AstraZeneca PLC pharmaceutical Company

Introduction

AstraZeneca PLC is an international pharmaceutical organization that is focused on the development of life-changing medicines that help to treat an extensive variety of medical conditions. The products that the firm represents comprise oncology, bio-pharmaceuticals, cardiovascular, renal & metabolism, respiratory & immunology, or vaccines & immune therapies. In 2023, it achieved a total revenue of $ 45.8 billion and an extraordinary 118 percent of operating profit or $ 8.2 billion. Further, it reported its earnings per share (EPS) competently increased by 81 % amounting to $ 3.84. This was a great leap as compared to the year 2022 when a total of $ 44.35 billion was generated as revenue. This Report of AstraZeneca is meant to give a detailed insight into the financial position of the company, the current research and development activities, and how the business is steered

Section 1- Developments

Development One: Geopolitical Challenges

In the year 2023, the geopolitical tensions and regulatory changes have been a problem faced by the company that has caused the disruption of the global supply chain and rise in cost. To overcome such issues, the business had to make quick operational decisions to move their life-saving drugs to the patients without much delay. Nevertheless, the expenses incurred when dealing with these turbulences became a strain on the bottom line. In order to counter the geopolitical risks AstraZeneca has developed its supply chain in a diversified manner and made it efficient in the areas such as China and India (Tulum, Andreoni and Lazonick, 2022).

Impact on Future Performance

It is interesting to note that the increasing costs have affected operating costs of the company which increased by 7% (CER: 8%) to $30.69 billion. The geopolitical risks will manage to stay as a factor but the supply chain of the company being diversified and the flexibility of the operations will allow a good start to cope with it.

Development Two: Digital Transformation through AI Integration

The company has continued investing in the artificial intelligence (AI) and machine learning technologies. The advancements have especially proved useful in fast-tracking drug discovery, efficiency of clinical trials and patient outcomes. An example of this is demonstrated by AstraZeneca that is using AI to assist in identifying individuals with rare diseases to provide early diagnosis and treatment, speeding up the time to market of essential drugs. (Harrer et al., 2023).  Its economic impact on the performance of AstraZeneca has been an astronomical escalation of research and development (R&D) spending that has increased by 12 % in 2023 to 10.93 billion dollars. Although the expenditures on such investments are substantial, the long-term payoff is clear, as life-altering drugs develop more quickly and build their product pipeline. In addition, efficiencies in operations that have been due to AI have brought on more quality control and productivity and this is likely to lower manufacturing costs later on in the future.

Impact on Future Performance

The current trend of the AI integration is anticipated to bring significant long-term results and boost the pace of future product development and competitive advantage of AstraZeneca in the pharmaceutical market. These plans will spur a longer-term growth and enhance profitability as AstraZeneca endeavours to pursue the vision of providing life-changing medicines.

Section 2 Dividend Policy

Dividend Theory Applied: Dividend Relevance Theory

According to this theory, dividends serve as one of the key factors that can affect the price of the stock and the perceived value of a company since the former population of shareholders would rather see returns in terms of dividends than capital gains (Mahirun et al., 2023)

Dividend History Over the Past Three Years

• 2021- $ 2.80 per share ($ 0.90 per share in September & $ 1.90 per share in March)
• 2022- $ 2.90 per share ($ 0.93 per share in September & $ 1.97 per share in March)
• 2023- $ 2.90 per share ($ 0.93 per share in September & $ 1.97 per share in March)

Types of Dividends Paid by AstraZeneca

AstraZeneca returns its dividends in interim dividends. The usual frequency of making such interim payments is two instalments annually:

• First Interim Dividend:

  The first interim dividend is paid in September and is some fraction of the full annual dividend payment.

• Second Interim Dividend:

  This is usually higher and is paid in March of the following year because this will factor in the final performance of the year.

Dividend Policy: Regular and Progressive

The dividend policy in the company is progressive i.e. AstraZeneca aims to either keep its dividend payout unchanged or to grow it in a progressive manner every year. The leadership of AstraZeneca epitomizes a desire to be rewarding the shareholders but complements it with expendable investments in research and development, some strategic acquisitions as well as innovations (Hariyanur, Septiyanti and Idris, 2022). The progressive dividend policy is beneficial to AstraZeneca in a number of ways:

Shareholder Confidence:

Through the continuous aggression and augmentation of dividends, AstraZeneca transmits a message of stability to the market, thereby developing the confidence of the investors.

• Recruitment of long term investors: Investors seeking a consistent flow of returns tend to follow companies with a consistent and growing dividend policy, and AstraZeneca is such an attractive firm.
• Reinvestment in Business: Although AstraZeneca maintains a stable dividend, it also commits adequate resources in the dynamic pipeline, which guarantees the future development of the business.

Financial Capacity to Pay Dividends

The ability of AstraZeneca to pay dividends is its excellent financial results that have been propelled by stable revenue growth especially within its oncology and biopharmaceuticals segments. In 2023, the company achieved total revenue of $ 45.81 billion (3 % higher than in the previous year), with impressive results in important markets, such as the U.S., Europe, and emerging markets.

