Amcor Limited Financial Performance Analysis

This assignment analyzes the financial health of Amcor Limited, a company operating in the packaging industry. It examines key financial ratios such as profitability, liquidity, and debt to assess the company's performance. The analysis considers factors like sales growth, investment strategies, and cash flow adequacy. The report concludes with an overall assessment of Amcor's financial position and its prospects for future growth.

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Executive Summary
Financial reporting is an important aspect in organizations management. Financial reporting
enables users of financial statement to make informed decisions regarding the organization
financial performance and position in a financial year (Hoitash, and Bedard, 2009). Financial
statements contain records from all operations that are undertaken in the organization during a
particular time. The following report contains a financial analysis of Amcor Company to
evaluate it financial performance and position trend between 2014 and 2016 financial years. The
report analysed the income statement, statement of financial position and cash flow statement.
The report found that the Amcor has an increasing trend in sales per financial year and has made
a lot of investment to take advantage of the new market opportunities in the industry. The report
concluded that Amcor Limited is financially healthy.

Table of Contents
Introduction.................................................................................................................................................4
Company information..............................................................................................................................4
Industry Situation and Company Plans........................................................................................................5
Financial Statement Analysis.......................................................................................................................5
Statement of financial performance........................................................................................................5
Statement of financial position................................................................................................................6
Statement of cash flow............................................................................................................................8
Ratio Analysis..............................................................................................................................................8
Liquidity analysis......................................................................................................................................8
Profitability Ratios...................................................................................................................................9
Long term Solvency...............................................................................................................................10
Cash flow Adequacy...............................................................................................................................10
Market strength ratio............................................................................................................................11
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12
Appendix...................................................................................................................................................14

Financial Analyses of Amcor Limited,
Australia
Introduction
Financial reports are formal records of an entity’s financial activities and position. Financial
reports communicates to entity stakeholders about the financial position, cash flow, and results
from operations in a specific period of time (Deegan, 2013). They purposely report the financial
progress of an organization. Financial reports information is used by entity stakeholders’ to make
informed financial decisions. Users of financial information are the managers, lenders,
regulators, employees, and owners (Chen et al., 2010). The basic financial statements of financial
reporting are the balance sheet, income statement, and cash flow statement. In Australia,
financial reporting is regulated by the Australian Securities and Investments Commission
(ASIC).
The following report will analyze Amcor financial reports to assess it financial health using it
annual reports. This will involve analyzing financial statements, ratio analyses, and industry
situation. The following report uses 2016 FY, 2015 FY, and 2014 FY in the annual reports
sourced from the company’s website.
Company information
Amcor Limited is a multinational packaging company based in Australia. The company is listed
in Australian Stock exchange as AMC. The company specializes in rigid and flexible packages
for products such as health care, beverage, tobacco, and food industry. The company was started
in 1986. The company has it headquarters in Hawthorn, Victoria in Australia. Ron Delia is the
company chief managing officer. The Chief Financial Officer of Amcor is Michael John
Casamento. The company has operations in 43 countries around the world with more than 31000
employees. The company latest stock price is $15.77 as at 14th September in Australian Stock
Exchange (ASX). Amcor made sales of US$ 9.5 billion in 2016 financial year. The company
independent auditors are PricewaterhouseCoopers (PWC) based in Melbourne (Amcor.com,
2017).

Industry Situation and Company Plans
Amcor operates in packaging industry. The company made good progress in 2016 financial year
by capturing value, adapting the company, and developing employees in the organization. This
led to remarkable growth of the organization. The company has 195 plants that are located in
different part of 43 countries. The company operates in marketplace that is dynamic and keeps
constantly evolving. The industry is changing is new need to reduce carbon footprint. Amcor
Limited has committed to reducing it carbon footprint by 40% by the year 2018. The company
appreciates the new opportunities that are emerging for growth and is continuously investing in
global asset base and increasing their focus on customers.
The company focus future plan is to reduce global footprint, take advantage of the emerging
markets, implement strategic marketing, reduce cost of production, and innovate new products.
This will enable the company to manufacture high quality excellent product, to be an innovation
leadership in the industry, diversify product business unit and continue to focus on new materials
and techniques (Beyer et al., 2010).
Financial Statement Analysis
The following section analyses the performance, position, and cash flow of the financial
statements of Amcor Limited.
Statement of financial performance
USD million
2016FY %
change
from
previous
FY
2015FY %
change
from
previous
FY
2014FY
Gross profit 1994.8 3.2% 1932.2 2.67% 1881.9
Income from
operations
575.7 -46% 1065.1 -1.57% 1082.1
Net income 273.6 -61.4% 707.9 33.11% 531.8

