Pharmaceutical Business Financial Analysis
Info: 15176 words (61 pages) Dissertation
Published: 8th Oct 2021
Tagged: Business Analysis
1. INTRODUCTION
1.1 REASONS FOR CHOOSING THE TOPIC
Business and financial analysis has been my area of interest during ACCA. I have already studied the models that I require to answer the research questions of this research project, namely Ratio analysis, PESTEL analysis, and SWOT analysis, RATIO analysis. This project came as a golden opportunity to demonstrate the practical application of my knowledge.
It has always aroused my curiosity why some businesses outperform and why some underperform financially. This topic will utilize the financial and business analytical skills I have acquired so far and prove my skills once I get the degree in applied accountancy to prospective employers. The research will give me an opportunity to brush up skills that require searching internet for information. It will also brush up my spreadsheet capabilities.
1.2 REASONS FOR CHOOSING THE ORGANIZATION
I want to work in my uncle’s pharmacy in future. Knowing the pharmaceutical sector will give me an edge in identifying the strengths and weaknesses of suppliers of medicines. Most of the medicines I have seen in my uncle’s pharmacy are by Wyeth, therefore it aroused my curiosity.
1.3 PROJECT OBJECTIVES AND RESEARCH QUESTIONS:
The aim of this report is to evaluate the effectiveness and efficiency with which Wyeth Pakistan Limited has been performing over the past 3 years in business and financial matters. The report will include the business analysis in terms of:
Assessment of the macro environment of Wyeth using PESTEL analysis.
Typical PESTEL factors to consider include: Factor Political
Could include: e.g. EU enlargement, the euro, international trade, taxation policy
Economic
Social
Technological
Environmental
Legal
e.g. interest rates, exchange rates, national income, inflation, unemployment, Stock Market
e.g. ageing population, attitudes to work, income distribution
e.g. innovation, new product development, rate of technological obsolescence
e.g. global warming, environmental issues
e.g. competition law, health and safety, employment law (PESTEL analysis of the macro-environment)
Assessment of the strategic capabilities of Wyeth using SWOT analysis
SWOT analysis is a basic, straightforward model that provides direction and serves as a basis for the development of marketing plans. It accomplishes this by assessing an organizations strengths (what an organization can do) and weaknesses (what an organization cannot do) in addition to opportunities (potential favorable conditions for an organization) and threats (potential unfavorable conditions for an organization). (DANCA, Anthony C.)
Assessment of Wyeth’s future prospects
The financial analysis will include:
Sales analysis: Sales analysis helps the company know it is meeting its sales objectives in a given timeframe. (MANDA, Gilbert)
The analysis will include sales revenue and growth.
Profitability Analysis: Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the company’s bottom line. Profitability ratios show a company’s overall efficiency and performance. (PEAVLER, Rosemary)
The analysis will include Gross Profit (G.P) ratio, Net Profit (N.P) ratio and Return on Equity (ROE). Liquidity ratios: A class of financial metrics that is used to determine a company’s ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. (Liquidity Ratios)
The analysis will include Current ratio, quick ratio, debtor turnover ratio and inventory turnover ratio.
Investor ratios: The holders of the ordinary shares of a company (its equity) are interested in the return on their investment and the value of their shares. (Advanced Level Accounting, 1996) The analysis will include Earnings per share, Price Earning ratio, Dividend per share and dividend yield ratio.
The research questions for my research report are: The growth in sales between 1 January 2008 and 31 December 2009?
- What is the effect of Governments price freeze policy on profits of Wyeth?
- What is the effect of the economic crisis of Pakistan on the financial performance of Wyeth?
- What was the effect of changing the policy of selling on credit to selling on advance on the working capital of Wyeth and hence its liquidity position?
- What are the strengths and weaknesses of Wyeth?
- How well did Wyeth perform compared to its major competitor GSK?
- How well is Wyeth utilizing its strategic capabilities?
1.4 OVERALL RESEARCH APPROACH
I started my research by carrying out a financial analysis using ratios as the tool for my analysis. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. (Financial Ratios) Then I carried out an analysis of the environment of Wyeth using PESTEL analysis. This was followed by SWOT analysis to assess its strategic capabilities.
2. INFORMATION GATHERING
2.1 SOURCES OF INFORMATION
PRIMARY DATA
Information that has been collected at first hand. It involves measurement of some sort, whether by taking readings off instruments, sketching, counting, or conducting interviews (using questionnaires). (Primary Data) To gather primary data I tried reaching Mr. Khwaja Bakhtiar Ahmed, the company secretary, through his assistant. After persistent efforts I finally got an appointment. He was a charismatic person with a lot of knowledge. He enlightened me about Wyeth policies and answered many of my questions. He also handed me the annual reports of Wyeth and management accounts. For the purpose of collecting data I also emailed a questionnaire to a sample of employees of the organisation. The response was good.
SECONDARY DATA
Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research. (Secondary data, 2011) My secondary sources of information included the following:
- The annual reports of Wyeth and GSK.
- News papers such as Business recorder, pharmaceutical literatures.
- ACCA text books especially for Paper F1, F3, F7, P3 and P5.
- News websites such as “The news” and “Jang”.
- Books that I found in the library of Superior college.
- Internet
2.2 METHODS USED TO COLLECT INFORMATION
2.2.1 Visiting stock Exchange:
I visited the stock exchange to get the hard copy of the annual reports of Wyeth and GSK.
2.2.2 Interview:
My interviews with Mr. Khwaja Bakhtiar Ahmed, the company secretary and Mr. Imran Baig, my mentor proved to be a good source of information.
2.2.3 E-Mail survey:
I conducted an e-mail survey. The questionnaire was sent to different employees of the organization as a word attachment and asked them to fill up the word file and send it back as attachment
2.2.4 On-line Access:
Various websites were visited for the purpose of research. The most important ones were the website of Wyeth, Karachi stock exchange, and Pakistan Pharmaceutical Manufacturers Association. I also visited ACCA website for archives of student accountant articles.
2.3 QUESTIONNAIRE AND SAMPLING TECHNIQUES USED
The questionnaire was emailed after having it reviewed by the different department heads. The population I used was the one that was using an email. I had taken the email addresses from the records maintained by the company. The method I used for sampling was haphazard sampling. I chose the email addresses at random
2.4 LIMITATIONS OF INFORMATION GATHERED
Some information was collected from Wyeth website which may be favourably biased towards the organization. It is possible that in spite of all the efforts some information sources may not have been identified which could have lead to a different conclusion. The sample chosen for the email questionnaire might not be representative of the population The views of the company secretary about future prospects might be biased or over optimistic The information present on internet can be subject to the authors own judgements instead of presenting facts.
2.5 ETHICAL ISSUES DURING INFORMATION GATHERING
As per the guidelines of Oxford Brookes university I was supposed to disclose the full details of the information sources that I used, but it was in the best interest of the employees of the organization to have their names kept anonymous so they do not face problems with their employer. I put special care into making sure the questionnaire kept the identity anonymous. During the interview with Mr. Khwaja Bakhtiar Ahmed, the company secretary I asked some questions about the new product launch of ENBREL and ORISTIQ. He was hesitant in answering at first but then I assured him that this information was publicly available, after knowing this he co-operated.
2.6 ACCOUNTING / BUSINESS TECHNIQUES USED AND THEIR LIMITATION
The accounting/business techniques used for the project were as follows:
2.6.1 Ratio Analysis
The term “accounting ratios” is used to describe significant relationship between figures shown on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part of accounting organization. Accounting ratios thus shows the relationship between accounting data. The ratios analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from serious limitations.
- Limitations of financial statements: Ratios are based only on the information which has been recorded in the financial statements. Financial statements themselves are subject to several limitations. Thus ratios derived, there from, are also subject to those limitations. For example, non-financial changes though important for the business are not relevant by the financial statements. Financial statements are affected to a very great extent by accounting conventions and concepts. Personal judgment plays a great part in determining the figures for financial statements.
- Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with past results of the business. However, such a comparison only provide glimpse of the past performance and forecasts for future may not prove correct since several other factors like market conditions, management policies, etc. may affect the future operations.
- Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final regarding good or bad financial position of the business. Other things have also to be seen.
- Problems of price level changes: A change in price level can affect the validity of ratios calculated for different time periods. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitability of the company. The financial statements, therefore, be adjusted keeping in view the price level changes if a meaningful comparison is to be made through accounting ratios.
- Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are no well accepted standards or rule of thumb for all ratios which can be accepted as norm. It renders interpretation of the ratios difficult.
- Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To make a better interpretation, a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any good decision.
- Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to interpreted and different people may interpret the same ratio in different way.
- Incomparable: Not only industries differ in their nature, but also the firms of the similar business widely differ in their size and accounting procedures etc. It makes comparison of ratios difficult and misleading. (Accounting Ratios | Financial Ratios)
2.6.2 SWOT analysis
SWOT analysis is a tool that is used to evaluate the Strengths and Weaknesses of an organization and the external Opportunities and Threats faced by the organization in the external environment. Limitations of SWOT: The way SWOT analysis is often conducted does not allow for proper communication, discussion, and verification of all external and internal factors proposed by all involved. On such occasions, SWOT results prove less reliable an input to the strategy generation process than they are capable of being. Still worse, as documented later, the results of SWOT analysis are sometimes never meant to be used as an input to the strategy generation process. If that is known, or anticipated, by those involved in SWOT analysis, the quality of their inputs will most likely suffer and be lower than otherwise possible, and desirable.(KOCH, Adam J.)
2.6.3 Porter’s five forces analysis
Porter looked at the structure of industries. In particular, he was interested in assessing industryattractiveness, by which he meant how easy it would be to make above average profits (forshareholders and to fund adequate investment). He concluded that industry attractivenessdepends on five factors or forces:
- Competitive rivalry between existing firms
- Threats of new entrants
- Threats of substitute products
- Power of suppliers
- Power of customers
(Paper P3 Business Analysis Essential Text)
Limitations of five forces model:
Porter’s 5 forces of competition have a few weaknesses and limitations. The modelunderestimates the influence of a company’s core competencies on its ability to achieve profit.It, instead, assumes the industry structure is the sole determining factor. Porter’s 5 forcesdefinition is difficult to apply to large multinational corporations with synergies andinterdependencies achieved from a portfolio of businesses. Additionally, the five forcesframework assumes there is no collusion in the industry. Finally, Porter’s analysis doesn’tconsider the possibility of creating a new market. (Porter’s Five Forces of Competition , 2010)
3. ANALYSIS
3.1 PHARMACEUTICAL SECTOR
2009 was a challenging year and witnessed modest growth in Pakistan’s economy due to uncertain law and order situation and global economic recession. The economy continues to witness double digit inflation; low economic growth and continued depreciation of the rupee against major currencies. During this period the pharmaceutical industry has been adversely impacted by both inflationary trends as well as Rupee depreciation. The government has not allowed any across the board price adjustment to pharmaceutical industry for nine years. Growth in pharmaceutical markets is mainly volume growth. (BENGALI, Iqbal, 2010) Pharmaceutical Industry is one of the major manufacturing industries in Pakistan providing employment to thousands of people directly and indirectly. The industry, however, is facing many challenges, which are hindering its growth. The major challenge faced by the industry is the complete freezing of price of pharmaceutical products since 2001. Pakistan is the only country in the entire Asian region that has not given its pharma and biotech industry tax-breaks and R & D incentives.
Government’s requirement that drug production lines should be separate is raising cost and reducing the ability of local manufacturers to compete not only in the global market but even at home. (JAVED, Aamar, 2009) Pakistan has a very vibrant and forward looking Pharma Industry. At the time of independence in 1947, there was hardly any pharma industry in the country. Today Pakistan has about 400 pharmaceutical manufacturing units including those operated by 25 multinationals present in the country. The Pakistan Pharmaceutical Industry meets around 70% of the country’s demand of Finished Medicine. The domestic pharma market, in term of share market is almost evenly divided between the Nationals and the Multinationals.(Pakistan Pharmaceutical Industry) Pakistan’s $1.61 billion pharmaceutical market is now expected to post a five-year compound annual growth of 8.95 per cent, down from 9.39 per cent forecast in the previous quarter, according to Business Monitor International, a global business intelligence firm. (Pharmaceutical sector growth slowing down: BMI , 2010)
3.2 THE COMPANY
As a result of the global acquisition of Wyeth by Pfizer Inc.,on October 15, 2009, Wyeth has become a wholly owned subsidiary of Pfizer Inc.. Pfizer Inc has become the ultimate parent company of Wyeth Pakistan Limited. Wyeth however continues to be the principal shareholder of Wyeth Pakistan Limited. (AHMED, Khawaja Bakhtiar, 2010) Wyeth, with its pharmaceutical and over-the-counter divisions, is a leader in the research and development, manufacturing and marketing of a broad range of health care products. (WYETH PAKISTAN LIMITED )
3.3 RATIO ANALYSIS
The following ratio analysis is based on the Annual Reports of WYETH and GSK Pakistan. Comparison has been made with the results of GSK for FY2009 since these were the latest financials available. Ratios
3.3.1 SALES Analysis
GSK 2009
Sales Revenue (Rs. in million)
Growth in revenue (%)
Cost of sales. (Rs. In million)
Growth in cost of sales.(%)
14,719
9.8%
11,173
17%
FY2010
2,310
0.17%
1,830
1.4%
FY2009
2,306
– 3.3%
1,805
8%
FY2008
2,384
13%
1,699
22%
3.3.2 Profitability
Ratios
GSK
2009
24.1%
FY2010
FY2009
FY2008
G.P Margin
N.P Margin
ROE
20.82%
1.13%
2.58%
21.73%
-3.77%
– 8.86%
29.87%
6.04%
12.73%
6.3%
11.5%
12
3.3.3 Liquidity
Ratios
Current Ratio
Quick Ratio
Debtors’ Days
Inventory Days
3.3.4 Investor’s Analysis
GSK
2009
3.2
1.6
25
67
FY2010
2.56
1.01
26
163
FY2009
2.71
0.98
38
144
FY2008
3.43
1.38
29
143
Ratios
GSK
2009
5.5
20
5
4.6%
FY2010
FY2009
FY2008
Earnings per Share (EPS)
(Rs.)
PE Ratio (Times)
Dividend Per Share (Rs.)
Dividend Yield
18.61
49.08
10
0.92%
-61.09
_
_
_
101.50
25.62
250
10.55%
Comments on Ratios
The operating results of currents year are for a 12 months period ended November 30, 2010 compared to the previous year which for an 11 months period ended November 30, 2009.
Sales analysis
The growth in company’s net sales for the period ending 30 November 2009 reduced by 3.3% as sales were Rs. 2,384 million in year ending 31, December 2008 and in 2009 period it was Rs. 2,306 million which is due to challenging conditions of external environment in 2009. On the other hand cost of sales for year ending 2008 was Rs. 1,699 million which increased to Rs. 1,805 million in period ending 2009. It was an increase of 8% which shows that company does not have efficient policies to control its operational expenditure.
In year ending 2010 overall sales increased by 0.17% but as we mentioned above that this period comprises 12 months comparing last 11 month period and if we compare like with likes then sales reduced by 8%. This is due to due to uncertain law and order conditions of Pakistan. But this year company showed efficiency in controlling its costs as this year cost of sales increased by just 1.4%. This could be due to training and development of employees as training on six- sigma was conducted after the losses incurred by company in 2009. This training was to increase efficiencies of employees to control the cost.
GSK: Sales of GSK are in year ending 2009 were Rs. 14,719 million as compared to Rs. 2,310 million of Wyeth which is due to major market share of GSK. Out of to 20 products 9 are manufactured and sold by GSK.
Profitability analysis
GP Margin: In year ending 2010 gross profit margin reduced as it was 21.73% in year ending 2009 and it was 20.82% in year ending 2010. This decrease was mainly due to adverse economical conditions of country as inflation increased and cost of resources and operations increased accordingly.