Impact of Strategic Developments on Dividend Decisions

The scientific emphasis of the company especially on oncology and rare diseases has resulted in milestones and regulatory approvals of various new medicines that have contributed to revenue generation. (Medina et al., 2025). Its investment such as the acquisition of Neogene Therapeutics and other biotech companies indicates its interest in diversifying the pipeline that is likely to yield continuous financial growth. Moreover, worldwide issues such as geopolitical risks and COVID-19 pandemic consequences have exerted financial pressure on the short term.

Section 2 Sources of Finance

Equity and Non-Current Liabilities

Equity financing enables AstraZeneca to itemize capital using release of shares, and non-current liability including long-term loan and bonds act as guaranteed supply of financing to the long term strategic plans of the company.

Changes in Equity Elements

AstraZeneca registered a net income of $ 5.9 billion in 2023, a huge jump in earnings per share (EPS) of $ 3.84 against $ 2.12 in 2022. This increment in earnings added to the retained earnings and therefore an increment in the equity. In addition, the stable growth in revenues, especially in the oncology and biopharmaceutical sectors, has positively affected the shareholder equity of AstraZeneca with the overall revenue growth expected to be 3 % (6 % at CER) to $45.81 billion in 2023.

Changes in Non-Current Liabilities

The non-current liabilities are mainly classified as bonds and loans to finance big projects such as R&D investments and acquisitions. It is worth noting that the operating profit of AstraZeneca jumped by 118 % to $ 8.2 billion, enabling the company to comfortably take care of its debt burdens.

Gearing Ratio and Capital Structure

Gearing Ratio = ( Non-Current Liabilities / Equity) X 100

Capital Structure Theories:

Traditional View (Net Income Approach)

The capital structure of AstraZeneca is nearer to the Traditional View (Net Income Approach), at least due to minimally elevated level of gearing rate. The company approach implies that it has not excessively used debt as a means of funding operations but rather employs the debt in a selective manner to minimize its cost of capital. The important rationale of the AstraZeneca strategy is that the company is able to maintain the gearing level low enough to take advantage of the low cost of equity with controlling the value added by the debt financing (Brusov and Filatova, 2023).

M&M View (Net Operating Income Approach)

Although AstraZeneca does use debt as part of its growth strategy, it does not subscribe to the the M&M (Modigliani and Miller) View of capital structure irrelevance which states that the value of a firm is independent of its choice of financing (i.e. debt or equity). The strategy used by the AstraZeneca implies that it has faith in the fact that there is an optimal composition of equity and debts to provide a balance and work on the risk, and this approach is more conservative. (Kruk, 2021)

Cash Flow Management

AstraZeneca will be supported by good cash flow management systems that are crucial in meeting its debt repayments and investments in research and development. In 2023, the net cash flow of operating activities of the company amounted to 10.34 billion dollars and increased by 5 % compared to the figure of the previous year ie $ 9.80 Billion . Such strong cash flow means that AstraZeneca is in a good financial position to repay its debt and still be able to invest in other emerging drug development, acquisitions and other expansion programs. Ghanem et al., 2021)

Financial Risks and High Gearing

Should the debt increase to a high level, it can affect the capacity of AstraZeneca to withstand any economic slowdown particularly where the financial resources of global pharmaceutical sales are reeling. The level of financial leverage might be too high, due to high dependency on debt which might lead to a failure to sustain this debt in worst case situations

Determinants of Capital Structure

• Geopolitical and Economic Risks: uncertainties in the financial markets due to the COVID-19 pandemic and subsequent geopolitical conflicts, including the war between Ukraine and Russia, have had an impact on the debt strategies of the company.
• Investment in Innovation: AstraZeneca has made recurring investment in research, development, acquisitions, joint ventures and development which has been a key contributor in financing decisions of AstraZeneca.
• Debt Financing to Fund Strategy Acquisition: The acquisition strategy developed by the company such as purchasing unit of biotech companies, and investment in new innovated therapies has spurred the need of the company to raise additional funds through debt financing. (Ali, Rangone and Farooq, 2022).

Section 3 Calculations of Ratios

Liquidity Ratios

• Current Ratio:

Current Ratio indicates the capacity of the company to settle short term debts using short term assets; that is, the ratio of current assets to current liability (Zuliyana, Karyatun and Digdowiseiso, 2023)

Formula = Current Ratio = Current Assets / Current Liabilities

The Current Ratio of AstraZeneca in 2023 has slightly decreased from 0.86 to 0.82 in comparison with the past year which means that although the company has a sufficient balance of short-term assets and short-term liabilities, it is not as liquid as it used to be. This is possible through the growth of short-term liabilities, potentially associated with balance sheet payment on debt or demands of working capital, at a relative pace offsetting the progress to current assets (Widiasmara et al., 2022)

• Cash Ratio

The Cash Ratio is an indicator indicating whether a company can pay its short term debt using its most liquid assets and is computed by dividing the sum of cash and cash equivalents by current liability (Chairunisa, Digdowiseiso and Karyatun, 2023)

