Amcor Limited: Global Packaging Company In Australia

Overview of Amcor’s Product Line

Background and Business

Amcor is one of the largest global packing companies situated in Australia, as it aims in developing and producing the flexible packaging system used by the organization all around the globe. In addition, the company has been supporting different types of packaging requirement of companies such as flexible packing system, specialty cartons, rigid containers and closures. Moreover, Amcor has been packing for companies such as, pharmaceutical, medical-device, personal care, home care, food, beverages and other products. The company has been operating since 1986, where it become Amcor and increased the level of operations, which could be generated from operations. In the current era the company has a total employee strength of 35,211 people and has been generating a whooping revenue of US$9 billion in sales by conducing operation in 40 countries with 200 different locations (Amcor.com, 2018). The main product line of the organization is packaging, which is an essential part of the product delivery, as it contains the actual product that is being transported to the customers.

Financial statements, Current Financial performance, economic outlook

The financial statement of Amcor indicates the overall progress, which has been made by the organization during the fiscal year of 2017 as compared to 2016. The company’s financial health has improved, which can be seen from the rising net income. In addition, from the evaluation it could also be detected that the overall total assets have improved adequately, which uplifted the financial position of the organization. after evaluation the income statement of the organization, decline in the General and administration expenses can be seen, which was the main reason behind the increment in operating profit of the company. The overall revenues for the company have mainly declined during 2017, as compared to 2016, which led to the decline in its cost of sales and gross profit. The other expense of the company remained same, which mainly helped in increasing the level of operating income from 575.7 million in 2016 to 752.7 million in 2017 (Amcor.com, 2018). This allowed the organization to minimizing their cash outflow during the fiscal year and led to the increment in net profits. The further evaluation of the annual report indicated the increment in total assets, which depicted the financial performance and adherence of the organization to obtain sustainable growth. Hence, the organization was able to improve the level of income and assets for supporting its future growth.

Figure 1: ASX Index

(Source: Au.spindices.com, 2018)

The economic growth of Australia has relevantly increased, where the expectations of the economy has grown by 1 percent, while increasing the the GDP at 3.21 per cent. This relevantly indicates that the economic condition of Australia is relevantly high, which could support the capital market and growth of different organizations. This has mainly helped in improving the level of income, which could be generated by organizations due to the presence of a good economy. The moreover, the S&P/ASX 200 Index is relevantly increasing over the period of 5 years, which could be seen in the above figure, which directly indicates that the organization are conducting adequate business and are making higher return from investment. This is the main reason behind the progress and an increment in the value of capital market index.

Financial Performance of Amcor Limited

Figure 2: GDP of Australia

(Source: Tradingeconomics.com, 2018)

The above figure indicates the overall GDP of Australia, which has been rising over the period of five years. This has mainly helped in indicating the financial progress, which has been made by the Australian economy over the period of time. Hence, the economy condition of Australia is adequate for business, which could help in improving the level of returns from investment. According to the Penman (2015), increment in economic growth leads to higher spending conducted by the citizens and raises the level of their spending, which increases revenue of the organization. The rising GDP and the higher values of index indicate that the current economic outlook for Australia is positive for businesses for both domestic and international organizations.

 Profitability and Market ratios

(see appendix for calculations)	2017	2016	Industry average
Return on assets	6.91%	3.15%	3.13%
Return on equity	70.70%	32.36%	9.36%
Net profit margin	6.75%	2.90%	4.94%
Gross profit margin	21.01%	21.17%	26.29%
Expense ratio/Cost to Income ratio	56%	77%	60%
Cash return on sales	14.12%	13.96%	12%
Earnings per share	$0.511 per share	$0.207 per share	$0.4525
Price earnings ratio	29.22 times	66.28 times	25.3times
Earnings yield	3.42%	1.51%	1.08%
Dividends per share	$0.43	$0.41	$0.40

The above table represent the overall profitability ratio of Amcor Limited from 2016 to 2017, where industry average is used to detect the financial progress of the organization. The full calculations are depicted in the appendix, which could help in detecting the current financial progress made by the organization over the period of two fiscal years. From the evaluation of the above table return of assets of the organization has relevantly increased over the period of two fiscal years from 3.15% in 2016 to 6.91% n 2017. This progress in the financial performance of the organization is due to the increment in net profits, which has been achieved by the company during the fiscal year of 2017. Moreover, the organization has higher return from assets in comparison to industry average, which indicates higher current financial health of the organization. in the same instance the return on equity of the organization has also increased exponentially due to the occurrence of higher profits in 2017 (Czajor & Michalak, 2017). The industry average of Amcor on return on equity is also considered to be higher, as the organization has generated greater returns of 70.70% in comparison to 9.36% industry average.

