GlaxoSmithKline GlaxoSmithKline, a British company, is one of the largest pharmaceutical firms in the world. The name “Glaxo” comes from the company’s first major product line, baby food products that were sold with the slogan, “Builds Bonnie Babies.” Growth of the company in recent years has been driven by sales of Zantac, an anti-ulcer drug.

GlaxoSmithKline’s 2005 statement of cash flows is shown on the next page. Look at the statement and answer the following questions.

1. International accounting standards treat interest paid and interest received differently than those items are treated in the United States. Interest paid and interest received are classified as operating activities in the United States. Where are they classified on GlaxoSmithKline’s statement and cash flow and what do you think is the reasoning behind the classification?

2. Note that GlaxoSmithKline includes a reconciliation of operating profit to operating cash flow separate from the operating activities section of the statement of cash flows.
Why do you think it would do that?

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GlaxoSmithKline plc Consolidated Statement of Cash Flows 31st December 2005 (in millions of ) Reconciliation of operating profit to 2005 2004 2003 operating cash flows m m m Operating profit 6,874 5,756 6,050 Depreciation 710 691 704 Impairment and assets written off 193 94 255 Amortization of goodwill and intangible fixed assets (Profit)/Loss on sale of property, plant and equipment 194 168 127 (19) 2 (Profit)/Loss on sales of intangible assets (203) 1 Profit on sale of equity investments Fair value loss on inventory sold (15) (33) 13 {& ' Sg + (7) (89) Decrease/(increase) in inventories 47 (33) (76) Increase in trade and other receivables (397) (235) (369) Increase/(decrease) in trade and other payables (Decrease)/increase in pension and other provisions 491 163 (74) (453) (351) 71 Share-based incentive plans 236 333 375 Other 7 (42) 38 Net cash inflow from operating activities 7,665 6,527 7,005 Cash flow statement Cash flows from operating activities Cash generated from operations 7,665 6,527 7,005 Taxation paid (1,707) (1,583) (1,917) Net cash inflow from operating activities 5,958 4,944 5,088