Pact Group Financial Analysis Report

This report provides a detailed financial analysis of Pact Group, an Australian packaging company. It begins with an introduction to the company and its operations, followed by an analysis of the packaging industry in Australia. The core of the report focuses on a comprehensive financial statement analysis, including the calculation and interpretation of various liquidity, profitability, solvency, and market strength ratios. Trend analysis and common-size statements are also utilized to assess the company's performance over time. The report concludes with a summary of findings, recommendations for enhancing Pact Group's performance, and an overall assessment of the company's strength as a performer. The analysis incorporates relevant accounting standards and industry benchmarks for comparison.

Accounting 1
Introduction to Accounting and Finance

Accounting 2
Table of Contents
Introduction......................................................................................................................................3
Analysis of packaging industry.......................................................................................................4
Future plans of Pact group of companies........................................................................................4
Financial Statement Analysis:.........................................................................................................6
Calculate the ratio analysis:...........................................................................................................10
Conclusion:....................................................................................................................................14
References......................................................................................................................................15

Accounting 3
Introduction
Pact group of companies manufactures packaging and other products and sells them in Australia,
New Zealand and Asia. The company changes plastic resin and steel into packaging products.
The products of the company are used in several industries namely food and beverage, personal
care, household consumer, chemicals. Its products are also used in materials handling and
infrastructure. Malcolm Bundey is the Managing Director and Chief Executive Officer of the
company.
Pact’s packaging is for fresh food, chilled meat, frozen food, ready-meals, baked goods, dairy
products, juice and bottled water, among others (Pact Group, 2017). Important things that are to
be kept in mind for packaging is that it should keep the food product fresh and provide it
protection from outside environment that might contaminate it.
In personal care and health products the aesthetics, functionality, convenience and safety are all
very important. Pact provides packaging for oral hygiene products, skin creams, hair products
and pharmaceutical products. The company’s products have latest decoration, patented designs
and world leading medical dispensing systems (Pact Group, 2017). The industrial and chemical
sector has highly varied packaging requirements that demand durability, reliability, safety and
easy transit and storage. Pact provides packaging solutions for agricultural chemicals, surface
coatings, lubricants and other petroleum products ranging from large bulk sizes to very small
handheld packaging. Pact’s materials and handling solutions are focused on the transport and
storage of products using pallets, crates and other containers.
Pact group of companies had net profit after tax of $ 85.1 million for the year ended 30 June
2016 and sales revenue of $ 1381.3 million for the same period. Its profit and revenue has grown
compared to the previous year. Ernst & Young were the auditors of the company. The auditor
gave in their report that financial statements of Pact Group Holdings Ltd were in accordance
with Corporations Act 2001. They gave a true and fair picture of the company’s financial
position as at 30 June 2016 and of its performance for the year ended 30 June 2016.
Further, the financial statements complied with Australian Accounting Standards and
Corporation Regulations 2001. In September 2017 share price of the company was $ 5.230 and
dividend per share was 23.0 cps (InvestSmart, 2017). The ending date of its latest fiscal year was
30 June 2017. The company is based in Richmond, Australia.

Accounting 4
Analysis of packaging industry
The value of packaging in Australia is 10-10.5 billion dollars. About 30000 people are directly
employed in packaging in Australia. Packaging of a product is very important. It determines the
quantity in which food and other items are available. Australian consumers have the lesser spare
time they buy products packaged in different quantities. Pouches have become more popular.
More products like baby food and yoghurt are available in pouches. In case of pet care also
pouches containing dog food are bought as the food in them is wet and fresh.
Australians are becoming more health-conscious due to which they want to control their diet.
This is the reason they want food in different sizes of containers. This is the reason why
companies like Coca-Cola are now introducing containers in smaller sizes (Eliott et al., 2014).
Australians want to buy high-quality premium products. The consumers want smaller and
slimmer glass bottles containing drinks. They want products packaged attractively.
Packaging of different types helps the brand owner in creating an image for its products. The
packaging also has to be convenient, making the use of product easy. In case of packaged food,
there is more demand for plastic pouches rather than cartons (Mordor Intelligence, 2017). The
consumers are also more conscious about sustainability factor. They want to see if the packaging
can be recycled without harming the environment. The companies also are using sustainable
packaging as a marketing tool. More sustainable packaging like plastic made of sugarcane is in
demand.
There are many companies of food packaging like Centropak, Confoil, Linco food systems,
Maxpak Australasia Pty Ltd and Olympus packaging (Ezilon, 2017). There are companies like
Modbec and Synergy Packaging Pty Ltd which pack cosmetics. There are companies like
Packmatic, Panda Packaging Pty Ltd, Walls Machinery Pty Ltd and Davis packaging which
package equipment.
The demand for plastic packaging is increasing despite adverse effect on the environment. There
is pressure from the government due to which biodegradable and sustainable plastic is being
used. Sellers of plastic packaging are Amcor, Rexam, Winpak, Aptar group and other companies.
Future plans of Pact group of companies
Pact group of companies would continue to focus on lowering the group’s overall cost of
production through efficiency program announced in 2015. The company would get growth by
acquiring more business entities. But merger and acquisitions would take place after greater