In period ending 30 November 2009 the GP margin decreased from 29.87% in 2008 and 21.73% in 2009. In year 2009 the profit also reduced as compared to sales which is also mainly to due to increase in cost of operations. On the other hand the government has not allowed an increase in price since year 2001. The GP margin of GSK is 24.1% for year ending 2009 as Wyeth has GP margin 20.82% in year ending 2010 which shows that GSK has more ability to control its cost and transfer it to its customers.
NP Margin: In period ending 30 November 2009 the net profit margin reduced from 6.04% in 2008 to – 3.77%. The major cause of this reduction in profitability was the economical condition of Pakistan. Costs of operations increased due to inflation and at the same time the devaluation of currency. However, company maintained control on expenses as their advertising and promotion costs were in line with last year. Administrative cost increased due to cost of Voluntary Separation Scheme. Other operating expenses were lower than last year. NP margin for year ending 2010 increased to 1.13% from -3.77% in the last year. This improvement was due to increase in efficiency of employees and efficiently controlling the operational cost of company as the operating expenses reduced by 10% in year ending. There has been a long stand price freeze by the government since 2001 due to which company was not able to earn abnormal profits.
The net profit of GSK was 6.3% in year ending 2009 which also reduced as it was 14.6% in 2008. This shows that the industry was adversely affected by increase in operational costs and long standing price freeze by government due to which companies cannot pass their cost to customers.
ROE: Return on equity increased for year ending 2010 to 2.58% as it was -8.86% in year ending 2009 this increased was due to increased operational efficiency of organization. While in period ending 2009 the ROE reduced significantly from 12.73% to -8.86%. . ROE of GSK is 11.5% in year ending 2009 as compared to % of Wyeth. Liquidity analysis.
Current ratio: Current ratio indicates how many times the company’s current assents can meet company’s current liabilities. A ratio of 2 is considered sufficient for current ratio generally. In the period ending 30, November 2009 the current ratio reduced from 3.43 times to 2.71 times. This shows that the company can meet its current liabilities 2.71 times by its current assets.
This decreasing trend could cause an alarming situation for Wyeth because a company can survive without profits for some years but without cash it can’t survive more than one year. So worsening condition of Wyeth needs effective and efficient policies for fund management. Current ratio for year ending 2010 reduced to 2.56 times as it was 2.71 times in year ending 2009. This shows that now company can meet its current liabilities by 2.56 times. A ratio of 2 is a standard for current ratio. Company improved its working capital condition this year as they changed their sales and distribution model from credit to advance cash. Current ratio of GSK for year ending 2009 is 3.2 times which shows strong policies of funding are in place.
Quick ratio: Quick ratio indicates how many times company’s current assets can fulfill its current liabilities but it ignores inventory from current assets because in some organizations inventory takes times before it can convert to sales. Quick ratio of Wyeth is reducing quicker than current ratio for years ending 2009Quick ratio for period ending 2009 also reduced from 1.38 to 0.98 times which was an alarming situation for Wyeth. It indicates that major part of current assets consist inventory and company’s inventory increased from last year due to increase in cost of materials. . Ratio of 1 is considered a standard for quick ratio so company’s liquidity is worsening. Quick ratio improved in year ending 2010 which is 1.01 times as it was 0.98 times in 2009. This is due to improved working capital management policies as company received cash in advance instead of credit. Due to which company earned interest on deposits too. Quick ratio of GSK for year ending 2009 was 1.6 which shows a healthy liquidity position.
Debtors Days: Debtors turnover period indicates how many days debtors take to pay their debt to company. Debtors are part of working capital and for the successful operations of company good debtor management strategies need to be in place. In period ending 2009 the debtor’s turnover period increased by 9 days as these were 29 days in 2008 and 38 days in 2009. During this year due to inflation and devaluation of currency the company had to extend debtors turnover period as company made loss after tax this year. In year ending 2010 company’s debtor days reduced to 26 days as compared to 38 days in 2009 this also shows the improvement in fund management policies as this year company received advance cash from sales and distribution instead of credit. Debtor’s days of GSK for year ending 2009 were 25. This shows that debtor collection policies of GSK are more efficient than Wyeth.
Inventory days: Inventory days indicate the period during which inventory of a company remains in its warehouse or in work in progress before it is finally converted into sales. Inventory holding initiates many expenses like warehouse, damages etc. which can be mitigated by good inventory management policies in place. Inventory turnover period in 2009 increased by 1 day as it was 143 days in 2008 and became 144 days in 2009. This increase was nominal but instead improvement this increase was due to decreasing in underlying sales.
Inventory days increased this year too from 144 days in 2009 to 163 days in 2010. This increase was mainly due to increase in inflation and instability of prices in material. Sales for this year was lower than last year. Inventory turnover period of GSK in year ending 2009 was 67 days which is less than half of Wyeth. This shows that GSK has more efficient working capital policies and sales of GSK were more than Wyeth which is due to the higher market share of GSK. Investor’s analysis.
EPS: Earning per share can be used to indicate the profitability of a company. It shows the earning allocated to each common share. In period ending 2009 the EPS reduced badly by Rs.162 per share. In this year company’s EPS was -61.09. This major decrease was due to consistent inflation and devaluation of currency of Pakistan. These factors became the reason for increase in operational cost. And due to the price freeze by government the company was not able to transfer the cost to customers. In year ending 2010 EPS increased from Rs. -61.09 last year to Rs. 18.61 this year. This year company made a net profit margin of 1.13% which was loss of (3.77) % in last year. This improvement is due to controlling the operational expenses of the company this year. The EPS of GSK for year ending 2009 was Rs. 5.5 which is consistent with previous years.
PE ratio: The PE ratio of Wyeth moved adversely during last years. In year ending 2008 the PE ratio was 25.62 times while In year ending 2009 the company’s made a loss. Which was due to increase in cost which company was not able to pass to customers. In year ending 2010 PE ratio improved to 49.08 times which was nil in last year this improvement also due to improvement in operational efficiency of company during 2010 as the company improved its cash position as well as its productivity. The PE ratio of GSK was 20 which show good performance of GSK compared to Wyeth. Dividend per share Dividend per share ratio indicates the dividend earned by an investor by holding one share of company.
There was no dividend per share in year ending 2009 as company was in loss. This loss was mainly due to adverse environmental, economical, and political situations. In year ending 2010 company announced the dividend of Rs. 10 per share which shows the attractive position of company in this year. Company improve its profitability as well as its operational efficiency during year ending 2010 as retrospective measures taken in 2010 like training on six-sigma plan. The dividend per share of GSK for year ending 2009 was Rs.5 which also indicates that company performed well in such crises. Dividend yield This ratio represents the cash flows earned by the investor by investing each rupee in form of shares.
In year ending 2010 earning yield improved to 0.92% as it was nil in year ending 2009. This improvement was due to improvement in operational efficiencies during year ending 2010 while economical and political instability remained consistent in year ending 2010. In the period ending 2009 company made a loss. While GSK’s dividend yield in this year was 4.6% which shows the good governance of GSK as compare to Wyeth.
3.4 PESTEL ANALYSIS
PESTEL analysis is a tool which is used to understand external environment. It deals with external environmental factors like political, economical, social and demographical, technological, environmental and legal. By considering these factors we can judge the influence of all above factors on the operations and profitability of any company. Political factors. In political factors we consider the government policies like tax policies, their stability, political environment and institutions. In 2008 there was instability in political conditions of Pakistan which adversely affected the pharmaceutical industry. Policies of government about electricity price raises also contributed adversely to pharmaceutical industry. Government’s price freeze policy since 2001 also reduced the profitability because firms were not able to transfer their increasing operational cost to the customers. In the last quarter of 2008 government gave some relaxation on price increase but that was for some products that did not contribute too much to improve the conditions of profitability.
Economical factors:
Inflation (too much money chasing too few goods) remained the major problem of Pakistan in the last few years. Due to consistent rise in cost of electricity, labor, and fuel the profitability of pharmaceutical industry reduced as firms could not increase prices according to cost due to limitation by government policies. But demand in the public remained unchanged. Devaluation of Pakistan currency also adversely affected the industry as value of rupees consistently reduced against major currencies of world especially against US$. Due to which many firms had to face exchange losses in last few years. However, economy of Pakistan is now moving toward recovery.