The Gross profit of Amcor Limited increased constantly from 2014 financial year at US$ 1881.9
million to US$ 1932.2 million in 2015 FY to US$1994.8 in 2016 financial year. The Income
from operations however decreased from US$ 1082.1M to US$ 1065.1M in 2015 FY and US$
575.7M in 2016 FY. The net income of Amcor Limited also reduced to US$273.6M in 2016 FY
from US$ 707.9M in 2015 FY that was a also a decrease from US$ 531.8M in 2014 FY.
The trend analysis of Amcor Limited for 2016, 2015 and 2014 financial year shows that gross
profit increased by 3%. The income from operations decreased by 46% in 2016 FY from 2015
and a decline to 15% in 2015 financial year from 2014 FY. The net income also declined in 2016
financial year by 61%. The net income in 2015 financial year had increased by 33% from 2014
financial year.
From the above analyzes, it shows that Amcor gross profits increased as a result of increased
operations. This led to decreasing income from operations and net income of the company from
2014 financial year to 2016 financial year. There was significant decrease in net come in 2016
from 2015 financial year.
Revenue was recognized in the company when the rewards and risks of ownership were
transferred to a customer. There were not significant changes in revenue recognition in the
company for the 2014, 2015 and 2016 financial years.
There was abnormal trend in Amcor financial performance where an increase in operations did
not yield more net income. There was small increase in gross income by 3% and a decrease in
net profit by 61%. This is different from other industries when an increase in operations leads to
increase in profit margins (Lantto, and Sahlström, 2009).
Statement of financial position
Assets % of the
previous
FY
Liabilities % of the
previous
FY
Owners
Equity
% of the
previous
FY
2016 8682.1 1.58% 7836.6 12.6% 845.5 -46.7%
2015 8547.1 -6.4% 6960.1 -0.5% 1587.0 -25.8%

2014 9133.9 6994.8 2139.1
The Assets of Amcor Limited were equal to liabilities plus shareholders equality. The company
had more assets in 2014 financial year of US$ 9133.9M that decreased to US$ 8682.1M in 2016
financial year. The shareholders’ equity in the company also reduced to US$ 845.5M in 2016
financial year from US$ 2139 M in 2014 financial year.
The trend analyses of financial position of Amcor Limited shows that the assets reduced by 6%
in 2015 FY from 2014 FY. There was an increase in assets of the company by 2% in 2016 FY
from 2015 financial year. The company had a decrease in liability by 1% in 2015 financial year
compared to 2014 financial year. The company liabilities increased by 12% in 2016 financial
year from 2015 financial year. The Amcor limited shareholders’ equity reduced by 26% and 46%
in 2015 and 2016 financial year.
The analysis on statement of financial position shows that Amcor Limited financial strength
decreased during the three financial years.
Significant accounting policies in statement of financial position
Property and equipments
Properties and equipments in Amcor were valued and stated at cost after deducting impairment
and depreciations losses. The cost of properties, equipment, and plant comprised expenditures
can be attributed directly to the acquisition and other subsequent costs incurred. Depreciation of
properties, equipment, and plant was calculated on straight line basis against estimated useful
life.
Merchandise inventories
Inventories in Amcor were valued at a cost lower to the one incurred in producing each product,
present location and realizable net value.
Intangible and goodwill assets

The goodwill represented amount the Amcor paid in excess to acquire a business over fair value.
The goodwill was stated less accumulated impairment losses.
Statement of cash flow
2016 2015 2014
Operating cash flows 1099.4 1002.3 1094.1
Net income 513.4 697.5 505.2
The Amcor operating cash flows constant from 2014 to 2016. However, the net income
increased sharply in 2015 and decreased in 2016.
The company is expanding through activities of investing. The company invested in acquisition
of controlled entities, businesses, and associates of US$ 498.1M in 2016 compared to US$98.4M
in 2015.
The company most important sourcing of financing is borrowing. The company has increasing
liabilities.
The overall cash in Amcor Limited increased in the three financial years analyzed. The company
cash flow increased highest in 2015 financial year.
Ratio Analysis
The following section covers liquidity ratios, profitability ratio, market strength ratios, cash flow
adequacy ratio, and long term solvency.
Liquidity analysis
The following ratio measures the ability of Amcor’s ability to pay all it debt obligations. It
includes the following; working capital, receivable turnover, inventory turnover, and average
days ‘inventory on hand.
Current ratio and quick ratio
Current ratio= current assets / current liabilities
Quick ratio= Current assets-inventory/current liabilities

Year 2016 2015 2014
Current ratio 3,193.1/3,645.2
=0.87
3,413.0/3,674.4
=0.93
3,326.5
/3,296.0
=1.02
Quick ratio 3,193.1-1,244.4
/3,645.2 =0.53
3,413.0-1,213.9
/3,674.4 =0.6
3,326.5 -1,329.0
/3,296.0 =12=0.6
The current ratio for Amcor limited is below 1 for both 2016 FY and 2015 FY. The current ratio
for 2014 FY was above 1. This shows that the company could be able to settle all it obligations
while in 2015 and 2016 FYs the company is running a risk of being insolvent. The Amcor
current and quick ratios are below the industry ratio of 1.31 and 1.24 respectively (Asx.com.au,
2017).
Profitability Ratios
The ratio measures the ability of a company to generate earnings as compared to its current
expenses for a specified period of time (Clausen, 2009). They include profit margins,
Profit margin ratio= Net income/ Net sales
Year 2016 2015 2014
Profit margin 4.2
/575.7 =0.7%
329.3
1,065.1
/=30%
506.6
/1,082.1
=47%
The profit margin of Amcor Limited ratio shows that the company was able to convert 30% of it
sales to profits in 2015 FY and 47% in 2014 FY. The company was only able to convert 0.7% of
it net sales to profits. The company was able to operate above the industry profit margin ratio of
21.5% for two year in both in 2015 and 2014 FYs and failed in 2016 financial year (Reuters,
2017).

