A REPORT ON RATIO ANALYSIS OF GLAXOSMITHKLINE
[GSk pharmaceuticals] |
Financial Management |
COURSE: INTRODUCTION TO BUSINESS FINANCE
TEACHER: SIR MIRZA SIKANDER TAJ
PREPARED BY: SYED ADNAN SHAH SALEEM
REG # 53128
Liquidity ratios are calculated to measure the short term financial soundness of the business. The ratios assess the capacity of the company to repay its short term liability. Banks and other money lenders for short period are interested in the current assets of the company i.e. short term financial position of the business. The important liquidity ratios are: current ratio, acid-test ratio and cash ratio.
1. CURRENT RATIO:
This is a popular ratio which expresses the relationship between current assets and current liabilities. The current ratio is a popular ratio, and it can be expressed as
Current Ratio = Current Assets / Current Liabilities
Current assets include cash, current investments, debtors, inventories, loans and advances and prepaid expenses. Current Liabilities represent liabilities that are expected to mature in the next twelve months. These comprise (1) loans, secured or unsecured, that are due in the next twelve months and (2) current liabilities and provisions.
| 2011 (In Cr.) | 2010(In Cr.) | 2009(In Cr.) | 2008(In Cr.) | 2007(In Cr.) |
Total Current Assets (A) | 932.92 | 771.90 | 808.84 | 864.78 | 755.42 |
Total Current Liabilities (B) | 810.46 | 682.68 | 589.91 | 610.84 | 569.97 |
Current Ratio (A/B) | 1.15 | 1.13 | 1.37 | 1.42 | 1.33 |
The current ratio of the company is currently at 1.15 which is a good sign; it implies that for every one rupee of liabilities the firm has Rs. 1.15 assets. But the share of inventories is 18.8 % of the total current assets in 2010, lower than the previous year which was at 16.2 % and the cause for current ratio to drop from 1.37 (2009) to 1.13 (2010) is the increase in current liabilities.