Social and demographical factors:
Increasing trend of education and increasing wealth in general public which is due to privatization has changed the values of general public. In context of pharmaceutical industry as it deals with health care products there were too many cases against the doctors in last 2 to 3 years which shows that social factor of tolerance is being reduced in public and everyone wants compensation in result of any damage. So for pharmaceutical industry there is no room for negligence because any such claim can ruin the business and goodwill. In Pakistan birth rate is more than death rate and young people are a major part of the population of Pakistan therefore labour is cheaper in Pakistan since there is a greater population that is eager to work.
Technological factors:
Technology plays the major role in the emergence of global economy. By using technology a company can reduce its cost and increase its production. It also helps in new product development and innovation. For pharmaceutical industry it is very important to be innovative to sustain competitive advantage and this can only be occurring due to technological development. By adopting technology firms can change the way to communicate, produce, and deliver the products. Strong research and development is compulsory requirement for any firm competing in pharmaceutical industry for which companies need latest technology in place. By applying technology any firm can change its structure as delayring and empowerment structure and can utilize its resources whether human or machinery in best way.
Environmental factors:
Awareness about environment in public has increased. Pharmaceutical firms should put attention on environmental legislation of government. Hazardous dust should be the main priority of all firms. At manufacturing sites the level of noise should be monitored regularly. By complying the rules and regulations regarding environment a pharmaceutical firm can develop its position in society and it is also a major tool for sustaining competitive advantage in current world.
Legal factors
Legal factors consider the international laws, national regulations and regional legal requirements for any firm. There are many laws in Pakistan which control the pharmaceutical industry, like pharmaceutical industry cannot increase prices without the permission of government. There are also certain international standards regarding true, fair and clear disclosures of information which companies have to follow. The import and export rules of government also influences the pharmaceutical industry as main machinery and components used for production is imported by firms. In 2008 the GSK (a leading firm in pharmaceutical industry in Pak) received the award for best preparation of financial statements from local regulator body of accountancy named ICAP. Such factors can also help the firm to improve its position in eyes of its stakeholders.
3.5 SWOT ANALYSIS
SWOT analysis deals with internal and as well as external factors of an organization.
Internal factors:
- Strengths (S)
- Weaknesses (W)
External factors:
- Opportunities (O)
- Threats (T)
Strengths of Wyeth
- Company uses the information technology for enterprise resource planning.
- It is a well reputed company and has a well known brand name.
- Employee’s training and development is priority of company, on the job and field coaching is provided to employees to help them do their jobs efficiently.
- They sell their products within the country as well as out side the country. So Wyeth Company is linked with global economy.
- The company continues to invest with commitment in plant, machinery, and infrastructure to achieve current GMP Standards.
- Company complies with laws of codes of corporate governance and company issues a statement of compliance with codes.
- Wyeth has high quality products and their employees are committed and hardworking.
- Their priority is to complywith laws of environment, health and safety.(EHS)
- Wyeth donated Rs. 2.1 million in form of cash and medicine for the welfare of internally displaced peoples in year 2009 which has enhance the image of company according to public point of view.
- Company is going to launch two new research based products named ENBREL and ORISTIQ.
Weaknesses
- Company earned the profit in year 200 8 but it remained unable to maintain its position by focusing on cost reduction and employees training and development due to which company made a loss in year 2009.
- Trainer is hired outside company because they don’t have their own training department.
- Company’s processes and procedures are not efficient as it made loss in year ending 2009 while sales were not reduced comparatively.
Opportunities
- Company can improve its distribution channels and its products should be available at every retail store in any town.
- Company should make its own stores in big hospitals of developed cities like Lahore, Islamabad and Karachi
- By high advertisement it can generate the demand of its newly launched products ENBREL and PRISTIQ and then it should make its distribution channels strong.
- On the base of research and development company can obtain the major market share as it is developing its two new products
Threats
- Unfavorable political conditions in Pakistan which give rise to increase in inflation and increase in price of resources and procedures.
- Depreciation of Pakistan’s currency against major currencies especially against US$.
- Companies unfavorable export policies which may influence the export sales and money transfer.
- Government policy about on the board prices can influence all over the pharmaceutical industry.
- Due to further devaluation of currency there is a threat of exchange loss to company as company is dealing in foreign currency.
4. CONCLUSIONS AND RECOMENDATIONS
4.1 CONCLUSIONS
4.1.1 Pharmaceutical industry
Pharmaceutical industry is a researched based industry. Its costs are mainly development costs which should be capitalized. Cost can be recovered by charging these costs to end consumers. But government policy regarding prices contributed a lot in reduction of profitability of pharmaceutical industry. Inflation and reduction in value of Pak rupee against major currencies ultimately brought profits down.
4.1.2 Ratio Analysis
Company’s sales increased in year ending 2008 by 13% which was due to sale anti TB products, nutritionals and vaccines. In 2009 sales reduced. Overall sales were affected due to the external factors of country. Profitability of Wyeth reduced in 2009 as well as in year ending 2008. This decrease in profitability was due to some internal factors which was less training of employees as company retrospectively applied the training on sig sigma after making loss in 2009 to improve the efficiency of processes and procedures and trainer was hired outside the organization. Other external factors of reducing profitability were the adverse conditions of economy as an increase in inflation and depreciation of Pak currency. Price freeze by government was also a factor which contributed to the reduction of profitability. Liquidity ratios of company showed a declining trend.
There was no major reduction in current ratio but Quick ratio reduced dramatically from 2.53 times in 2007 to 0.98 times in 2009. Debtor’s days increased in 2008 as well as in 2009 due to the inflation in the country. And inventory turnover period reduced in 2008 by 13 days but it also decreased in 2009 however by just one day. However, the overall performance in working capital management of Wyeth company remained inefficient with comparison to industry. According to investors point of view the company was attractive in year ending 2008 but company remained unable to sustain its position and made a negative earning per share of - 61.09 in 2009 as it was 101.50 in 2008. Due to this company didn’t announce any dividend. So that according to 2009 company portrayed a risky image for investors who focus on short term investment and want to earn dividend.
4.1.3 Pestel analysis
According to political situation of country there was unstable environment in Pakistan in year 2008 and as well as in 2009. Company should consider the future political changes when preparing future budgets. Economical factors were the main problem of Pakistan as consistent
increase in inflation and reduction in value in of currency increase the cost of all operations and resources. In this way cost of product increased but according to government policy of price freeze firms were unable to past the cost to customers in this way legal factors also adversely impacted on the pharmaceutical industry. By applying efficient technology company can make the more environment friendly products. Awareness about environment has increased in general public there are many laws about environment protection so company is undertaking such activities like upgrading waste water treatment plant (WWTP) and celebrating “Earth Day” on April 22, 2009.
4.1.4 SWOT Analysis
Wyeth Company has quality products and is committed to employee development but the company does not have efficient and effective processes and procedures which result in reduction and eventually loss in profit margins. Company is outsourcing the trainer for training the employees on six sigma which could be the threat for organization of leakage of its confidential information, as it is a research based industry so firms compete on the base of innovation and new product development. By improving the research and development and increasing the knowledge base of organizational human resources company can achieve the sustainable competitive advantage.
4.1.5 Future Outlook
In Pakistan the pharmaceutical industry can grow but its growth depends upon the external factors of the country which I considered in the PESTEL analysis. Mainly the instability of political environment, increasing inflation and reduction in value of currency remained the constraints against the growth of pharmaceutical industry because prices of drugs were controlled by government and government has not allowed price changes since last nine years. So liquidity and profitability crunches arise in the industry. The Industry should request the government to adjust prices according to increase in costs of operations and resources (e.g. electricity, gas, oil, fuel) to maintain the profitability of industry and for improving the liquidity position. Our under consideration company Wyeth is focusing on improving its operational efficiencies in prior years and in current year which seems to have significant impact on improving efficiencies on an ongoing basis. It is about to launch two new products ENBREL and PRISTIQ.