Accounting 5
evaluation and if there is synergy resulting. The merger should result in business growth and
keep the costs down (Asia Pacific Packaging, 2017).
The group entered on 16 May 2016 into an agreement under which the group will construct, own
and operate crate pooling, washing and storage facilities to service Woolworths. This is a long
term project for the company. Pact believes in growth. It wants to have a diverse customer base
with long term relationships with them. The company wants to continue with its policy of
diversified product portfolio. The company wants to encourage innovation further. It wants to
come out with more innovative products that provide it with a competitive edge.
Pact group of companies wants to provide more sustainable products in future that do not cause
harm to the environment. The company would try to remain ethical in future. The company
would try to continue with good corporate governance.
Financial Statement Analysis
Statement of Financial Performance
Particular 2014 2015 2016
Gross Profit 329.56 367.05 392.83
Income from operation 329.56-20.88=308.68 367.05-2.41=364.64 329.83-9.17= 320.66
Net Income 57.69 67.63 85.05
Interpretation of findings:
On the basis of above table it can be observed that Pact Group Company’s gross profit in 2015 is
367.05 and in 2016 is 329.83 (Pratheepkanth, 2011). It means company has increased its gross
income in 2016, which is beneficial for the company. On the other hand, the company’s
operating income is increased from 2014 (308.68) to 2016 (320.66). It is favourable for the
company. At the same time, the net income of the company has also been increased from 2014
(57.69) to 2016 (85.05). It is more favourable for the company because if the company generates
more income, company’s goodwill will be increased in the market.
Common size financial statements: The common size statement is also known as the vertical
analysis. The common size statement is conveying all point of the financial statement within the
conditions of percentage, which is based on the parameter (Brigham and Houston, 2012). The
basic items of common size are expenditure and income statement based on its factors, which

Accounting 6
obtained while generating revenue and sales. Pact Group Company has recorded its expenses and
income in the financial statement.
Trend analysis technique: Trend analysis is the unchecked practice of information collecting as
well as it is an attempt to pattern the spot. In business, the trend analysis is used for forecasting
the future events (Becker, et al., 2013). It is also mathematical technique, which used the
historical result to forecast the future result. It is also known as the assignment management
control device. It is accomplished with the differences within the scheduled performance or cost.
Company adopts the trend analysis to recognize its future cost.
Accounting policies for preparation the statement:
There are various forms, which signified the accounting policies such as:
Statement of compliance: Consolidate financial report has also fulfilled by the Australian
Accounting Standards (AAS) and IFRS (International Financial Reporting Standards) which
concerned with the IASB.
Interpretations and Accounting standards that have been effective and are concerned:
AASB 2012-3: AASB standards include relevance guidance for the AASB 132. Financial
instruments presentation to address variation, which identifies at the time of applying of few
outside norm of AASB 132 (Cairns, et al., 2011). It involves the descriptive significance of
“presently is a legally enforceable right to set-off” as well as few gross settlement system might
be considered equivalent to net settlement. As the same, the financial statement such as also
affects some standers like AASB 1031, AASB 2014-1, and AASB 2013-9 etc.
Identify trends and items that might be different from the industry norm:
As per the financial performance, the gross profit of the company is growing in 2016. However,
if compare with the industry ratio which is 57.21%, it can be said that it is profitable for the
company. On the other hand, operating income for the company increased from 2014 (308.68) to
2016 (320.66). The industry ratio of the operating income is 9.37% (Sami, et al., 2011). If
compare with industry ratio it has been overlapped for it and it is not good for the company. On
the other hand, the net income of the company is increased from 2015 (67.63) to 2016 (85.05). It
means the company has earned more income as compared with two previous years and it is
profitable for the company.
Statement of Financial Position:
Assets = Liabilities + Stockholders’ Equity