The calculation of net profit margin and gross profit margin indicates the overall progress, which has been obtained by the company over the period of two fiscal years. The net profit margin has increased 2.90% in 2016 to 6.75% in 2017, while the total revenues has declined. In addition, the gross profit margin of the company has declined from 21.17% in 2016 to 21.01% in 2017, which has eventually depicted the reduction in administrative expenses, which has been achieved by the company during the fiscal year of 2017. The reduction in General and administration expenses of Amcor limited was the main reason behind the decline in total expenses, while boosting the net profits. The measures taken by the organization for controlling the administrative expenses has yield positive results, while the actual revenue and gross profit margin of the company declined (Liang et al., 2016).

The calculation of expense ratio directly indicates the values of operating income and expense, which has been made by the organization over the period of time. In addition, the calculation has relevantly indicated that the expenses ratio of the organization has declined from 77% in 2016 to 56% in 2017. This decline in the expense is due to the reduction in operating expenses, which has been maintained by the organization over the period of time. The net calculation from cash return on sales is relevantly conducted to indicate the higher-level cash return on sales, which is been conducted to the organization (Kanapickiene & Grundiene, 2015). Therefore, the cash return on sales of Amcor has increased from 13.96% in 2016 to 14.12% in 2017, which is due to the increment in net operating cash and declining revenues during the two fiscal years. The expense ratio is in control as per the industry average, while the cash return on sales is relevantly higher, which needs to be controlled by Amcor Limited.

Investment Environment in Australia

The calculation of Earnings per share and price earnings share directly allows the investor to understand the current financial progress made by the organization. The earnings per share of the company has increased from the level of $0.207 to $0.511, which directly reflects on the net profit that has been generated by the company over the period. This increment in the EPS is due to the rising net profits, which has been generated by the company during the fiscal year. In addition, the price earnings ratio of the organization has declined from 66.28 times in 2016 to 29.22 times in 2017, which is due to the rising EPS. This relevantly indicates that the share value of Amcor has an investment opportunity, which could allow the investors to generate higher returns from investment. Both the EPS and Price earning ratio of Amcor Limited is higher than the industry standard, which indicates the financial progress of the organization in comparison to other peers in the market (Combs, Samy & Cengiz, 2017).

The calculation of Earnings yield indicates the financial progress of Amcor, where it is able to achieve higher returns, as its EPS grows on yearly basis. The increment in the values of EPS and share price led to the rising earning yield for Amcor from 1.51% in 2016 to 3.42% in 2017. This rising yield has relevantly allowed the organization to increase the level of dividends per share, which could be seen in the annual report of Amcor. The increment in dividend as the level of $0.41 per share in 2016 to $0.43 in 2017. The values of earnings yield and dividend per share of Amcor is relevantly higher than the industry average, which directly indicates the overall progress, which is being made by the organization in comparison to its peers (Paul & Mitra, 2017).

3.3 Efficiency ratios

(see appendix for calculations)	2017	2016	Industry average
Asset turnover	1.02 times	1.09 times	0.64times
Cash return on assets	0.14 times	0.15 times	0.13 times
Fixed Asset turnover	1.57 times	1.72 times	1.5 times

The above table represents the overall efficiency ratios of Amcor from 2016 to 2017, which has adequately declined over the period of two fiscal years. In addition, the calculation relevantly indicates that total assets turnover the company has declined from the level of 1.09 times in 2016 to 1.02 times in 2017. This relevantly occurred due to the declining revenues obtained by the company during 2017, while the total assets rose to new levels. This move relevantly indicated the decline in asset management conducted by the high officials of Amcor limited. However, the industry average is at the level of 0.64 times, which is lower than the values obtained by Amcor. This relevantly indicates that the company’s overall asset management is adequate in comparisons to its industry standards. However, Rey & Santelli (2017) argued that efficiency ratio does not allows the investor to gauge into the future returns, which the company can achieve.

The calculation of cash return on assets relevantly indicates the decline in value of the company overt the period of two fiscal years. This decline is relevantly indicating the reduction in net cash from operating activities, which has been incurred by the company over the period of two fiscal years. The decline the net cash from operating activities and increment in total assets has mainly led to the decline in cash flow return on assets during 2017. The values of the cash flow from return on assets is higher than the industry average, which indicates the financial progress and stability of Amcor in comparison to its peers (Lakshan & Wijekoon, 2017).

Profitability Ratio Analysis

The valuation of fixed asset turnover ratio has declined adequately from 1.72 times in 2016 to 1.57 times in 2017. This decline in the values is due to the reduction in revenues and increment in fixed assets of Amcor during 2017, as compared to 2016. The company was accumulating higher fixed assets, while the actual return that needs to be generated from the operations decline, which relevantly depicts the low management efficiency of the company to maximize its revenue from investment. The industry average is relevantly lower than Amcor’s current valuation of fixed asset turnover ratio, which portrays its current financial strength. In this context, Shaverdi et al., (2016) stated that investors with the help of efficiency ratios is able to understand the management’s capability to fully utilize the assets available to them and maximize revenues of the organization.