BALANCE SHEET
As at:
30-Nov
2010
30-Nov
2009
31-Dec
2,008
NON-CURRENT ASSETS
(Rupees "000")
Property, plant and equipment
long term loans to employees
Long- term deposits
Deferred taxation
Total non- current assets
144,887
8,203
2,180
6,431
161,701
193,721
237,931
179,681
12,161
1,879
226,632
9,342
1,957
Current Assets
Spares
Stock in trade
Trade debts
Loans and advances
Deposits and payments
Interest accrued
Other receivables
Taxation net
Short term investments.
Cash and bank balance
Total current assets
Total assets
14,411
828,388
50,431
58,407
13,472
3,746
31,277
149,149
-
241,928
1,391,209
1,552,910
2,921
800,768
277,447
15,744
13,462
6
14,890
97,687
-
35,648
1,258,573
1,452,294
2,912
756,391
242,804
15,907
15,655
2,269
17,860
79,912
87,000
50,911
1,271,621
1,509,552
Share capital and reserves
Share capital
Reserves
Unappropriated profit
Accumulated losses
(60,379)
1,008,823
(86,838)
982,263
142,161
927,041
142,161
926,940
142,161
940,590
48,101
-
1,130,852
Non current liabilities
deferred taxation
-
5,238
8,065
Current liabilities
Trade and other payables
544,087
1,552,910
464,793
1,452,294
370,635
1,509,552
Total equity and liabilities
PROFIT AND LOSS ACCOUNT
For the year ended:
30-Nov
2010
Net sales
Cost of sales
Gross profit
2,310,191
1,829,653
480,538
30-Nov
2009
2,306,323
1,805,262
501,061
31-Dec
2008
2,383,639
1,678,989
704,650
Selling marketin and distribution expenses
Administrative expenses
340,214
107,938
448,152
332,283
167,871
500,154
907
15,174
16,081
328,361
122,210
450,571
254,079
66,789
320,868
Operating profit
Other operating income
32,386
19,979
52,365
Other operating expenses
Finance cost
6,122
3,014
9,136
43,922
3,752
47,674
-31,593
90,673
1,106
91,779
229,089
Profit \ (loss) before taxation
43,229
Taxation
Current- for the year
Current-for prior years'
Deferred
28,439
0
-11,669
16,770
58,083
0
-2,827
55,256
80,702
5,243
-1,148
84,797
Profit after taxation
26,459
-86,849
144,292
(RUPEES)
Basic earning \ (loss) per share
18.61
-61.09
101.51
BALANCE SHEET
As at:
30 Nov,
2010
30 Nov,
2009
31 Dec,
2008
NON-CURRENT ASSETS
(Rupees "000")
Property, plant and equipment
long term loans to employees
Long- term deposits
Deferred taxation
Total non- current assets
144887
8203
2180
6431
161701
=SUM(E12:E15)
=SUM(G12:G15)
179681
12161
1879
226632
9342
1957
Current Assets
Spares
Stock in trade
Trade debts
Loans and advances
Deposits and payments
Interest accrued
Other receivables
Taxation net
Short term investments.
Cash and bank balance
Total current assets
Total assets
14411
828388
50431
58407
13472
3746
31277
149149
0
241928
=SUM(C19:C28)
=C29+C16
2921
800768
277447
15744
13462
6
14890
97687
0
35648
=SUM(E19:E28)
=E29+E16
2912
756391
242804
15907
15655
2269
17860
79912
87000
50911
=SUM(G19:G28)
=G29+G16
Share capital and reserves
Share capital
Reserves
Unappropriated profit
Accumulated losses
-60379
=SUM(C34:C37)
-86838
=SUM(E34:E37)
142161
927041
142161
926940
142161
940590
48101
0
=SUM(G34:G37)
Non current liabilities
deferred taxation
0
5238
8065
Current liabilities
Trade and other payables
544087
=C43+C40+C38
464793
=E43+E40+E38
370635
=G43+G40+G38
Total equity and liabilities
PROFIT AND LOSS ACCOUNT
For the year ended:
30 Nov,
2010
Net sales
Cost of sales
Gross profit
2310191
1829653
=B5-B6
30 Nov,
2009
2306323
1805262
=D5-D6
31 Dec,
2008
2383639
1678989
=F5-F6
Selling marketin and distribution expenses
Administrative expenses
340214
107938
=SUM(B9:B10)
332283
167871
=SUM(D9:D10)
=D7-D11
15174
=D12+D13
328361
122210
=SUM(F9:F10)
=F7-F11
66789
=F12+F13
Operating profit
Other operating income
=B7-B11
19979
=B12+B13
Other operating expenses
Finance cost
6122
3014
=SUM(B16:B17)
43922
3752
=SUM(D16:D17)
=D14-D18
90673
1106
=SUM(F16:F17)
=F14-F18
Profit \ (loss) before taxation
=B14-B18
Taxation
Current- for the year
Current-for prior years'
Deferred
28439
0
-11669
=SUM(B22:B24)
58083
0
-2827
=SUM(D22:D24)
80702
5243
-1148
=SUM(F22:F24)
Profit after taxation
=B19-B25
=D19-D25
=F19-F25
(RUPEES)
Basic earning \ (loss) per share
18.61
-61.09
101.51
Questionnaire
Please fill out the following questionnaire and return it as soon as possible.
Confidentiality will be maintained.
Very
Fairly
Hardly
Not at all
- How satisfied are you with the technology being used at WYETH?
- How happy are you with the Environmental stance of WYETH?
- How successful has the legal department been in implementing labour laws?
- How hard do you think the Economic crisis has hit WYETH?
- Has often has GSK shown Neglect Preparing medicines?
- Very good
- Fairly good
- Fine
- No comments
- How was the overall experience of working with WYETH?
- Very Well
- Good
- Adequate
- Poor
- How well is Wyeth investing in infrastructure?
- How do you rate the policy of your organisation regarding customer relationship?
- 5 - 8 years
- 3 - 5 years
- 1 - 3 years
- Less then 1 year
- How long have you Been working with Wyeth?
- What opportunities do you think Wyeth should avail to make it perform better?
Questionnaire response
- Most of the employees are satisfied with the technology being used at WYETH
- Most of the employees are happy with the environmental stance of WYETH
- Most of the employees feel the legal department has been pretty successful in implementing labour laws.
- Most of the employees feel the economic crisis has hit WYETH hard.
- Most of the employees feel GSK has never shown neglect preparing medicines.
- Most of the employees said the experience was fairly good. Just one employee ticked on “No comments”
- Many employees feel that WYETH is investing in infrastructure very well
- Many employees believe relationships with customers are good
- Majority of employees have been with Wyeth for 1-3 years
Response to Q.no 10
The answers were mixed. Most of the employees left it blank. Some said distribution channel should be improved, while the others said there should be more advertisement.
