Estimate the five operating expenses for each of the past three fiscal Essay

Estimate the five operating expenses for each of the past three pecuniary years, and evaluate what operating leverage, if any, was applied each year - Essay ExampleAccording to both financial statements the five costs are speak to of Revenue, interrogation and Development, Selling General and Administrative Expenses, Non-Recurring and Others. For the sake of simplicity, Cost of Revenue and Selling, General and Administration Expenses would be regarded as Variable Cost and the other expenditure as Fixed Cost.From the Income Statement Extract for 2003 (Fig 2), it is clear that PFIZER operated with a higher(prenominal) degree of operating leverage than GlaxoSmithKline. This is limpid in the companys fixed cost percentage as PFIZERs fixed cost position is 2% higher that its competitor. The fact that PFIZER has a substantial amounts of capital tied up in its fixed assets and in event in Research and Development Expenditure, would account for its higher operating leverage. It should be of no surprise and so, that PFIZERs Research and Development accounts for over 50% of its total fixed cost. GlaxoSmithKline may have been a little more than conservative since its Research and Development Expenditure spans only 5% of its total fixed cost.The strategy therefore would be for PFIZER to reduce its fixed cost percentage and thus enable itself to manage its risks. It has successfully do so in celestial latitude 2004 (Fig 3) and as a result its operations have expanded by 13%. GlaxoSmithKline, on the other hand, operating income expanded by only 3% despite the reducing of its operating leverage. This is owing to the fact that its revenue of $39 Billion only increased by 3%. Fig 4According to Fig 4, the Operating Income of GlaxoSmithKline has improved by an additional 4% where as PFIZER fell by 5%. PFIZER operating leverage has increased again and hence would account for the retort in Operating Income by $3 Billion. It was clear that GlaxoSmithKline managed its opera ting leverage better and hence reduces its risk. finishingThe question, which may arise, is whether PFIZER is in a better situation than GlaxoSmithKline The truth is leverage is neither good or bad(Schmedt May 1998). Each company must assess the amount of risk it is willing to behave while striving to achieve its corporate objectives. It is important to understand the companys cost structure to enable instruction to make effective decisions so that it can compete effectively and achieve the competitive advantage it so desires.References Fred Schmedts, The concept of Operating Leverage The Samuel Roberts Noble Foundationhttp//www.noble.org/Ag/Economics/OperatingLeverage/index.htmlGlaxosmithkline PLC Financial Statements December 2003 to December 2005 - Yahoo Financehttp//finance.yahoo.com/q/iss=GSK&annualPFIZER Inc Financial Statements December 2003 to December 2005 - Yahoo Financehttp//finance.yahoo.com/q/iss=PFE&annualBuccino, Gerald P. and Kraig S. McKinley, The sizeableness o f Operating Leverage in a Turnaround, Secure Lender (September / October 1997),