Liquidity ratios

(see appendix for calculations)	2017	2016	Industry average
Current ratio	0.82:1	0.88:1	1.25:1
Quick ratio	0.49:1	0.53:1	0.95:1
Receivables turnover	24 Days	24 Days	106 Days
Average collection period	56 Days	55 Days	50 Days

The liquidity ratio of Amcor is presented in the above table, which as declined from 2016 to 2017. The liquidity ratios of the company such as current ratio, quick ratio, and average collection period has mainly declined over the period of time. The current ratio has reduced from 0.88 in 2016 to 0.82 in 2017, which indicates that the company has not obtained adequate current assets to support its short-term obligations. In addition, the industry average is at the level of 1.25, which is relevantly higher than the current ratios of Amcor. This relevantly indicates the low financial stability of Amcor in obtaining the required level of current assets for supporting its financial obligations. This decline in quick ratio is also witnessed for Amcor from 0.53 in 2016 to 0.49 in 2017, which relevantly depicts the low accumulation of financial progress made by the company. The difference in quick and current ratio directly indicates that high accumulation of inventory, which has been maintained by the organization during the fiscal year. However, the industry average for quick ratio is relevantly at the levels of 0.95, which is lower than Amcor limited and indicts its low financial position.  The receivables turnover for the Amcor is 24 days, which is relevantly higher than the industry average of 106 days. Lastly, the average collection period of the company has mainly increased from 55 days to 56 days, which indicates the higher time frame needed for collecting the credit sales. Gunawardena et al., (2015) stated that with liquidity ratios investor are able to detect financial capability of the organization in supping its short-term obligations.

 Gearing ratios

(see appendix for calculations)	2017	2016	Industry average
Debt to equity ratio	454.23%	452.92%	50%
Debt ratio	44.58%	44.11%	55.58%
Equity ratio	9.81%	9.74%	73.30%
Cash debt coverage	12.82%	14.03%	13%
Interest cover ratio	4.78 times	2.86 times	33.23 Times

The calculations relevantly indicate the gearing ratio of Amcor Limited from 2016 to 2017, which helps in improving the financial strength of the organization. From the evaluation it could be detected that debt to the equity ratio of Amcor has mainly increased from 452.92% in 2016 to 454.23% in 2017, which indicates the high level of debt accumulated by the organization. The debt accumulation is astonishing, as the industry average is relevantly low, where the organization is using only debt to support its operations. Amcor limited has mainly reduced the level of equity accumulation, which has increased its debt during the fiscal year of 2017. The company’s debt to equity ratio is not up-to the mark of industry average, which depicts the reduction in financial condition of the organization. Furthermore, the debt ratio of the company has mainly increased from the level of 44.11% in 2016 to 44.58% in 2017, which depicts the involvement of debt in acquiring the required level of total assets. The debt ratio is relevantly lower than the industry average, which depicts the high financial stability of the company in comparison to its competitors. Equity ratio of Amcor limited has mainly increased from the level of 9.74% in 2016 to 9.81% in 2017, which has increased due to the increment in assets and equity valuation of the organization. Wong & Joshi (2015) stated that with the valuation of gearing ratio investors are able to detect companies having high solvency condition, which could secure their investments in the organization.

The cash debt coverage ratio of Amcor has mainly declined 14.03% in 2016 to 12.82% in 2017, where the actual operating cash of the company has declined during the period. This decline in the valuation is due to the increment in total liabilities, which reduction in cash obtained by the company during the two fiscal years. The company’s value is below the industry average, which directly indicates the low cash accumulation, that has been conducted during the current fiscal year. Lastly, the interest coverage ratio of Amcor is calculated, which has increased exponentially from 2.86 times in 2016 to 4.78 times in 2017. This increasement in interest coverage ratio is due to the high EBIT of Amcor, which has been achieved duding 2017 due to the low administrative expenses. However, the industry average of interest coverage ratio is at the level of 33.23 times, which is relevantly higher than the current valuation of Amcor. This is due to the high debt that has been accumulated by Amcor, which is not allowing the organization to further increase its debt (Giordani et al., 2014).

The evaluation of Amcor’s Financial report indicted the financial progress, which has been obtained by the company during the current fiscal year in comparison to previous year. This progress in profits was obtained from the reduction in administrative expenses, which boosted the net profit during 2017. After evaluating the current trend, it could be depicted that the company will succeed is future, as it is generating higher profits by improving its cost cutting strategy. The profitability and efficiency ratio indicate the financial progress and strength of Amcor limited in supporting its activities. However, there is no likelihood of the company going for a merger, as the operations are adequate and generating higher return from operations. The company needs to minimize the level of debt accumulation, as its overall operations are supported by debt, which is eroding the profits obtained by the company. The current valuation of Amcor did not depict any possibility of insolvency, as the company is maintaining adequate debt levels. From the evaluation it could be detected that the current competitive environment for Amcor is adequate, where maximum of the ratios is above the industry average, which depicts the financial strength of the organization. The continuous increment in competition level from competitors are the major external factors, which needs to be taken into consideration by Amcor for reducing risk from operations. From the evaluation of the annual report, ratios and the current share valuation of Amcor investment in the company is advisable, as the organization’s P/E ratio is low, while the EPS is increasing. This mainly indicates that the investor will generate higher rate of return from investment in Amcor Limited.

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