Annexure - H
Shareholders Equity
1600
1400
1200
1000
800
600
400
200
0
2006
2007
2008
2009
2010
Shareholders Equity
250
200
150
100
50
0
-50
-100
2006
Earnings/(Loss)Per Share
Earnings/(Loss)Per Share
2007
2008
2009
2010
Selling/Marketing/Distribution and
Admin Expence Analysis
600
500
400
300
200
100
0
2006
2007
2008
2009
2010
Profit/(Loss)Before Tax
450
400
350
300
250
200
150
100
50
0
-50
-100
Profit/(Loss)Before Tax
2006
2007
2008
2009
2010
3000
2500
2000
1500
1000
500
0
2006
2007
2008
2009
2010
Net Sales
COS
GP
GSK BALANCE SHEET
AS AT DECEMBER 31
2009
SHARE CAPITAL AND RESERVES
Share capital
Reserves
1,706,718
6,397,381
8,104,099
NON-CURRENT LIABILITIES
Staff retirement benefit - staff gratuity
Deferred taxation
58,894
320,435
379,329
CURRENT LIABILITIES
Trade and other payables
Taxation - provision less payments
2,524,426
-
2,524,426
2,903,755
2008
Rupees '000
1,706,718
6,648,173
8,354,891
2007
1,706,719
6,410,922
8,117,641
20,802
312,270
333,072
23,192
262,458
285,650
1,867,275
70,387
1,937,662
2,270,734
1,698,374
62,844
1,761,218
2,046,868
CONTINGENCIES AND COMMITMENTS
11,007,854
NON-CURRENT ASSETS
Fixed assets - property, plant and equipment
Long term loans to employees
Long term deposits
Investments
2,600,814
61,299
7,027
168,687
2,837,827
CURRENT ASSETS
Store and spares
Stock-in-trade
Trade debts
Loans and advances
Trade deposits and prepayments
Accured return
Refunds due from government
Other receivables
Taxation - payments less provision
Investments
Cash and bank balances
129,239
4,061,840
996,915
91,315
87,754
21,503
15,436
129,156
252,744
644,889
1,739,236
8,170,027
11,007,854
10,625,625
10,164,509
2,415,255
61,666
6,788
171,855
2,655,564
2,236,720
53,755
6,808
346,824
2,644,107
116,084
3,494,054
1,016,968
119,242
93,377
80,596
15,468
153,864
-
155,511
2,724,897
7,970,061
10,625,625
107,199
2,277,175
116,847
81,039
84,348
109,851
14,898
378,071
-
98,229
4,252,745
7,520,402
10,164,509
GSK PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31
2009
Rupees '000
Net sales
Cost of sales
Gross profit
Selling,marketing and distribution expenses
Administrative expenses
Other operating expenses
Other operating income
Operating profit
Financial charges
Profit before taxation
Taxation
Profit after taxation
14,719,132
(11173470)
3,545,662
(1,673,809)
(588,814)
(138,585)
436,615
1,581,069
(14,348)
1,566,721
(632,791)
933,930
2008
2007
13,403,224
(9,547,619)
3,855,605
(1,328,925)
(520,216)
(208,355)
1,279,790
3,077,899
(76,859)
3,001,040
(1,045,853)
1,955,187
10,610,882
(6,658,753)
3,952,129
(1,210,818)
(486,721)
(223,912)
639,415
2,670,093
(11,550)
2,658,543
(988,018)
1,670,525
Other comprehensive income
Fair value gain/loss on availabe-for-sale investments
Deferred tax
15,356
(5,375)
9,981
Total comprehensive income
Earnings per share
943,911
Rs. 5.47
(17,259)
6,041
(11,218)
1,943,969
Rs. 11.46
Rs. 9.79
SKILLS AND LEARNING STATEMENT
OXFORD BROOKES UNIVERSITY
SEPTEMBER 2011
What did you learn from the meetings with your mentor, including the presentation that you gave to your mentor? A mentor is an individual, usually older, always more experienced, who helps and guides another individual’s development. This guidance is not done for personal gain. (REH, F. John)
The meetings held with my mentor helped me work on my weaker areas. It also helped me learn a lot of new things that aided me in carrying out my research. Before going for the meeting I had done my homework and had shortlisted the following topics
- The business and the financial performance of an organization over a three year period.
- The planning and implementation of an information system in an organization.
- The marketing strategy of an organization and its effectiveness. The topic at the top of my priority list was “The business and financial performance of an organization over a three year period” My mentor asked me as to why I prefer this topic and I told him about my interest and my strengths that make me believe I will do good at this topic. He was fine with my selection. After having decided the topic we moved on to discuss the organization I had chosen. My mentor asked me why I had chosen Wyeth and I told him that since I had many medical doctors in my family I have a natural interest in knowing how pharmaceutical companies are doing. He also admitted that I naturally have more knowledge about pharmaceutical companies.
Then we discussed the research questions I was going to answer and the aims and objectives of the project. We then discussed the sources I was going to use to gather information, the research methodology and other critical issues regarding the project. I told him the ease I will have regarding collecting primary sources of information since I could visit the company due to the links of the doctors in my family. The meeting helped me finalize the topic, the research approach, and a practical timetable for the project. I went for the second meeting with an interim report that was processed using Microsoft Word. I had already planned the report included the information I had gathered and the initial conclusions I had reached. I also wrote down the problems I was facing which my mentor solved. He also recommended improvements for my final project. Some problems were also pointed out by him which I rectified.
I presented my interim report in a formal way in a file with separators. I learnt how to present my work in an official way. The third meeting took place when I had completed my research report and created a presentation. In the third meeting I gave my mentor a copy of my research report and made the presentation of my research report using PowerPoint slides. The presentation contained all the relevant points in brief I was fully prepared for the presentation and had searched various methods of presentations on the internet. My mentor was not the only person in the audience. There were other students too who had come for their final presentation. I tried being loud so everyone could hear me. The presentation was given using a projector. I tried to point out the link of my research to the research questions throughout the report. I was questioned by my mentor during the presentation which I confidently replied and satisfied him. I took a bit more than the fifteen minutes for my presentation due to questioning from my peers. I should have paced my answers in a fashion that they took the least possible time.
How well do you think that you have answered your research question(s)?
When deciding the research questions I had to make sure the research questions were in line with my research objectives and made sense in relation to the topic. I am satisfied that I answered all the questions and answered them well. For the purpose of answering the research questions I gained an in-depth understanding of the environment in which the organization was operating. The selection of topic was a good one since I was able to utilize the knowledge I had gained in my previous studies. The topic was finalized after a discussion with my mentor. The points we took care of when deciding upon the topic were:
- My passion
- My knowledge
- My future plans
I was prepared for my first meeting since I went to my mentor after I had familiarized myself with the rules and regulations of the Oxford brookes University. I had written down the selection of my topic along with my strengths and weaknesses relating to the topic. I had also made a note of the sources of possible data and the ease with which I could access data for the particular topic. I utilized sufficient resources to gather information for my research project. I spotted the maximum possible sources with the help of my mentor. The primary sources I used were the management of the organization and the secondary resources were internet, books in library, newspaper and business books. I also designed a questionnaire for the employees of the organization to primary information. The conclusion that I was expecting was a bit different than the final conclusion.
This did not surprise me a lot since my initial information was not sufficient to reach the final conclusion. My research kept refining with the passage of time in light of new information and new sources that I kept discovering. I am satisfied with the way I answered my research questions since I did thorough research and did not close my mind to new pieces of information. How have you demonstrated your interpersonal and communication skills?
Communication skills have to be developed, honed and added to on an on-going basis. They are at the heart of interpersonal skills and the greater your awareness of how it all works, the more effective your communication will be. (Communication Skills Training )
Using communication skills effectively includes the use of listening skills when you are communicating by talking with another person. (Communication Skills) For gathering information for my project I carried out personal interview with the manager of the organization. It was a good learning experience. I learnt a lot about the operations of the organization. I was also told about the macro environment in which the organization was operating and the strengths and weaknesses of the organization. I was also told about the unique strengths of the organization in comparison to the competitors. I also designed a questionnaire for the purpose of information gathering. I distributed this questionnaire in the employees of the organization. The response I got was good and the comments in the last section of the questionnaire were informative. Effective questioning is a real compliment to your skills. It shows that you have the ability to understand the caller's real needs. It shows that you are looking for meaning that's deeper than the spoken message. Questioning can be put into two divisions: Open-Ended Questions and Closed-Ended Questions. Open-Ended Questions: Open-ended questions are questions without a fixed limit. They encourage continued conversation, and help you get more information.
Closed-Ended Questions: Closed-ended questions have a fixed limit. They're often answered with a yes or no, or with a simple statement of fact. They usually get specific information or confirm facts. (FRIEDMAN, Nancy, 2004)
I used to ask open ended questions during the meetings with my mentor to get the most out of my questions. I used to go prepared for the meetings with the questions written down so I can get answers to all my queries. There was no problem with the interpretation of my questions on my mentors end. I stood to gain a lot from this experience. I learnt to ask precise questions, a skill that I did not previously possess. Listening is one of the most important skills you can have. How well you listen has a major impact on your job effectiveness, and on the quality of your relationships with others.