Accounting 7
For 2014
1.21= 898.16 + 307.29
For 2015
1.18= 850.23 + 326.87
For 2016
1.37=1 + 369.19
Common-size statement analysis: A common size balance sheet is known as the balance sheet,
which shows the relative and numeric value for total liabilities, equity accounts and total assets.
It permits the comparative level of all accounts that are rapidly evaluated the liabilities, equity
and assets accounts (Higgins, 2012). It is used in the external and internal forecasters as well as it
has not recorded necessity of GAAP. In company context, the company also used this statement
to analyze its balance sheet values.
Trend analysis: Based on trend analysis it is collecting all the financial information and
attempting to commercial outline. Pact Group Company has collected all the financial
information and it records the trend analysis.
Statement of cash flows:
Compare operating cash flows with the net income for the past years
Particular 2014 2015 2016
Operating Cash Flow 90.84 250.81 160.79
Net Income 57.69 67.63 85.05
On the basis of above table, it can be observed that the operating cash flow of the company has
been increased from 2014 (90.84) to 2016 (160.79). It shows that it is profitable for the company.
On the other hand, net income of the company has been increased in 2016. And it shows that the
company’s profitability ratio has been favourable for the industry.
Is the company expanding through investing activities?
Company uses many standards to make its legal policies and accounting policies to comply with
these standards. Some standards are like AASB 2015-2, AASB 101, IFRS 18 (revenue and
related Interpretations) etc. It is also used to signify accounts such as taxation, Impairment of
non-financial assets and goodwill, net investment etc (Pact Group, 2015).

Accounting 8
Identify the company’s most important source of financing
Bank Loan: Bank loan can be considered as the most important source of finance for the
company. Company can take loans from banks for the purpose of expanding the business. Bank
charges a fixed rate of interest on it (Brauers and Zavadskas, 2011).
Owner capital: Company can issue its share and securities in the market to raise funds.
Overall, has cash increased or decreased over the past years?
As per company’s balance sheet, it can be concluded that cash for the company in 2014 is 25.6
and 2015 is 32.61, as well as 2016, is 51.89. As compared with previous years, company has
increased its cash in 2016, which gives benefit to the company, because company requires cash
for developing its business.
Summaries discuss and report the major points of interest from your analysis
As per this report, it can be analyzed that company has to increase its business as compared with
previous years. Company has to improve its gross profit as compared with industry ratio. The
company also uses the common size statement and trend analysis to record its business
statement. On the other hand, it is also used the different types of AASB standards which help to
the company to make its policies.
Calculate the Ratio Analysis:
Liquidity Ratio
Ratio Formul
a
2014 2015 2016 Indust
ry
ratio
Workin
g
Capital
Current
assets-
Current
liabilitie
s
299.4-247.29 =
52.11
253.21-305.86=
52.65
321.01-352.81= -
31.71
57
Current
Ratio
Current
assets
/current
liabilitie
299.4/247.29
=12.10
253.21/305.86=0.83 321.01-352.81=
0.90
1.09

Accounting 9
s
Receiva
ble
turnove
r
sales /
total
receivab
le
1.14/150.34 =0.007 1.25/93.69 =0.013 1.38/114.6 = 0.012 9.18
Average
days
sales
uncollec
ted
(Averag
e
receivab
le /
sale)
*365
150.34/1.14*365
=48135
93.69/1.25*365=
27357.48
114.6/1.38*365=
30310.86
N/A
Inventor
y
turnove
r
COGS/
Average
Inventor
ies
813.66/115.21=
5.35
882.11/117.49=7.50 988.5/146.63=6.74 4.09
Average
day'
inventor
y on
hand
Inventor
y/ Cost
of sales
* 365
115.21/813.66*365
=51.68
117.49/882.11*365
=48.61
146.63/988.5*365=
54.14
N/A
Profitability Ratio
Ratio Formula 2014 2015 2016 Industry
ratio
Profit margin NP/ sales 57.69/1.14=
50.60
67.63/1.25=
94.58
85.05/1.38=
61.63
5.20%
Assets
Turnover
Net Sales / Total
Assets
1.14/1.21=0
.94
1.25/1.18=1
.05
1.38/1.37=1
.007
0.99
ROA(Du Pont
Equation)
Net Sales / Total
Assets
1.14/1.21=0
.94
1.25/1.18=1
.05
1.38/1.37=1
.007
5.13