Formula = Cash Ratio = Cash and Cash Equivalents / Current Liabilities

The Cash Ratio of AstraZeneca in 2023 has been reduced from 0.23 times to 0.19 times, pointing to its capacity to settle its short-term liabilities without leaning much on its inventory or receivables. There is a probability that this ratio rose because the company had better cash flow in the operations so that when the company had enough cash as the reserve.(Widiasmara et al., 2022)

Efficiency Ratio

• Inventory Turnover

The frequency of sales and replacement of the inventory in the company on year to year basis is known as the Inventory Turnover. It is obtained by the division of the cost of goods sold by the average inventory (Laurent, 1979)

Formula – Inventory Turnover = Cost of Goods Sold / Average Inventory

The ratio of inventory turnover sharply decreased in AstraZeneca, as Inventory Turnover ratio was 1.82 times in 2022, and 1.63 times in 2023, which means that the movement of inventory was more sluggish. This decrease may be explained by lower demand, change in the products mix of this company, considering the changes in COVID-19-related revenues and other factors as well that may affect sales of particular drugs and result in inventory build-up (Chen et al., 2023)

Total Inventory 2021 = $ 8.98 Billion

Total inventory 2022 = $ 4.69 Billion = ( 8.89+4.69)/2 = 6.79 Average Inventory 2022

Total Inventory 2023 = $ 5.42 Billion = (4.69 + 5.42)2 = 5.05 Average Inventory 2023

Receivable Turnover

The Receivables Turnover ratio is a financial ratio which indicates how effectively a business collects their receivables to turn those receivables into revenue, by dividing revenue by average accounts receivable  (Sutherland, 1965)

Formula – Receivable Turnover = Revenue / Average Accounts Receivable

AstraZeneca ratio has changed in 2023 to 4.04 times downwards compared to 4.39 time in the year 2022. This drop of the revenue indicates that although the revenue was high, the company might have accepted looser credit terms to the customers or had delays in receiving payments (Chen et al., 2023).

Trade Receivables 2021 = $ 9.64 Billion

Trade Receivables 2022 = $ 10.52 Billion =(9.64+10.52) /2=10.08 (Average Receivables 2022)

Trade Receivables 20231=$ 12.12 Billion = (10.52+12.12)/2=11.32 Average Receivables 2023

Profitability Ratios

• Return on Assets (ROA).

The Return on Assets (ROA) is the comparison of profit generating power of an organization to its assets, which is derived by dividing net income by total assets (Badruzaman, Fadilah and Abdurrahman, 2022)

Formula – ROA = (Net income /Total Assets) X 100

AstraZeneca witnessed a huge growth in its ROA, which rose to 6.81% in 2023, up about 2.59 percent in 2022. There is this significant increase that indicates a significant growth in profitability which was facilitated by the increase in the net income (Nukala and Rao, 2021).

• Return on Equity (ROE)

The ROE ratio measures the levels of equity profitability of a company by dividing net income by equity (Jeevitha and Rema, 2022)

Formula – Return on Equity ROE) = (Net Income / Shareholder’s Equity) X 100

The ROE of AstraZeneca has shown a significant improvement as it improved by 6.75% percent in 2022 to 17.60 % in 2023. The significant increase can be largely attributed to a massive increase in the net income which is an indication of good performance which include cost containment and good sales of its products

·        Investment Ratios

• Earnings per share

EPS or Earnings per Share refers to earning of profit for the year over the weighted average number of shares. (Olesen, Petersen and Podinovski, 2015)

Formula = Profit for year / Weighted Average Number of Share

The EPS stood at 3.84 per share that indicates a decent degree of profitability. Nevertheless, in the year 2023, EPS went further down to 2.12 a share. The decrease implies that the company is profitable; however, its per-share earnings have dropped. The main culprit behind this decline is the decline in profit which was 5.96 billion in 2022 as opposed to 3.29 billion in 2023. Even in spite of virtually the same number of shares outstanding ratio, the tremendous adverse change in profitability resulted in a reduction of EPS.

• Book Value per share

The Book Value per Share is an indication that expresses the net asset worth of a business in share terms. (Iliemena, Amedu and Uagbale-Ekatah, 2022)

Book Value per Share =  Total Equity /  Weighted Average Number of Share

The Book Value per Share is also positive in 2022, at the level of 25.3. This has however declined to 23.9 USD per share in 2023, which is an indication that the value of the company has fallen. This decline in Book Value per Share is partly attributed to a decline in the equity value of the firm as it dropped to 37.06 billion in 2023 compared to 39.17 billion in 2022. The fall in equity may be explained by a range of different factors including reduced retained earnings, possible operation losses, or effect dividend payment.  

Conclusion

AstraZeneca PLC is a global pharmaceutical company that has been committed to the development of life-changing medicines with the main focus on assisting in the treatment of a wide range of medical conditions. The products that the company represents include oncology, bio-pharmaceuticals, cardiovascular, renal & metabolism, respiratory & immunology, or vaccines and immune therapies. This AstraZeneca Report is envisaged to provide a holistic overview of the financial standing of the business, ongoing research and development operations as well as the manner of management of this business enterprise.

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