- We listen to obtain information.
- We listen to understand.
- We listen for enjoyment.
- We listen to learn.
- (Active Listening)
I tried to be a good listener by listening on all occasions such as interview with the company manager and the meetings with my mentor. I stayed silent and did not let my mind wander or let his views be clouded by my own judgments. The meetings with my mentors were very comfortable and there was no barrier to communication. The only barriers to communication were faced with the meeting with the company manager due to the staff noise. Although it was a bit uncomfortable I managed to listen carefully and confirmed from him by repeating what he had said. I made sure that my facial expressions corroborated with my verbal statements in all the meetings so the listener does not find any trouble comprehending. The best thing I learnt is to nod along when listening. This assures the speaker that the person on the other end is understanding things very well and encourages the speaker. Presentation is the practice of showing and explaining the content of a topic to an audience or learner. Presentations come in nearly as many forms as there are life situations. In the business world, there are sales presentations, informational and motivational presentations, first encounters, interviews, briefings, status reports, image-building, and of course, the inevitable training sessions. (Presentation, 2011)
During the presentation I gave in the final meeting I was confident and spoke with enthusiasm. I dressed well and gave a presentation not only in front of my mentor but peers too. I was asked questions by my mentor as well as peers which I answered. They were satisfied. How has undertaking the Research and Analysis Project helped you in your accountancy studies and/or current employment role? The project has helped me learn how to organize myself. This will not only help me with my studies and employment but will help me in my life too. I learnt how to schedule my work and how to plan things ahead of time to deliver to deadlines. I used excel to create a schedule and kept amending it in light of new circumstances. This project will also help me show more enthusiasm at my workplace regarding financial analysis since once I was asked by my manager at work to perform a financial analysis over a competitor organization to determine certain benchmarks but I wasn’t too sure if I could do it. The project has given me a lot of confidence regarding financial and business analysis. So far during my ACCA studies I have studied knowledge within the boundaries of text books, but the research and analysis project gave me an opportunity to apply my bookish knowledge to practical situation. I also learnt presentation skills during the course of my presentation. It gave me a lot of confidence in facing people. Public speaking was my biggest fear but after giving presentation in front of my mentor and peers I gained confidence. I can speak with confidence in my class and workplace now.
I also improved my IT skills working on this project. I acquired Microsoft office, excel and PowerPoint skills. I also learnt using internet. I had used internet earlier but not to this extent. I learnt how to use search engines. From the presentations I gave I learnt how to dress formally, and how to deliver speech in front of gatherings. I learnt to be punctual and honour my commitments by reaching for the meetings on time. The business and financial performance of an organization over a three year period.
Organization
WYETH PAKISTAN LIMITED
2 Reasons for selection of the topic
Business and financial analysis has been my area of interest during ACCA. I have already studied the models that I require to answer the research questions of this research project, namely Ratio analysis, PESTEL analysis, and SWOT analysis, RATIO analysis. This project came as a golden opportunity to demonstrate the practical application of my knowledge. It has always aroused my curiosity why some businesses outperform and why some underperform financially. This topic will utilize the financial and business analytical skills I have acquired so far and prove my skills once I get the degree in applied accountancy to prospective employers. The research will give me an opportunity to brush up skills that require searching internet for information. It will also brush up my spreadsheet capabilities.
3 Reason for choosing the organisation
I want to work in my uncle’s pharmacy in future. Knowing the pharmaceutical sector will give me an edge in identifying the strengths and weaknesses of suppliers of medicines. Most of the medicines I have seen in my uncle’s pharmacy are by Wyeth, therefore it aroused my curiosity.
Project objectives
- Assessment of the macro environment of Wyeth using PESTEL analysis.
- Assessment of the strategic capabilities of Wyeth using SWOT analysis
- Assessment of Wyeth’s future prospects
- Financial Analysis
Research Questions
The research questions for my research report are:
- The growth in sales between 1 January 2008 and 31 December 2009?The
- What is the effect of Governments price freeze policy on profits of Wyeth?
- What is the effect of the economic crisis of Pakistan on the financial performance of Wyeth?
- What was the effect of changing the policy of selling on credit to selling on advance on the working capital of Wyeth and hence its liquidity position?
- What are the strengths and weaknesses of Wyeth?
- How well did Wyeth perform compared to its major competitor GSK?
- How well is Wyeth utilizing its strategic capabilities?
Overall Research Approach
I started my research by carrying out a financial analysis using ratios as the tool for my analysis. Then I carried out an analysis of the environment of Wyeth using PESTEL analysis. This was followed by SWOT analysis to assess its strategic capabilities.
Sources of information
PRIMARY DATA
To gather primary data I tried reaching Mr. Khwaja Bakhtiar Ahmed, the company secretary, through his assistant. After persistent efforts I finally got an appointment. He was a charismatic person with a lot of knowledge. He enlightened me about Wyeth policies and answered many of my questions. He also handed me the annual reports of Wyeth and management accounts. For the purpose of collecting data I also emailed a questionnaire to a sample of employees of the organisation. The response was good.
SECONDARY DATA
The annual reports of Wyeth and GSK. News papers such as Business recorder, pharmaceutical literatures. ACCA text books especially for Paper F1, F3, F7, P3 and P5. News websites such as “The news” and “Jang”. Books that I found in the library of Superior college.
Internet
Methods of data collection
- Visiting stock Exchange
- Interview
- E-Mail survey
- On-line Access
QUESTIONNAIRE AND SAMPLING TECHNIQUES USED
The questionnaire was emailed after having it reviewed by the different department heads. The population I used was the one that was using an email. I had taken the email addresses from the records maintained by the company. The method I used for sampling was haphazard sampling. I chose the email addresses at random
Limitations of information Gathered
- Some information was collected from Wyeth website which may be favourably biased towards the organization.
- It is possible that in spite of all the efforts some information sources may not have been identified which could have lead to a different conclusion.
- The sample chosen for the email questionnaire might not be representative of the population
- The views of the company secretary about future prospects might be biased or over optimistic
- The information present on internet can be subject to the authors own judgements instead of presenting facts.
ETHICAL ISSUES DURING INFORMATION GATHERING
As per the guidelines of Oxford Brookes university I was supposed to disclose the full details of the information sources that I used, but it was in the best interest of the employees of the organization to have their names kept anonymous so they do not face problems with their employer. I put special care into making sure the questionnaire kept the identity anonymous. During the interview with Mr. Khwaja Bakhtiar Ahmed, the company secretary I asked some questions about the new product launch of ENBREL and ORISTIQ. He was hesitant in answering at first but then I assured him that this information was publicly available, after knowing this he co-operated.
ACCOUNTING/ BUSINESS TECHNIQUES USED AND THEIR LIMITATION
Ratio Analysis
Limitations:
- Ratios are based only on the information which has been recorded in the financial statements.
- Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with past results of the business. However, such a comparison only provide glimpse of the past performance and forecasts for future may not prove correct since several other factors like market conditions, management policies, etc. may affect the future operations.
- Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final regarding good or bad financial position of the business. Other things have also to be seen.
SWOT analysis
Limitations :
The way SWOT analysis is often conducted does not allow for proper communication, discussion, and verification of all external and internal factors proposed by all involved. On such occasions, SWOT results prove less reliable an input to the strategy generation process than they are capable of being. Still worse, as documented later, the results of SWOT analysis are sometimes never meant to be used as an input to the strategy generation process. If that is known, or anticipated, by those involved in SWOT analysis, the quality of their inputs will most likely suffer and be lower than otherwise possible, and desirable.(KOCH, Adam J.)
ACCOUNTING / BUSINESS TECHNIQUES USED AND THEIR LIMITATION
Porter’s five forces
Porter’s 5 forces of competition have a few weaknesses and limitations. The model underestimates the influence of a company’s core competencies on its ability to achieve profit. It, instead, assumes the industry structure is the sole determining factor. Porter's 5 forces definition is difficult to apply to large multinational corporations with synergies and interdependencies achieved from a portfolio of businesses. Additionally, the five forces framework assumes there is no collusion in the industry. Finally, Porter’s analysis doesn’t consider the possibility of creating a new market. (Porter’s Five Forces of Competition , 2010)
Analysis
Pharmaceutiical sector:
Pharmaceutical industry is a researched based industry. Its costs are mainly development costs which should be capitalized. Cost can be recovered by charging these costs to end consumers. But government policy regarding prices contributed a lot in reduction of profitability of pharmaceutical industry. Inflation and reduction in value of Pak rupee against major currencies ultimately brought profits down.
