities of medicines.
Acquisition of Piramal Healthcare solutions could allow Abbott to expand its presence in
emerging Indian pharmaceutical market. (www.yousigma.com, 2012)
Threats
Block buster drug of Abbott HUMIRA in the auto-immune segment will go off patent in
2016, which will initiate intense competition by attracting generic players to create substitutes
which will erode Abbotts market share. (yousigma.com, 2012)
Recent drug scandals for Ephedrine and Efroze pharma may lead to strict regulations and
restrictions on Pharma industry being imposed by the regulatory authorities. (yousigma.com,
2012)
Economical
Economic situations of the country are getting worse every day mainly due to political instability,
double digit inflation rates, weakening bargaining power of rupee against other currencies etc.
As per the economic survey done by Ministry of Finance in 2010-2011, the inflation rate as measured
by the changes in Consumer Price Index (CPI) after reaching peak at 25.3 percent in August 2008, are
showing ease since November 2008 with slight variations. Further, the total investment has declined
from 22.5 percent of GDP in 2006-07 to 13.4 percent of GDP in 2010-11 (www.finance.gov.pk, 2012).
Social
Abbott Pakistan contributed Rs 1,798 million in 2011 (2010: Rs 1,507 million) to the government and
its agencies on account of various government levies including income tax, custom duties and sales tax
(Abbotts annual report, 2011). Further, Abbott Pakistan was ranked among the top ten organizations in
for large industrial units thus creating source of income for many. Abbott was also awarded the
Environment, Health & Safety Award by the National Forum for Environment & Health.
(Abbotts annual Report, 2011)
Abbott Pakistan was recognized for Largest Plantation done by any Pharmaceutical Organization
in Sindh. (Abbotts annual Report, 2011)
Technological
Abbott has been keen in adapting technology for its production processes. The company focuses on to
produce methods that could help the business reduce costs and reduce environmental damage. In 2011,
Abbott launched the Lean Sigma Green Belt initiative at the Plant for productivity improvement and
waste elimination (Abbotts annual report, 2011).
Overall ratios for Liquidity show that GSKs liquidity position is better than Abbott. GSKs better
liquidity is primarily due to the lower receivable collection period (6 days, 2011). Abbotts inventory
turnover of 100 days in 2011 (133 days, GSK) indicates that GSK has been more efficient in converting
its inventory into cash.
Both companies enjoy zero gearing and thus no gearing ratios can be calculated. Where on one hand,
zero gearing support investors as they take no financial risk, Abbott and GSK would be missing out the
tax shield (available on debt finance).
Going through the ratios indicate that Abbotts earnings per share were much higher than that of GSK.
In 2011 Abbotts EPS was almost 72% higher compared to GSK. This indicates that Abbott was more
successful in generating earnings for its shareholders than GSK.
P/E ratio was higher for GSK compared to Abbott. However, share price was higher for Abbott in each
of the three years (2009-2011) compared to GSK. It should be noted that this P/E ratio is based on
accounting profits where as investors are more concerned with expected future performance of the
company. Higher dividend cover means higher security for investors. Abbott promises an attractive
dividend cover which shall be taken as a plus point for Abbott.
Financial ratios as discussed above indicate better performance by Abbott compared to the market leader
(GSK). Where, liquidity may still be a concern for Abbott, its earnings were attractive enough to gain
investors confidence. Abbott should use the advantage of having such good financial results to develop new
& improved consumer products to gain market share.
ABBOTT PAKISTAN
PROFITABILITY RATIOS
Gross Profit Margin 36.04% 33.53% 29.14%
Net Profit Margin 18.37% 15.87% 13.83%
Return on Capital Employed 44% 43% 35%
Asset Turnover 1.75 times 1.90 times 1.70 times
LIQUIDITY RATIOS
Current Ratio 2.42 : 1 2.19 : 1 2.03 : 1
Quick Ratio 1.29 : 1 1.01 : 1 0.99 : 1
Debtor's Collection Period 12 days 9 days 10 days
Creditor's Payment Period 91 days 88 days 98 days
Inventory Turnover in days 102 days 103 days 102 days
GEARING RATIOS
Capital Gearing 0.00 0.00 0.00
Interest Cover 0.00 0.00 0.00
INVESTOR RATIOS
Earnings per Share $16.80 $12.02 $8.43
Price to Earnings Ratio 5.94 times 9.13 times 11.44 times
Dividend Cover 2.80 times 2.40 times 0.70 times
PROFITABILITY
RATIOS
='Profit & ='Profit & ='Profit &
Gross Profit Margin Loss'!B7/'Profit & Loss'!C7/'Profit & Loss'!D7/'Profit &
Loss'!B5*100 Loss'!C5*100 Loss'!D5*100
='Profit & ='Profit & ='Profit &
Net Profit Margin Loss'!B13/'Profit & Loss'!C13/'Profit & Loss'!D13/'Profit &
Loss'!B5*100 Loss'!C5*100 Loss'!D5*100
='Profit & ='Profit & ='Profit &
Return on Capital Loss'!B13/('Balance Loss'!C13/('Balance Loss'!D13/('Balance
Employed Sheet'!B29-'Balance Sheet'!C29-'Balance Sheet'!D29-'Balance
Sheet'!B48)*100 Sheet'!C48)*100 Sheet'!D48)*100
Asset Turnover ='Profit & ='Profit & ='Profit &
Loss'!B5/'Balance Loss'!C5/'Balance Loss'!D5/'Balance
Sheet'!B29 Sheet'!C29 Sheet'!D29
LIQUIDITY RATIOS
Capital Gearing 0 0 0
Interest Cover 0 0 0
INVESTOR RATIOS
Abbott Pakistan
Rupees '000'
Abbott Pakistan
GSK Pakistan
Rupees '000'