Asset turnover= Sales / Total Assets
Year 2016 2015 2014
Asset turnover
ratio
9,421.3
/8,682.1
=1.09
9,611.8
/8,547.1 =1.12
9,964.5
/9,133.9 =1.09
The Amcor assets turnover is above o.14 the industry asset turnover ratio. This shows that the
company constantly generated more sales with its assets.
Long term Solvency
It measures the firm’s ability to meet debts and other obligations. It shows the company’s cash
flow sufficiency to meet long term and short term liabilities. They include debt to equity ratio
and interest coverage.
Debt Equity ratio=total liability/total equity
Year 2016 2015 2014
Debt Equity ratio 7,836.6
/ 845.5
=9.3 or 3:1
6,960.1
/ 1,587.0
= 4.4 or 1:1
6,994.8
/ 2,139.1
=3.1
The debt to equity ratio of Amcor Company shows that the company was funded by debts three
times to equity funding in 2016 and 2014 financial years. The company was equally funded by
debts and equity in 2015 (50%).
Cash flow Adequacy
The following ration measures sufficiency of cash in a company (Brown, 2011). It includes cash
flow yield, cash flows to sales, cash flow to assets.
Cash flow from operations/ (long term debts+ fixed assets+ cash dividend paid)
Year 2016 2015 2014

Cash flow
adequacy
575.7
/(7,836.6
+ 5,489.0
+ 30.4
)= 30.45
1,065.1
/(3,285.7
+ 697.5 +
5,134.1
)=24.34
1,082.1
/(3,698.8
+ 505.2+ 5,807.4
)= 16.32
From the analysis above, Amcor has a high cash flow. The company has enough cash flow to
undertake all it operations.
Market strength ratio
This ratio is used to determine if the price of shares of the company are over or under priced in
the stock exchange.
Dividend Yield=Annual Dividend /Current stock price
8.5%= 127.8/ 15.77
The Amcor dividend is above the industry dividend yield of 2.07%. This shows that Amcor stock
price is overpriced.
Conclusion
From the analysis in this report, Amcor Limited exists in an industry that is presenting new
opportunities for growth. The company has invested highly to enable continued growth. The
company financial health according to liquidity ratio is at risk. The company also should that the
company performance financially decreased in 2016 financial year. Amcor operations are
majorly funded by debt. However, there is an increase in sales to total assets of the company.
The company profit margin ratio is also above the industry ration indicating that the company is
operating in profitability. Lastly, the company cash flow adequacy is high in Amcor that indicate
high sales in the company. Therefore it can be said that the low liquidity ratios in the company
are as a result of increased investment and the company is not at a risk of getting insolvent. In

conclusion, Amcor Company has a good performance in the industry and has a strong financial
position.
References
Asx.com.au. (2017). Cite a Website - Cite This For Me. [online] Available at:
http://www.asx.com.au/asx/research/listedCompanies.do [Accessed 15 Sep. 2017].
Amcor.com. (2017). Amcor - Investor Relations - financial information and ASX
announcements. [online] Available at: https://www.amcor.com/investor-relations/annual-report-
archive [Accessed 15 Sep. 2017].
Beyer, A., Cohen, D.A., Lys, T.Z. and Walther, B.R., (2010). The financial reporting
environment: Review of the recent literature. Journal of accounting and economics, 50(2),
pp.296-343.
Brown, P., (2011). International Financial Reporting Standards: what are the benefits?.
Accounting and business research, 41(3), pp.269-285.
Chen, H., Tang, Q., Jiang, Y. and Lin, Z., (2010). The role of international financial reporting
standards in accounting quality: Evidence from the European Union. Journal of International
Financial Management & Accounting, 21(3), pp.220-278.
Clausen, J., (2009). Accounting 101–Financial Statement Analysis in Accounting: Liquidity
Ratio Analysis Balance Sheet Assets and Liabilities. Journal of financial statement.
Deegan, C., (2013). Financial accounting theory. McGraw-Hill Education Australia.
Hoitash, and Bedard, J.C., (2009). Corporate governance and internal control over financial
reporting: A comparison of regulatory regimes. The accounting review, 84(3), pp.839-867.
Lantto, A.M. and Sahlström, P., (2009). Impact of International Financial Reporting Standard
adoption on key financial ratios. Accounting & Finance, 49(2), pp.341-361.
Reuters, E. (2017). ${Instrument_CompanyName} ${Instrument_Ric} Financials | Reuters.com.
[online] U.S. Available at: http://www.reuters.com/finance/stocks/financial-highlights/AMC.AX

[Accessed 15 Sep. 2017].Saleem, Q. and Rehman, R.U., 2011. Impacts of liquidity ratios on
profitability. Interdisciplinary Journal of Research in Business, 1(7), pp.95-98.

Appendix