The Company:
Wyeth, with its pharmaceutical and over-the-counter divisions, is a leader in the research and development, manufacturing and marketing of a broad range of health care products
Analysis
Profitability
Profitability of Wyeth reduced in 2009 as well as in year ending 2008. This decrease in profitability was due to some internal factors which was less training of employees as company retrospectively applied the training on sig sigma after making loss in 2009 to improve the efficiency of processes and procedures and trainer was hired outside the organization. Other external factors of reducing profitability were the adverse conditions of economy as an increase in inflation and depreciation of Pak currency. Price freeze by government was also a factor which contributed to the reduction of profitability.
Investor analysis
According to investors point of view the company was attractive in year ending 2008 but company remained unable to sustain its position and made a negative earning per share of -61.09 in 2009 as it was 101.50 in 2008. Due to this company didn’t announce any dividend. So that according to 2009 company portrayed a risky image for investors who focus on short term investment and want to earn dividend.
Business Analysis
PESTEL analysis
According to political situation of country there was unstable environment in Pakistan in year 2008 and as well as in 2009. Company should consider the future political changes when preparing future budgets. Economical factors were the main problem of Pakistan as consistent increase in inflation and reduction in value in of currency increase the cost of all operations and resources. In this way cost of product increased but according to government policy of price freeze firms were unable to past the cost to customers in this way legal factors also adversely impacted on the pharmaceutical industry. By applying efficient technology company can make the more environment friendly products. Awareness about environment has increased in general public there are many laws about environment protection so company is undertaking such activities like upgrading waste water treatment plant (WWTP) and celebrating “Earth Day” on April 22, 2009.
BUSINESS ANALYSIS
SWOT Analysis
Wyeth Company has quality products and is committed to employee development but the company does not have efficient and effective processes and procedures which result in reduction and eventually loss in profit margins. Company is outsourcing the trainer for training the employees on six sigma which could be the threat for organization of leakage of its confidential information, as it is a research based industry so firms compete on the base of innovation and new product development. By improving the research and development and increasing the knowledge base of organizational human resources company can achieve the sustainable competitive advantage.
Recommendations
- Company should evaluate its product portfolio and it should improve its products which are highly cash generating.
- Company should take the help of technology to maintain the system of customer’s feedback so that it can manage its processes according to customers demand.
- By the help of high funded research and development the company can respond to rapidly change environment and sustain the competitive advantage.
- Company should establish an internal training and development department for continuous professional development of employees.
- Company should take steps to improve its liquidity position and make some policies for fund management.
(Rs. In million)
3000
2500
2000
1500
1000
500
0
2006
2007
2008
2009
2010
Net sales
COS
GP
Rs. In million
Selling, marketing and admin expenses
500
450
400
350
300
250
200
150
100
50
0
2006
2007
2008
2009
2010
(Rs. In million)
Profit/(loss) before tax
450
400
350
300
250
200
150
100
50
0
-50
-100
2006
2007
2008
2009
2010
Summary of Presentation
Slide 1
Title of the report
Research & Analysis Project
Topic: The business and financial performance of an organization over a three year period. Organization:
WYETH PAKISTAN LIMITED
Slide 2
Topic
Business and financial analysis has been my area of interest duringACCA. I have already studied the models that I require to answer the research questions of this research project, namely Ratio analysis, PESTEL analysis, and SWOT analysis, RATIO analysis. This project came as a golden opportunity to demonstrate the practical application of my knowledge.
It has always aroused my curiosity why some businesses outperform and why some underperform financially. This topic will utilize the financial and
Slide 3
Reasons for selection of topic
business analytical skills I have acquired so far and prove my skills once I get the degree in applied accountancy to prospective employers.
The research will give me an opportunity to brush up skills that require searching internet for information. It will also brush up my spreadsheet capabilities.
Slide 4
Reasons for choosing the organisation I want to work in my uncle’s pharmacy in future. Knowing the pharmaceutical sector will give me an edge in identifying the strengths and weaknesses of suppliers of medicines. Most of the medicines I have seen in my uncle’s pharmacy are by Wyeth, therefore it aroused my curiosity.
- Assessment of the macro environment of Wyeth using PESTEL analysis.
- Assessment of the strategic capabilities of Wyeth using SWOT analysis
- Assessment of Wyeth’s future prospects
- Financial Analysis
Slide 5
Project objectives
The growth in sales between 1 January 2008 and 31 December 2009?
What is the effect of Governments price freeze policy on profits of Wyeth?
What is the effect of the economic crisis of Pakistan on the financial performance of Wyeth?
What was the effect of changing the policy of selling on credit to selling on advance on the working capital of Wyeth and hence its liquidity position?
What are the strengths and weaknesses of Wyeth?
How well did Wyeth perform compared to its major competitor GSK?
How well is Wyeth utilizing its strategic capabilities?
Slide 6
Research Questions
Slide 7
Overall research approach I started my research by carrying out a financial analysis using ratios as the tool for my analysis. Then I carried out an analysis of the environment of Wyeth using PESTEL analysis. This was followed by SWOT analysis to assess its strategic capabilities.
Primary data To gather primary data I tried reaching Mr. Khwaja Bakhtiar Ahmed, the company secretary, through his assistant. After persistent efforts I finally got an appointment. He was a charismatic person with a lot of knowledge. He enlightened me about Wyeth policies and answered many of my questions. He also handed me the annual reports of Wyeth and management accounts. For the purpose of collecting data I also emailed a questionnaire to a sample of employees of the organisation. The response was good. Secondary data The annual reports of Wyeth and GSK. News papers such as Business recorder, pharmaceutical literatures. ACCA text books especially for Paper F1, F3, F7, P3 and P5. News websites such as “The news” and “Jang”. Books that I found in the library of Superior college. Internet
Slide 8
Sources of information Visiting stock Exchange Interview
Slide 9
Methods of Data collection :E-Mail survey ,On-line Access
Slide 10
Questionnaire and sampling techniques used The questionnaire was emailed after having it reviewed by the different department heads. The population I used was the one that was using an email. I had taken the email addresses from the records maintained by the company. The method I used for sampling was haphazard sampling. I chose the email addresses at random Some information was collected from Wyeth website which may be favourably biased towards the organization.
It is possible that in spite of all the efforts some information sources may not have been identified which could have lead to a different conclusion. The sample chosen for the email questionnaire might not be representative of the population The views of the company secretary about future prospects might be biased or over optimistic The information present on internet can be subject to the authors own judgements instead of presenting
Slide 11
Limitations of information Gathered facts.
Slide 12 Ethical issues during information gathering As per the guidelines of Oxford Brookes university I was supposed to disclose the full details of the information sources that I used, but it was in the best interest of the employees of the organization to have their names kept anonymous so they do not face problems with their employer. I put special care into making sure the questionnaire kept the identity anonymous. During the interview with Mr. Khwaja Bakhtiar Ahmed, the company secretary I asked some questions about the new product launch of ENBREL and ORISTIQ. He was hesitant in answering at first but then I assured him that this information was publicly available, after knowing this he co-operated.
Ratio Analysis
Accounting/business techniques used and their limitations
- Limitations of ratio analysis
- Limitations of SWOT analysis
- Limitations of Porter’s five forces
Slide 13 - 14
Pharmaceutical sector The company
Slide 15 - 19
- Analysis
- Profitability
- Investor analysis
- PESTEL analysis
- SWOT analysis
- Recommendations
Slide 20
Graph Column chart showing Net sales, COS, GP
Slide 21
Graph Column chart showing Sales, marketing and admin expenses
Slide 21
Graph Column chart showing profit/ (loss) before tax
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