Accounting 10
ROE net profit/
shareholder equity
57.69-
0=57.69
67.63-
0=67.63
85.05-
0=85.05
20.08
Long- Term solvency ratio
Ratio Formula 2014 2015 2016 Industr
y ratio
Debt to
equity
long-term debts/
shareholder Funds
589.85/307.0
3=1.92
472.9/326.56
=1.44
561.44/369.1
9=1.52
174.81
Interest
coverage
EBIT / Interest Expenses 98.6/73.19=1
.34
124.76/32.77
= 3.80
136.34/27.28
=4.99
N/A
Cash Flow Adequacy
Ratio Formula 2014 2015 2016 Indust
ry
ratio
Cash
Flow
Yield
Free cash flow per share/
current market per share
N/A N/A N/A N/A
Cash
Flow to
sales
Operating Cash flow/ Net sales 90.84/1.14
= 79.68
250.81/1.25
=200.6
160.79/1.38
= 116.51
N/A
Cash flow
to assets
Cash from operations/ Total
assets
120.4/1.21
=99.50
163.97/1.18
= 138.95
149/1.37=
108.75
N/A
Free cash
flow
Net cash flow from operation-
capital expenditure
N/A
Market strength ratio
Ratio Formula 2014 2015 2016 Industr
y Ratio

Accounting 11
Price Price/ earnings per share N/A N/A 17.0
3
24.27
Earnings
per share
Net income-preference Dividend/ weighted
Average common share outstanding
0.35 0.23 0.29 0.01
Dividend
yield
Annual Dividend / Current Stock Price N/A N/A 4.47 3.58
Company’s trends, strength and weaknesses:
On the basis of above table, it can be concluded that in liquidity ratio, the working capital of the
company has been reduced from 2014 (52.11) to2016 (-31.71). If compare with industry ratio, it
has been declined in both the years. At the same time, it can be analyzed that the current ratio of
the company is 12.10 in 2014 and it is reduced in 2016. The industry ratio of the current ratio is
1.09. If compare with industry ratio of last year ratio, it has gone down, this is not beneficial for
the company (Birks, et al., 2011). The receivable turnover ratio of 2015 is 0.013 and 2016 is
0.012. It shows that the turnover ratio is decreased. At the same, if compare with industry ratio
the receivable turnover ratio is decline within last years. On the other hand, the average day’s
sales uncollected in the year 2015 are 27357.48 days and 2016 is 30310.86 days.
The Inventory turnover of the Pact group in 2014 is 5.35 and 2016 is 6.74. It means that the
company has increased its inventory turnover and it is favourable for the company. The Average
day' inventory on hand of the company has been increased from 2014 (51.68) to 2016 (54.14). It
is beneficial for the company. If overall performance is calculated, sometimes company is
growing in liquidity ratio and sometimes it is decreasing. If liquidity ratio has upper with given
the industry ratio, it means it is the weakness of the company and if the company has grown with
industry ratio it means it is the strength of the company (Abdullahi, 2011).
On the other hand, the profitability ratio of the company has been increased as compared with
the last two years. If compare with industry Ratio, Company has grown with it and it is the
strength of the company. The debt equity ratio of the company has been reducing from 2014 to
2016. If compared with industry ratio the debt equity ratio is declining with it. At the same time,
the interest coverage ratio has also decreased from 2014 to 2016. On the other hand, Cash Flow
Adequacy ratio of the company has been growing in 2016 as compared with last two years. On
the other hand, Market strength ratio of the company has been developed within last two years. If

Accounting 12
company marketing strength ratio is increased in the market, it is the strength of the company.
But at the same, it is the weakness also because if a company develops its market price in the
industry many barriers are entered in the industry.