Ratio Analysis For GSK And Novartis Harvard Case Solution & Analysis


When we look at the results of the common size income statement for GSK, then we can see that the gross profit margin as a percentage of sales is decreasing for each year since 2011 to 2014. This trend shows that the cost of goods sold and other costs of inputs have been increased. The company might be looking for high quality inputs which are not available elsewhere. The trend shows that the cost of sales has been increasing on yearly basis.



While the current ratio for Novartis for each of the above years was 1.16 times and 1.58 times. The ratios clearly indicate that the current ratio for GSK has been declining. This means the company is facing issues in managing its working capital cycle and policies. However, on the other hand the current ratio for Novartis has been improved after 2012. GSK needs to manage its working capital policies. The company needs to change the level of debt in the company’s structure. This is an alarming situation for the management of GSK. The decrease in the current ratio of GSK is moderately significant while the increase in current ratio on for Novartis is quite significant.


The other hand the debt ratio for Novartis is 0.443 in 2012 and in 2013 it is 0.410. Again the number shows that GSK has borrowed some money to finance its assets. However, on the other hand, Novartis has a good pace on this point that it has reduced its debt ratio from 2012 to 2013.


The asset turnover ratios for both the companies has declined from 2012 to 2013. This shows that the companies are not efficiently utilizing their assets. The efficiency and utilization ratios are too low here. However, itwas noted that although the ratios for both the companies has dropped but the decrease is quite insignificant. However, to further analyze the ratio it needs to be interpreted with regard to the other ratios, such as Dupont analysis that are not required today.


On the other hand the income statement trend for gross profit margin for Novartis shows that the gross profit margin for this company is approximately managed by the company. The gross profit comprises around 69% of the tasks. This shows that the company is procuring less expensive inputs. Apart from that, the sales for the company might have increase in the growth terms over the years. Again the performance regarding the common size statements is better for Novartis as compared to GSK.


The cash flow statement for GSK for the year ended 2013 shows that the cash paid to the suppliers and the cash receipt from the customer are the two significant items in the cashflows statement. The first one is the use of cash while the second one is source. The company is generating good cash flows only under the operating activities. The cash position in investing and financing is negative which shows that the cash position is poor at GSK.


The two most significant items in the 2013 cash flow statement for Novartis is depreciation, amortization and impairments and the taxes paid. Only the operating activities show a positive cash flow for the company. The net change in the cash and cash equivalents is $ 1135. The company needs to pay its attention to all the financing and investing activities also.


Analyzing thethree financial ratios, the common size income statements and the cash flow statements, it can clearly be said that Novartis is performing much better than GSK. GSK is a huge and old company, while Novartis is a new one and it is in its initial growth stages. On the basis of the ratios calculated above including asset turnover, debt ratio and the current ratio, the performance of Novartis is much better. The common size income statements and also the cash flow statements shows the final position for each company. Again, the performance for Novartis is outstanding in many areas as compared to GSK...............................

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